Guest Writer: Mathew Kukla – An Introduction to Health Care Reform
Readers,
Mathew Kukla, a PhD candidate in the field of Health Care Economics, is my guest blogger this week. With an interest in health economics in the U.S. and developing nations (particularly India), Matt provides an overview of how national and international health care systems function.
An Introduction to Health Care Reform
Author: Mathew Kukla
Understanding the workings of health care systems can be overwhelming and complex. In a world of ideological debates and partisan politics, it’s difficult to sift through the garbage and comprehend what works and what doesn’t. As a guest columnist at Public Health Bugle, my goal is to help you become more knowledgeable and think critically about health care, both economically and through international experience. This means using your own ethical framework to determine how equitable, efficient and effective a health system should be and ultimately use this foundation as a guide to health care reform.
A terrific book published by several leading health experts at Harvard University (Getting Health Reform Right: A Guide to Improving Performance and Equity, Roberts et al. (2008)) discusses critical factors that may shape the direction of health care reform. It breaks down the inner workings of health policy into five control knobs, all of which can be turned independently or simultaneously to change a health care system. These include financing, payments, organization, regulation and social behavior.
Financing health systems throughout the developed and developing world often breaks down into four categories: general revenue, self-pay, private insurance and social insurance. Each mechanism shares three primary functions: How will revenue be collected? How should contributions be pooled so as to minimize risk? How are contributions used to purchase health services?
The V.A. hospital system is a sound example of general revenue, such that health care is paid for by the government through general tax revenues, tossed around the pot and spit back out to pay for health care services. As with the U.K. and Canada, there generally exists greater accountability and controlled spending within this system; however, funding fluctuates according to the economy and no specific organization exists to set aside taxes for health care. Administrative costs are also considerably lower, equity is greater, though efficiency is often weaker.
Alternative forms of financing include private health insurance & self-pay and represent the majority of health care financing for Americans. As will be discussed in later posts, economists promote the free market as an arena for efficiency, though strong evidence indicates that markets often fail in the health care sector. In brief, private insurance companies experience excruciatingly high administrative costs (25-35% in the U.S.) due to price negotiations among providers and hospitals. It is generally less equitable for the population, because without regulation insurers can “risk select” by choosing who they do and don’t want to cover. Nations that opt for private insurance must find ways to regulate and manage these markets and plan for high costs. Similarly, roughly 15-25% of all health care spending in developed nations is due to self-pay (cost-sharing) in the form of co-pays, co-insurance or deductibles. Evidence shows that cost-sharing limits a form of market failure called moral hazard; if insurance companies cover all health care costs, patients will over utilize unnecessary health care services.
Social insurance systems are being implemented throughout the developing world and exist heavily in developed societies (ie. France, Germany). The model demands that citizens pay taxes which are set aside by the government specifically for health care – thus the primary difference from general revenue. When individuals pay those taxes in addition to a small, fixed yearly premium to an insurance company, they gain access to health services for free or minimal cost-sharing; additionally, most systems provide more comprehensive health benefits if individuals pay higher taxes. The poorest individuals are often exempt from paying taxes or premiums and will be compensated by other tax payers. Equity in social insurance markets is greater than private health insurance, while efficiency, like all other financing mechanisms, will inevitably depend on policy details of payment, organization and regulatory schemes.
Interestingly, health care systems may contain any number of these financing mechanisms; the United States, for instance, has all four. All methods are unique and can work well in select scenarios to maximize equity, efficiency and effectiveness; the challenge of policymakers is to determine these settings and successfully implement and integrate them.
The following are a few, weekly readings on the subject to peak your interest:
http://www.who.int/health_financing/documents/whr00_ch5_en.pdf
