bismarck meets beveridge joseph kutzin

8/12/2019 Bismarck Meets Beveridge Joseph Kutzin

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550 Bull World Health Organ2009;87:549554 |doi:10.2471/BLT.07.049544

Policy & practice

Universal health financing in Kyrgyzstan Joseph Kutzin et al.

increase in prices made the large infra-structure unsustainable: a large share ofpublic spending on health was devotedto fixed costs, leaving very little to payfor treatment inputs such as medicinesand supplies. In 2000, for example, over

21% of state budget health spending inKyrgyzstan was spent on utility costs.12Tis reflected a health financing systemcharacterized by incentives designed tomeet the needs of the physical infra-structure, rather than the needs of thepopulation.

Provider payment mechanismswere based on input-based norms for-mulated into strict line-item budgetsreflecting historical patterns. Te morebeds that a hospital had, the more staffpositions it was allowed to have and the

greater budget it received. Tere were 18input categories used for budgeting suchas personnel, drugs and utilities. Man-agers could not re-allocate across line-item categories if the need arose and sounspent resources were returned to thegovernment budget. In addition, theformer Soviet Union health (and healthfinancing) system was fragmented, witheach level of government funding andmanaging its own decentralized healthsystem. Excess capacity was particularlymarked in urban centres, where bothcity and provincial (oblast) facilitiesexisted.

Health financing reforms

It was in this challenging context thathealth financing reforms were intro-duced. Late in 1996, the governmentannounced that a law to introduce anew mandatory health insurance fund(MHIF) was to become effective in1997. Tere were fears that this wouldactually worsen an already fragmentedsystem by adding an insured/uninsuredsplit and this led to delays in imple-mentation. Te strategy developed inresponse was called the joint systemsapproach, whereby the MHIF and theoblasthealth departments would use acommon system for information andaccounting. A critically important tech-nical step for the future transition to auniversal system was the establishmentof a single hospital information systemfor all patients regardless of their insur-

ance status. Another important decisionwas made by the management of theMHIF: it was decided that, rather thanattempt to fully fund a comprehensive

insurance package for the insured popu-lation, they would instead simply topup the existing budget flows to publichospitals. Te payment mechanism wasdifferent, however: case-based paymentfor inpatient care and capitation for

primary care.Te MHIF was funded by a 2%payroll tax on employers and smallamounts of transfers from the pensionand unemployment funds. Te payrolltax rate was set at this low level for sev-eral reasons: payroll tax rates for socialcontributions (mostly pensions) werealready very high at 37% of wages;13the countrys population is predomi-nantly rural, working in agriculturebut without regular cash income; andthere is a sizeable informal economy.

Hence, the health insurance contribu-tion was designed as a complementaryrevenue source. Te insured popula-tion included employees, pensionersand those in receipt of social benefits.In total, this was approximately 30%of the population by 1999. In 2000,children aged less than 16 were addedto the insured category, funded by adirect transfer from the central statebudget. Tis brought the insured popu-lation to about 70% in 2000.14In thatyear, about 90% of public spending onhealth came from budgetary sources al-located based on historic patterns and10% from MHIF allocated based oncapitation and case-based payment. Forgeneral hospitals and primary care pro-viders (the provider levels contracted bythe MHIF) only, however, the MHIF

was responsible for about 18% of totalallocations from public sources.15

The Single Payer System

While the MHIF made subst ant ialprogress in developing its informationand payment systems, the previoushealth financing system co-existed

with it, with each level of governmentallocating budgets to its own facilitieson the basis of historical norms. Hence,

while the bit of extra money providedconsiderable relief at the margin forproviders and patients (particularly inthe case of medicines, for which MHIFpayments became the main source offunding), the underlying structural

fragmentation problems of the systemwere not addressed. Tis began tochange in 2001, however, following agovernment decision the previous year

to eliminate the oblast level of severalministries, including health. Faced withthe possibility that the oblast govern-ment administrations would simplydistribute budgets to the providers ineach region, the Minister of Health

advocated instead that the state budgetfor health in each oblast be adminis-tered by the oblastbranch of the MHIF.Tis was agreed, and the Kyrgyz SinglePayer System was initiated in 2001 intwo oblasts. Tis reform reached na-tionwide implementation by 2004 andhas completely transformed the healthfinancing system.

Funding and population coveragearrangements under the Single PayerSystem are shown in Fig. 1 and can besummarized as follows:

Local budget funds (district, cityand oblast) for health care are pooledin the oblast branch of the MHIFon behalf of the entire population ofthe oblast.

Te MHIF purchases a state-guar-anteed benefit package on behalf ofthe entire population of the oblastfrom these budget funds. Te pack-age includes formal co-paymentsfor referral care, with the level ofco-payment linked to a patientsinsurance or exemption status. Te

insured population is entitled toreduced co-payments and an addi-tional outpatient drug benefit.

Universal coverage is funded fromgeneral public revenues with entitle-ment based on citizenship/residence

while a contributory SHI benefitis complementary (rather than analternative) to this.

From both sources of funds, theMHIF pays providers on the basisof outputs (e.g. case-based payment)and needs (e.g. capitation).

Greater autonomy was given to pro-viders with regard to their internalresource allocation decisions (relax-ation of strict line-item budget con-trols).

While out-of-pocket payment be-came explicit with the co-payment,the reform did not involve anychange in the sources of funds.

Te reformed system is an attemptto recapture the universal health caresystem that existed under the former

Soviet Union. Te radical changes in thefiscal context meant that major reform ofthe financing system was needed to ad-dress the underlying efficiency problems


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551Bull World Health Organ2009;87:549554 |doi:10.2471/BLT.07.049544

Policy & practice

Universal health financing in KyrgyzstanJoseph Kutzin et al.

and move towards both formalizationand reduction of the out-of-pocket pay-ment burden.

National pooling of funds

A further reform was introduced in2006: budget funding for health wascentralized and hence the Single PayerSystem became a national pool offunds rather than one organized at thelevel of each oblast. Pooling of funds atthe central level allowed the MHIF toinitiate the process of equalizing allo-cations for the state guaranteed benefitpackage by oblast. Te governmentused incremental funds to increasefunding in previously underfundedareas, rather than to redistribute directly

from the better-off regions, in order toavoid losing political support from thebetter-off regions. Tis became possibleas funding trends began to reverse witha strong government commitment toincrease health expenditures, reflectedin a rise from 2.3% of GDP in 2004 to3.4% in 2007. In 2007, 84% of publicfunds for the health sstem came fromthe government budget and 16% frompayroll tax. Te impact of centralizedpooling was immediate. Te fundinggap between the capital city of Bishkek

and other oblasts reduced in all casesexcept one. In addition, key findingsfrom a 2007 household survey analysisare that financial barriers to care havesteadily reduced since 2001 and 2004,and out-of-pocket costs have declined,particularly for the two poorest quintiles.Equity in both utilization and financinghas improved. In addition, the share ofpatients making informal payments wassignificantly reduced for all categories ofpatient expenditures.16,17A decade afterthe introduction of the MHIF, consis-

tency in implementation and a consciouseffort to address the financing systemfor the entire population have yieldedclear gains in the efficiency, equity andtransparency of the health system.

Reform impact

Te Single Payer System addressedmany of the underlying problems inthe health system. Te pooling of bud-get funds at oblastlevel and later at thenational level gradually reduced frag-

mentation in the system and created anenabling environment for restructuringand re-allocation of resources accordingto needs rather than infrastructure. Te

break with norm-based budget alloca-tion reduced the persistence of facilitymanagers to hold onto infrastructureand the introduction of case-based pay-ment at the hospital level shifted theincentives so that providers becameinterested in increasing productivityand reducing fixed costs. In the firstyear of implementation, the number ofhospital buildings in the two reformingregions was reduced by more than 30%and the share of revenues devoted topatient treatment inputs (drugs, sup-

plies, food) in hospitals doubled.12

Budgeting challenges

Changing the payment mechanismswas challenging. Although resource al-location within the health sector acrossfacilities was now based on the numberof cases, oblast finance departmentscontinued to set budgets based on his-torical norms, often interpreting a re-duction in infrastructure as a reductionin need. Initially, this led to a reduc-

tion in the health budget of reformingoblasts, requiring political interventionsto overcome the resistance of budgetdepartments to redefine their interpre-

tation of need. In addition, the muchslower pace of overall public financereform created a conflict between thenew provider payment mechanisms andthe old-style public reporting processes

which remained based on line-items.Tis overall budgeting and report-ing system threatened the efficiencyenhancing incentives and limited theextent of the (still quite substantial)gains from these. Tis issue is only nowbeing resolved with a shift in the overallbudgeting process for the health sectorfrom an input to an output basis (i.e.the wider public sector financial man-agement system is now catching up

with the provider payment reforms).Extensive quantitative12,18,19 and

qualitative20 research shows that thereforms also were largely successfulin replacing informal payments withformal co-payments and reducing pa-tient financial burden, particularly formedicines and medical supplies, despitethe fact that the total level of public

spending on health did not increasevery much during the period whenthe Single Payer System was extendednationwide. Tere remains a long way

Fig. 1. Funding and coverage of benefits in the Kyrgyz Single Payer System, 20012005

MHIF, mandatory health insurance fund.

Budget local governments allocate funds for health care to the oblast MHIF,

effectively buying coverage for the basic package for their entire populations

Payroll tax transfers from social fund, and central budget transfers for children under 16s

Private, out-of-pocket

Private

Services contracted by MHIF

Basic benefit package: free primary care

from enrolled provider, referral care with co-payment

Funding source

Uncovered services (non-contracted)

Co-payment

Fullyexempt

Partiallyexempt

UninsuredComplementary benefits: reduced

co-payment, outpatient drugs

Population coverage (breadth)0% 100%

S

ervice

coverage

(depth)


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to go, however, as available publicfinancing still leaves a substantial levelof private cost-sharing for the package.Further improvement in financial pro-tection remains an ongoing challengefor health financing reforms.

Factors for successful reform

Several factors explain why Kyrgyzstanhas implemented such far-reachingreforms although its pre-reform healthsystem did not differ significantly fromthat of other countries in the formerSoviet Union. First, the fiscal imperativeto reform and squeeze internal resources

was great, with real public expenditureson health reduced by half between 1991and 1998. In countries where the fiscal

contraction was less severe or wherethere were realistic opportunities foreventual substantial economic growthdriven by raw material exports (e.g.Kazkakhstan, the Russian Federationand Uzbekistan), governments couldafford delaying efficiency enhancing re-forms for a longer time. Second, manyelements thought to be important forsuccessful reform implementation werein place for much of the ten-year reformperiod. Despite occasional wavering,

Rsum

Quand Bismarck rencontre Beveridge sur la Route de la soie : coordination des sources de financement pourcrer un systme universel de financement de la sant au Kyrgyzstan

Les options pour rformer le financement de la sant sontsouvent prsentes comme un choix faire entre une taxationgnrale (modle beveridgien) et un systme dassurance santde type social (modle bismarckien). Les dix annes de rformedu financement de la sant au Kyrgyzstan depuis lintroductiondu fonds dassurance sant obligatoire en 1997 illustrent laperfection les raisons pour lesquelles il est erron de rduirela politique de financement de la sant un choix entre un modle

beveridgien et un modle bismarckien. Plutt que de fragmenterle systme en fonction du statut en tant quassur de la population,comme lont fait de nombreux autres pays revenu faible ou moyen,les rformes menes au Kyrgyzstan ont t guides par lobjectifdinstaurer un systme dassurance unique pour lensemble dela population. Parmi les volets principaux de ces rformes figurentle rle et le dveloppement graduel du fonds dassurance santobligatoire en tant quacheteur unique des services de sant pour

toute la population laide dune mthode de paiement reposantsur les rsultats, la restructuration complte du dispositif deregroupement des risques pour passer de lancienne structurebudgtaire dcentralise un pool national unique et la mise enplace dun ensemble clair de prestations. Au centre de ce processus,on trouve la transformation du rle des recettes budgtairesgnrales - principale source de financement public pour lasant -, qui au lieu de subventionner directement la fourniture de

services, subventionnent maintenant lachat de services au nomde la population dans son ensemble, en redirigeant ces dpensesvers le fonds dassurance sant. A travers cette approche dufinancement de la sant et notamment grce au regroupementdes risques, les rformateurs du Kyrgyzstan ont dmontr quiltait possible dutiliser des sources de financement diffrentesde manire explicitement complmentaire pour crer un systmeuniversel et unifi.

there was high-level political atten-tion and support for the chosen pathof health financing reform. Tere hasbeen good and continuous leadershipin the health sector pushing forwardthe reform agenda and forging political

support. Extensive capacity buildinghas led to the development of qualifiedmid-level staff in the Ministry of Healthand MHIF ensuring sustainability ofthe reforms. Te institutional featuresof the MHIF have also been importantto make the system work efficiently andin a transparent manner: the MHIF

was given sufficient time (four years)to develop, mature, build capacity andlearn-by-doing before the initiation ofthe single payer reform in 2001. Finally,development partners have worked in

a coordinated manner supporting thegovernments health sector strategy.

Conclusion

Te Kyrgyz reforms provide an excellentexample of why health financing policyshould not be reduced to a simplisticchoice between the Beveridge and Bis-marck models. In a low-income setting

where much of the population is notemployed in the formal sector, payroll

taxes will not be a major source offunds. However, it is possible to createa universal health financing system bytransforming the role of budget fundingfrom directly subsidizing provision tosubsidizing the purchase of services on

behalf of the entire population. In otherwords, universality was designed intothe system from the beginning ratherthan hoping that insurance coverage

would simply expand over time. Even incontexts where there are severe limita-tions on the choice of sources of funds,reforms that reduce fragmentation inpooling, shift from input- to output-based payment methods, specify benefitentitlements more transparently anddevelop capacity in a purchasing agencycan lead to improvements in health

system performance. By approachinghealth financing policy from a func-tional perspective, the Kyrgyz healthreformers have demonstrated that itis not necessary to choose betweenBeveridge and Bismarck; well-definedpolicy can enable their complemen-tary co-existence in a unified, universalhealth system.

Competing interests:None declared.


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553Bull World Health Organ2009;87:549554 |doi:10.2471/BLT.07.049544

Policy & practice

Universal health financing in KyrgyzstanJoseph Kutzin et al.

Resumen

Bismarck y Beveridge en la Ruta de la Seda: coordinacin de las fuentes de financiacin de un sistema decobertura sanitaria universal en Kirguistn

Las opciones de reforma de la financiacin de la salud se resumena menudo como un dilema entre los sistemas basados en los

impuestos generales (el llamado modelo Beveridge) y el segurosocial de enfermedad (conocido como modelo Bismarck). Laexperiencia de diez aos de reforma de la financiacin sanitariaque ha acumulado Kirguistn desde que se implant el fondo delseguro obligatorio de enfermedad en 1997 brinda un ejemploexcelente para demostrar que la reduccin del problema dela financiacin de la salud a la mera eleccin entre el modeloBeveridge y el modelo Bismarck constituye un error. En lugar defragmentar el sistema considerando la poblacin asegurada y lano asegurada, como han hecho muchos otros pases de ingresosbajos y medios, las reformas llevadas a cabo en Kirguistn seguiaron por el objetivo de implantar un solo sistema para toda lapoblacin. Entre las iniciativas ms importantes de esas reformas

cabe citar la funcin y el desarrollo gradual del fondo de seguromdico obligatorio como el nico comprador de servicios de

atencin sanitaria para toda la poblacin, usando mtodos de pagobasados en los resultados; la plena reestructuracin de los arreglos

de mancomunacin de los recursos, pasando de la antigua estructurapresupuestaria descentralizada a un solo fondo comn nacional; yel establecimiento de un paquete de prestaciones bien delimitado.Un aspecto fundamental del proceso fue la transformacin de lafuncin de los ingresos generales del presupuesto, principal fuentede financiacin pblica de la salud, que pasaron de subvencionardirectamente el suministro de servicios a subvencionar la comprade servicios en nombre de toda la poblacin a travs del fondo delseguro de enfermedad. Replantendose de ese modo su polticade financiacin de la salud, en particular la mancomunacin derecursos, los reformadores del sistema de salud de Kirguistn handemostrado que es posible crear un sistema unificado y universalusando fondos de distinta procedencia de forma claramente

complementaria.

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bismarck meets beveridge joseph kutzin

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