This presentation includes general introduction to health economics,the concept of market failure in health, health financing including health insurance and major challenges related to healthcare financing in Jordan and some policy directions to face these challenges.

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By Dr Musa T. Ajlouni
Health Economics and Health Care
Financing :Jordan Health Policy
Challenges

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Contents
 Health Economics: Introduction
 Market Failure in Health
 Health Care Financing
 Health Care Financing in Jordan

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What is economics?
 Economics concerns about allocation of scarce
resources among competing demands
 If resources are insufficient to meet all demands,
they are scarce
 All resource uses have an opportunity cost
 Health and health care demands appear to be
infinite
 Resources available for health care are finite

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What is Economics?
 Economics in general is concerned with
making choices between alternative
uses of scarce resources by comparing
the costs and benefits.
 Its primary objective is to assist society
in determining the most efficient
methods for allocating its scarce
resources.

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What is Microeconomics?
 Two broad classifications of economics
– Microeconomics : is a study (branch of social
science) that assist us in better understanding
the operation, function and relationships
among markets, consumers, and producers.
Its primary objective is to assist society in
determining the most efficient methods for
allocating its scarce resources.

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What is Macroeconomics?
– Macroeconomics : is a study (branch of
social science) that assist us in better
understanding the interplay of various
economic sectors, and their effect on the
overall performance of a nation’s
economy.

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What is Health Economics (HE)?
 Efficient allocation of limited resources
among competing alternative
medications and health services.
 Compares the costs and consequences
(outcomes) of medical interventions or
health programs.
 linking investments in health to economic
development. Healthy People: healthy economy

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Discussion Questions
 Health is a fundamental human right.
Can we meet all health needs
irrespective of cost?
 A healthcare organisation has enough
resources to give a 5 year-old child a
potentially life-saving operation or to
provide a 75 year-old woman with a
much-needed hip replacement.
How would you decide which to treat?
What further information might you
need?

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What is the “right” answer?
 Health economics can guide choices among
alternative medications, treatment regimens
and services based on a combination of costs
and outcomes.
 Results and interpretation of Health
economics studies are influenced by the
perspective of the decision maker—there is
no one “right” answer.

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What is Health Economics (HE)?
Inputs
Costs
Health
Care
Outcomes

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Costs
 What is cost?
 How is cost different from price?
 Do we know the cost of health services?

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Costs
 Direct costs: costs to deliver services to
patient; both medical and non-medical
 Indirect costs: cost of treatment to
patient or society
 Intangible costs: quality of life

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Costs can be described in many
ways
 Cost / unit (cost/tab, cost/vial)
 Cost / treatment
 Cost / person
 Cost / person / year
 Cost / case prevented
 Cost / life saved
 Cost / DALY (disability-adjusted life year)

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Outcomes
 Both positive and negative outcomes
should be addressed
 Positive outcomes: drug’s efficacy
measure, cure of disease, disease
prevention,QALY,…….
 Negative outcomes: treatment failure,
nosocomial infection,
malpractice,……….

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Health care costs and Health outcomes
 Initially, as health care
resources increase,
these outcomes
improve,
 but above a certain
level, the slope of the
curve diminishes,
signifying that
increasing investments
in health care yield
more marginal benefits.

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Health care costs and Health outcomes
 A small investment of
resources to create more
sanitary water supplies and to
administer inexpensive
hydration therapy yielded
dramatic improvements in
health.
 On the other hand, Large
investments of resources in
new technologies may
produce more marginal and
difficult - to - measure
improvements in the overall
health of a population.

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Perspective
 Point of view from which the study is
taken(physican,patient,third party payer)
 Determines what will be measured,
what are the costs and benefits, and
how they will be valued
 Guides and limits application of study
results
 What are the possible perspectives in
HE studies?

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Health economic Methods
 Cost-minimization analysis (CMA)
– assumes equal outcomes
 Cost-effectiveness analysis (CEA)
– measures outcomes in natural/physical
units
 Cost-utility analysis (CUA)
– measures outcomes in QALYs
 Cost-benefit analysis (CBA)
– measures both benefits and costs in $$$

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Decision Making
Higher Cost Lower Cost
Higher
Effectiveness ? Yes
Lower
Effectiveness No ?

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 A free market is a market in which
prices of goods and services are
arranged completely by the mutual
consent of sellers and buyers,
determined generally by the law of
supply and demand.
Market Failure
Introduction:

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 Perfect competition:
– perfect information
– many buyers and sellers
– a uniform product
– freedom of entry and exit
Market Failure
Introduction:

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 In theory, markets produce the goods
and services we want in the right
quantities and at the lowest possible
cost. This is why markets are so
powerful. But in the real world markets
do not always work in the way theory
predicts. It is possible for a free market
to produce market fails.
Market Failure
Introduction:

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Market Failure

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Causes of market failure
Source: http://tutor2u.net/economics/revision-notes/as-marketfailure-market-failure.html

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Reasons of market failure in the health
market:
1. The asymmetry of information between
patients and health care providers.
If the health professional is primarily motivated
by the profit motive, the possibility exists for
doctors to exploit patients by advising more
treatment to be purchased than is necessary,
i.e. supply induced demand.
Behaviors are controlled by the government through
a professional code and a system of
licensure.

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The asymmetry of information
You have enough information to estimate
how much benefit you will receive
from the purchase of a CD.

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Reasons of market failure in the health
market:
2. The existence of public goods with
positive externalities
Some important health services, such as mass
immunization, environmental health activities,
health education and promotion, surveillance,
control for communicable diseases at borders,
etc., are not profitable for private providers and
are mainly provided by governments.
Vaccination: not only benefit the vaccinated
person, but also other people will gain because
they are now protected against catching that
disease from that person.

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Reasons of market failure in the health
market:
3. Adverse selection.
 This is practiced by private insurers not
willing to enroll the old, the chronically ill
and some vulnerable groups who are in
greater need of social protection.
 Governments usually intervene to
compensate for the market’s reluctance to
ensure inclusion of the most vulnerable
groups.

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Reasons of market failure in the health
market:
4. Moral hazard.
 Over-consumption of health services occurs
when these services are free at the point of use
to patients, particularly those who are insured.
 Doctors too are affected by moral hazard. They
know that the costs of treatment are covered by
insurance so the temptation is to over-treat and
over-prescribe medicines for their patients.
 Moral hazard escalates the cost of health care
and leads to an inefficiently large quantity of
resources being allocated to health care.
 Such behavior calls for cost-containment
strategies and programs .

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Reasons of market failure in the health
market:

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Reasons of market failure in the
health market:
6. Equity in health care.
 In health care, efficiency is not everything.
We are also concerned with what is fair.If
we had a market distribution of health
care, then only those who could afford to
pay would be able to purchase it.
 This is a major reason why most societies
regard health care as different from other
commodities

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Governments' role and market failure.
1. Supply public goods that are not profitable
for the private provider.
2. Increase health education and promotion
so as to decrease consumer ignorance.
3. Make cost-containment strategies to
combat moral hazard.
4. Compensate for the vulnerable groups by
compensating for insurers adverse
selection.
5. Ensure equity for all.

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Governments’ role and market failure.
6. Prevent supply induced demand by making
regulations to control medical procedures.
7. Activate laws of licensure and re-
certification for health professionals.
8. Ensure efficiency through quality
improvement strategies.
9. Develop pre-payment and insurance
schemes to reduce moral risks and adverse
selection.

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Health financing involves :
collecting revenue
pooling resources
purchasing goods and services
Health Care Financing

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collecting revenue: the way health systems raise
money from households, businesses, and external
sources.
RISK POOL: A defined patient population and
geographic location to which revenue and expenses
are determined.
Purchasing refers to the many arrangements
for buyers of health care services to pay health
care providers and suppliers.

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Health Financing System Models:
National health service (compulsory universal
coverage)
 Social insurance
 Private insurance (employer-based or individual
purchase of private health insurance and private
ownership of health sector inputs )

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National Health Service
 Main revenue type:
General taxes
 Pooling:
National pool
 Purchasing:
National or regional direct
purchase of services
United Kingdom
Canada
New Zealand
Australia
Italy

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Social Health Insurance
 Main revenue type:
Payroll tax
 Pooling:
Pools by job or income
 Purchasing:
Collective and selective contracts
• France
• Germany
• Japan

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Private Health Insurance
 Main revenue type:
Individual & employer payments
 Pooling:
Privately managed pools
 Purchasing:
Selective contracts
United States
Greece
Singapore

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Health Financing in Jordan

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Health Care Global Spending on
Healthcare(2010)
(US$ 6.5 trillion)
of Global Population Live in Developed Countries
16
%
Developing Countries
Share
USA
Developed Countries Share
developed Countries
15%
85%
45%
55%

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Source;WHO,NHA

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Jordan Health Expenditures by Sector,2009
(1610 millions JD)
Public
66%
Private
30%
Donors
4%
Public
Private
Donors
(1610 millions JD)

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Areas of Health Expenditure in Jordan
Management
2%
Human
Resources
Development
1%
Secondary
Health Care
78%
Primary
Health Care
19%

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USA OECD JOR EGY
TUR
9.5
5.8
7.6
9.8
16.2
0
2
4
6
8
10
12
14

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Public Insurance Schemes in Jordan
Public Insurance Schemes
Civil
Insurance
Program
(CIP)
 The monthly premium for civil service employees is 3% of their monthly salaries,
up to a cap of 30 JD
 Features of the CIP include:
– Coverage of dependents, whether the beneficiary is a male or a female
– No limits on coverage
– Comprehensive coverage of all medical services, including dental
– Patients with medical conditions not treatable within the MoH facilities (e.g.,
complicated heart surgery) are transferred to other facilities (e.g., private
sector) free of charge
 Insured individuals have to pay 5% of the price of their medications, with a price
ceiling of JD 10
 Beneficiaries of the MoH health insurance scheme can seek treatment at private
sector hospitals, but need to contribute 10%-30% of treatment fee
Royal
Medical
Services
(RMS)
 Military personnel pay a monthly flat fee ranging from 2-4 JD, depending on their
rank
 RMS facilities services are viewed as best-in-class in Jordan
Source: Jordan National Agenda
(64%)
(55%)

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Health Finance Challenges, Jordan
 A large portion Jordanians remain not
covered by any medical insurance
 Health spending in Jordan is high when
compared to other MENA and middle-income
countries.
 The public sector spends too much on
secondary health care, potentially due to
insufficient primary health care management
and facilities

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 The increasing demands and expectations of
the public for effective and accessible health
care.
 The rapid advances in technology and rising
health care costs.
 Duplication in the delivery of service and
multiple insurance
 High percentage of expenditures on drugs
Health Finance Challenges, Jordan(cont.)

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 The public budget funds most of the cost
incurred by MoH facilities with little contribution
from the insured
18%
13%
69%
Ministry
of
Finance
Donors
Contributions
and User Fees
MoH Budget – By Source of Financing

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The increasingly aging Jordan population is expected
to further strain government budget over the next
decade
Population Breakdown by Age
(In Million)
(2005 / 2020)
2005 2020F
45%
36%
16%
4%
33%
35%
26%
5%
CAGR
(2005-2020)
65+
0-19
20-39
40-64
0%
2%
6%
5%
Government Health Care Expenditure
(In JD Million)
(2004 / 2020)
350
913
2005 2020F
x 2.6
Source: Jordan National Agenda
100% 100%

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Proposed Intervention to Improve Healthcare
Financing and Improve Efficiency
 Fair distribution of funds allocated to primary,
secondary and tertiary health care systems.
 Adopt a unified procurement system.
 Avoid duplication in the delivery of service
and multiple insurance and exemption
through establishing an independent health
insurance commission.
 Coordinate the purchase of medical
equipment (strategic Purchasing).

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Promote partnership with the private sector in
order to save on future capital expenditure
while taking advantage of the private sector’s
low occupancy rates.
Introduce “Certificate of Need” as a mechanism
to contain costs.
Undertaking a comprehensive study to
establish an effective referral system for the
individual public programs as well as across
programs.
Proposed Intervention to Improve Healthcare
Financing and Improve Efficiency (cont.)

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 Proper Health Services Planning and Management
 Institutionalizing Quality Assurance Programs
 Introducing Cost Accounting and Cost Effectiveness
Analysis
 Introduce prospective payment methods, to
reimburse healthcare providers
 Introducing Co-payment Mechanisms
 Rational Use of Drugs
Proposed Intervention to Improve Healthcare
Financing and Improve Efficiency (cont.)

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Thank You