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Health Financing:
Towards Universal Coverage
Dr Bernarda Zamora
Professional Certificate in Strategic Health Planning
International Centre for Parliamentary Studies
7 November 2018

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Outline
• Factors contributing to the escalation of health
costs
• Demand-side factors
• Supply-side factors
• Cost containment strategies
• Sources of funding for the health system
• International context
• UHC within SDGs
• Actions

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Factors contributing to the escalation of
health costs
Drivers of the explanation of the cross-country differences of public
health expenditures
• Large share of these differences (around 71%) can be
explained by demographic and economic factors, notably real
income.
• The policy and institutional variables explain most of the
remaining differences (23%).
• In some cases, a substantial part of the difference remains
unexplained. This is the case of Korea, Slovak Republic and
New Zealand where this residual is above 40%.
de la Maisonneuve, C. et al. (2016), “The drivers of public health spending: Integrating policies and
institutions”, OECD Economics Department Working Papers, No. 1283, OECD Publishing, Paris.

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Demand-side factors: Ageing
Age-related expenditure profiles 2018 Ageing Report EC
• The Demographic Dividend: Success in East-Asia, Potential in
Sub-Saharan Africa
• The old age dependency ratio in EU is projected to increase
from 29.6 % in 2016 to 51.2 % in 2070

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Demand-side factors: Health Status
• To achieve savings from living longer - dying at an older
age and being healthy for much of a lifetime - the per
capita costs of health care at very old ages have to be
lower than in childhood, youth or working ages.
• HCE (hospital expenditure in the UK) is principally
determined by proximity to death rather than age, and
proximity to death is itself a proxy for morbidity (Howdon
and Rice, JHE, 2018)
• The economic burden of chronic conditions
(cardiovascular diseases, cancer, chronic respiratory
diseases, diabetes, and mental health conditions) over
the period 2010-2030: $7.7 trillion for China (measured
in real USD with the base year 2010), $3.5 trillion for
Japan, and $1 trillion for South Korea. (Bloom et al., The
Journal of the Economics of Ageing, 2018),

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Demand-side factors: Ageing and
Health Status

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Demand-side factors: Ageing and
Health Status
Change in
healthy life expectancy
at birth, 1990–2010
Above: Males
Below: Females
Salomon et al. Lancet, 2012

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Demand-side factors: Income
• Income elasticity of health care demand
• Is health an individual necessity and a national luxury?
• Estimates elasticity total public health expenditure: a 1%
increase in GDP per head associated to following increase in HE
per head:
• Zamora (2013) finds that country-specific effects explain all the
income effect for hospital spending but not for total and public
health spending.
2018 Ageing Report EC 1 to 1.1
OECD 2016 0.92 to 1.34
Acemoglu et al. 2013 0.72 with upper bound 1.13
Feng et al. 2017 1.1

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Supply-side factors: medical technology,
institutions, human and physical capital

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Cost containment strategies
Reforms in Advanced
Countries: A Typology
• Macro-level controls
- Budget caps
- Supply constraints
- Price controls
• Micro-level reforms
- Public management
and coordination
- Contracting
- Market mechanisms
• Demand-side reforms
- Patient cost sharing
- Tax treatment of
private health insurance

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Cost containment strategies
Budget caps and central oversight have been effective
in reducing spending growth
Drawbacks:
• limit access to health care, as evidenced by growing waiting times for
elective surgery in Canada, Sweden, and the United Kingdom during
the period of expenditure consolidation.
• budget caps alone are unlikely to incentivise greater efficiency, as
they are most often based on historical costs.
• budget constraints that are applied partially (e.g., only to inpatient
care spending) can lead to expenditure increases in areas that are not
controlled.

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Cost containment strategies
Supply and price controls appear to have only modest
effects on the growth of public health spending
• Restrictions on supply were used in
• Canada (hospital closures, mergers, and reduction in the number of beds)
• Finland (reduction in the number of hospital beds)
• Germany (delisting ineffective treatments and positive drug lists)
• Italy (positive list for pharmaceuticals)
• Netherlands (delisting certain treatments)
• Price controls were implemented mainly in those countries where the
public sector contracts with the private sector to provide services
• Canada (regulated fees for physicians)
• Germany and the Netherlands (both reference pricing for pharmaceuticals).
• Cost-effectiveness evaluations to control supply

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Cost containment strategies
Greater involvement of sub-national governments in
key health care decisions can reduce expenditure
growth if central oversight is maintained
• Decentralised health systems that score high on central government
oversight (Canada, Sweden) have lower supply-side cost growth than
those with relatively weak oversight (Spain).
There is evidence in favor of some contracting reforms
that improve incentives to provide cost-effective care
• Managed care, requiring pre-authorization for services (a type of
gatekeeping), and selective contracting with providers (the U.S.).
• Payment methods have shifted from traditional fee-for-service
methods to case-based payments such as DRGs in Finland, Germany,
Italy, and the United Kingdom.
• Finland and Sweden introduced forward-looking budgets which
constrain spending by providing a hard budget constraint based on
projected demand and average cost per patient or case.

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Cost containment strategies
Market mechanisms can also slow the growth of
health expenditures
• Purchaser-provider split (Italy, Sweden, and the United Kingdom)
• Competition among hospitals (the United Kingdom and Sweden)
• Sweden also introduced charges for municipalities that were not ready
to receive discharged hospital patients (e.g., if a nursing home was not
available) and this has been effective in reducing the number of long-
term care patients treated in hospitals, as opposed to nursing homes.
Demand side reforms can also help curtail spending
growth
• Extending the use of supplementary and complementary private
insurance has a dampening effect on supply-side cost growth
• Increase in cost-sharing slowed the growth of health spending to GDP
for about a year, but with subsequent increases

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Sources of funding for the health
system
• Key Questions to Assess Alternative Government
Revenue Sources for Health
(Cashin, C. Health Financing Policy, World Bank 2016)
• Which new revenue sources could generate additional funds for
the health sector in the most efficient and equitable manner
and create the least macroeconomic and fiscal distortion?
• Which new revenue sources would be acceptable within current
macroeconomic and fiscal policy?
• Which of these potential revenue sources are administratively
and politically feasible?
• Which new revenue sources could generate additional funds
without simply offsetting existing government health spending?
• What is the relationship between these sources of funds and the
other health financing functions of pooling and purchasing?

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Sources of funding for the health
system
• Most countries rely on some combination of
general tax revenues at the national and local
government levels, earmarked revenues, and
private contributions toward the cost of health
care.
• In general, there is a trend toward greater
diversification of revenue sources and some
evidence of a shift toward general tax revenue
and away from payroll tax financing

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Sources of funding for the health
system
• An expansion of benefits financed by taxes, rather than social
insurance, should be the first option for most countries seeking to
expand coverage where labor market informality is high.
• Social insurance systems can help contain spending by limiting
benefits to contributors. However, if the goal is to expand coverage
and labor market informality is high—as it is in many emerging
economies—tax-financed provision of universal basic health care
(such as in Thailand) may be the best starting point.
• For countries where labor market informality is limited and revenue
administration is of high quality, expansion of social insurance-
based systems could be considered.
• The experience of Chile suggests that sustainable financing flows
can be achieved through a combination of mandatory contributions
in the formal labor market, individual cost-sharing through
copayments, and supplementary budget financing (especially where
subsidization is necessary and in the public interest).

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Sources of funding for the health
system: Earmarked tax and revenue
• High-income countries such as France and Japan, for
example, are seeking to reduce overreliance on
earmarked payroll taxes, which not only have led to labor
market distortions, but also no longer generate enough
revenue given their aging.
• Earmarking a portion of broad-based taxes, such as the
VAT as is done in Ghana and Chile, avoids the labor
market distortion but may still introduce allocative
inefficiency by adding to rigidities in the budget.
• Indonesian context—energy subsidy reduction and
sustainable development. Using subsidy reduction to
partially finance universal health coverage is a more
efficient compensation mechanism than Conditional Cash
Transfers. (Ahmad, E. Financing the SDGs, Incentives and Multilevel Governance: South-
South examples and lessons for Indonesia. IMF-JICA High Level Forum, Tokyo, February 2017.)

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Sources of funding for the health system:
Innovative Domestic Financing
Source: Cashin, World Bank 2015

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Sources of funding for the health
system: Administration costs

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International context: SDGs
• In 2015, WHO estimated that the
minimum investment required in the
health sector for countries to attain the
SDGs by 2030 is USD 55 billion per year.
• Of this annual amount, according to the
The Taskforce on Innovative
International Financing for Health
Systems, between two thirds and three
quarters— USD 40 billion—must be
spent on Health system strengthening
(HSS) efforts.

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International context: actions
• Framework on integrated people-centred
health services
http://www.who.int/servicedeliverysafety/areas/people-centred-care/en/
• High-Level Commission on Health
Employment and Economic Growth
http://www.who.int/hrh/com-heeg/en/
• EU-Luxembourg-WHO UHC partnership
https://uhcpartnership.net/
• Health Data Collaborative
https://www.healthdatacollaborative.org/

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To enquire about additional information and analyses, please contact
Bernarda Zamora (bzamora@ohe.org)
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