FINANCING HEALTHCARE: An Introduction

Joko MulyantoDepartment of Public Health & Community Medicine

Jenderal Soedirman School of Medicine

OUTLINEBackgroundPurpose of Healthcare FinanceFunctions of Healthcare FinanceAlternative for Healthcare FinanceTheoretical Basis of Government

Intervention.Methods of Healthcare FinanceHealth InsuranceProvider Payment System

BACKGROUND Health is basic need for every people

irrespective their background. Healthcare is needed to maintain

health status of the people. The way to provide adequate

healthcare is by develop a “ Health System “

Two most important components of Health System are:- Healthcare delivery system- Healthcare financing system

SIGNIFICANCE of HEALTHCARE FINANCING

SYSTEMHealthcare is costlyDemands of healthcare tend to

increase (unlimited)Scarcity of resourcesThe trade-off between efficiency

and equity

PURPOSE OF HEALTHCARE FINANCING

Make funding available Set the right financial incentives

for providersEnsure all individuals have access

to effective public health and personal health care

FUNCTIONS of HEALTHCARE FINANCING

Revenue collectionPooling resources Purchasing of interventions

ALTERNATIVE TO FINANCE HEALTHCARE

DELIVERY / PROVISION

FINANCE

Public

Public

Private

Private

1 2

3 4

PUBLIC or PRIVATEPublic : Government intervention /

rolePrivate : Market competition

ECONOMIC CHARACTERISTICS OF HEALTHCARE MARKET

Market failure; WHY ?Uncertainty and demands of

insuranceDiseconomies of small scaleMoral HazardAdverse selectionAsymmetric information LicensureExternalities

CONSEQUENCES OF MARKET FAILURE

The need of government intervention

The extent of government intervention depends on social and ideological consideration.

The characteristics of national health system will be heavily influenced by type of government intervention.

METHODS TO FINANCE HEALTHCARE

General / Direct taxationPublic / Social Health InsurancePrivate Health InsuranceOut of PocketMiscellaneous, such as HMO,

Medical Saving Account

GENERAL TAXATION Most equitable Progressive Public monopoly No market competition Resources: General tax, earmark tax Effective collection method No adverse selection Good control Generally without cost sharing

SOCIAL HEALTH INSURANCE

Run by government body or quasi governmental.

Resources: Payroll / income related tax

Percentage of incomeSharing contributions among

employer, employee, governmentLess progressiveNo adverse selectionMonopoly power (single payer)

Private Health InsuranceClassic oligopolyRisk adjusted / experience ratingCream skimmingAdverse selectionMoral hazardFee for service reimbursement

OUT OF POCKETMost regressiveResources: Directly from patients,

in cash. InequitableCommonly found in Less

Developed Country

Health Maintenance Organization

One of Managed Care formsPart of PHI Integration between delivery and

financing systemCapitation Method / PMPM

Medical Saving Account Individual saving account obliged

by governmentNo pooling Percentage of Income

THANK YOU djokomoeljanto©2008