Financing In Health Care

C. S. Serrano-Tinio, M.D.
At the end of the session the student will be able to:
• Define health care financing
• Differentiate the various methods of health
care financing
• Discuss the concepts in health care
financing
• Define Managed care
• Differentiate the modes of payment in the
health system
• Discuss the programs of the Philippine
Health Insurance Corporation
 Budget by Sector 2008
1.227 trillion
Allocated Budget %
Educ 145,000,000,000.00 11.82
PWH 93,500,000,000.00 7.62
ND 56,000,000,000.00 4.56
ILG 52,500,000,000.00 4.28
Agriculture 21,700,000,000.00 1.77
DOST 5,522,000,000.00 0.45
Health 2,715,000,000.00 0.22
PSC 220,000,000.00 0.02

COMELEC 2,063,000,000.00 0.17

 National Budget
• Of the P1.227 trillion (22% increase)
compared to the 2007 budget; 2008,
only .22% is allocated to health.
• Translated: every Filipino is allocated
P31 for the entire year or about P.08 per
day (lower compared to previous years)
 Heal th F inan ci ng D ata
Health budget as a proportion of 1.1% (2005)
national budget

Health expenditures as a 3.1% (2002)

proportion of GDP

Proportion of population covered 60% (2003)

by national health insurance

Proportion of national health 9% (2002)

insurance expenditure to total
health expenditure
 Key Sources of Funds
• Sources of in Billion Percent
• Funds pesos

• Out-of-Pocket 59.8 44.0%

• Local Government 23.8 17.5%
• National Government 22.7 16.7%
• Social Health Insurance 12.9 9.5%
• Others 16.7 12.0%
------ -------
• Total 135.9 100%

• Source: Dept. of Health, NOH, 2005-2010,

 Limited or scarcity of resources

Rising medical costs

Increasing
medical needs

Need for an adequate health

financing mechanism

Universal coverage Equity in health care

 Health care financing
• Major focus of health economics
• Important in analyzing health
policies, sources of funds and
effectiveness of health services
delivered to the population
 Heal th Car e Fina nc ing
• Mechanisms for paying and funding for
health care expenditures
• Mobilization of funds for health care
• Allocation of funds to the regions and
population groups and for specific types
of health care
Why focus on health financing?
• Contain the cost of health care
• Maintain health spending
• Achieve “health for all initiative”
The goal of health financing
• to ensure adequate spending on
health (relative to income at national,
local government and household
levels) and effective allocation of
financial resources to different types
of public and personal health
services.
 Concepts in Health Care Financing
• Risk spreading – spread risk over time so
that households can plan for health care
expenditure
• Risk pooling – The practice of bringing several
risks together for insurance purposes in order to
balance the consequences of the realization of
each individual risk.
- those with low health needs can subsidize
those with high health needs (cross subsidy)
Basis for the Concepts in Health Care Financing

• connection between ill-health and

poverty – to ensure that the poor
have access to health systems
• Fundamental importance of health –
health is a basic need
 HEALTH INSURANCE
FUNDAMENTAL CONCEPT

• POOLING OF RISKS AND RESOURCES

• CROSS – SUBSIDISATION

SOCIAL SOLIDARITY
(Social cohesion based upon the likeness and
similarities among individuals in a society)
Health service financing source
• Private expenditure
 voluntary payments by individuals or
employers
• Public expenditure
 central and local gov’t funds spent by
state-owned enterprises and gov’t and
social insurance contributions
• External aid
 from bilateral aid programme or int’l
NGOs
Mechanisms of Health Financing
• General revenue of earmarked taxes
• Social insurance contributions
• Private insurance premiums
• Community financing
• Direct out-of-pocket payments
Characteristics of Health Care Financing Mechanisms
• Distributes the financial burdens and
benefits differently
• Each method affects who will have
access to health care
• Financial protection
General Revenue or ear-marked taxes
• Most traditional way of financing
health care
• Finance a major portion of the health
care
 Universal tax-based system

• consumers do not bear the direct

costs of services
General taxation
Features:
- the whole population is included in the risk
pool
- Contributions are based on some measure of
income or wealth or expenditure (taxes on
income, purchases, property, capital gains)
- Contributions are not ear-marked for health
but go into a general pot
 Universal tax-based system
Payroll tax
Features:
- Funds raised are specific to the health
sector, rather than being subject to the
annual bargaining round with the
Treasury
 Social Insurance
• Compulsory
• Payroll-based contributions
• Everyone in the eligible group must
enroll and pay a specific premium
contribution in exchange for a set of
benefits

o Premiums & benefits – established through

legislation; can be altered only through a
formal political process
 Private Insurance
• Private contract offered by an insurer to
exchange a set of benefits for a payment of a
specified premium
• Marketed by either by non-profit of for-profit
insurance companies
• Consumers voluntarily choose to purchase an
insurance package that best matches their
preference
• Offered on individual and group basis; individual
insurance – premium depends on the individual’s
risk characteristics; group insurance – risk is
pooled across age, gender and health status
individual risk rating – high risk individuals will
be charged more to join than low risk individuals
Community-based financing
• Principles:
• Community cooperation
• Local self-reliance
• Pre-payment
Community-based financing
• Factors for success:
• Technical strength and institutional
capacity of the local group
• Financial control
• Control of health services
• Support from outside organizations and
individuals
• Diversity of funding
• Responding to other non-health dev’t
needs of the community
 Employer-based schemes
• Offered by private sector companies
through their own employer-
managed facilities
• Workers buy health insurance
through their employers taking
insurance in lieu of wages
 Community-based scheme
• Primarily for informal sector
• Tends to cover all insured memebrs
of the community for all available
services but have emphasis on
primary health care
• Financed from patient collections,
gov’t grant, donations and such
miscellaneous items such as interest
earnings or employment schemes
 Direct out-of-pocket
• Made by patients or their relatives to
private providers at the time the
service is rendered
 Direct payments by patients

• patients bear the costs of ill-health

3. User payments – direct, out-of-pocket payments

4. Savings-based – characterized by risk-
spreading but not risk-pooling; patients are
assisted in setting money aside to cover health
costs
5. Informal payments – payments not officially
authorized or recognized; e.g. gifts for MDs
 Donor funding
• money is given to fund the health
needs of others
• the recipient has little control over
the amount of funding and how it can
be used.
Methods for providing health care benefits

• 1. Patient has access to services without

paying the provider

• 2. Patient pays for the services and gets a

refund
 HEA LTH INSUR ANCE BENEFI TS
• TWO GROUPS:

CASH PAYMENTS

HEALTH CARE SERVICES

 CASH BENEFITS
• ALLOWANCES OR COMPENSATION FOR
THE LOSS OF INCOME OR EXPENSES OF
A PATIENT.
1. Sickness allowance – payment for fixed % of the
insured’s daily wage for a limited period as payment
for loss of income due to illness
2. Maternity allowance – payment for loss of income
during maternity leave
3. Funeral grant – payment of a lump sum to cover
funeral expenses to legal survivor
 Health Care Benefits
1. Medical care benefits
- hospital in-patient care
- general practitioner services in the community
- physician specialist services
- medications
- ancillary services
- vision tests and spectacles
- prostheses and appliances
2. Dental care
- basic dental maintenance
- reconstructive dental care
 Benefit Characteristics
• Equity
• Accessibility
• Availability
• Efficient
• Responsive
• Cost-effective
• Universal Coverage
 Managed Care

• Medical plans in which access to

health-care services is managed to
hold down unnecessary cost
• Care provided through a primary
care or preferred provider
responsible for managing health.
 MANAGED
CARE
• to reform the traditional or fee for
service method of care
• simple management of resources
for the purchase of certain medical
service
• associated with the effective and
efficient management of limited
resources to purchase more
medical services
 Characteristics

• actively supervises the financing of medical care

delivered to members
• actively manages the “delivery system”
• primary care MD the center of care
• limits medical services to control cost
Health Maintenance Organizations
• Case is managed by provider with
incentives to control care
 Provider payment systems
• 1. Fee for service (and price per item)
• 2. Case payment
• 3. Per diem
• 4. Bonus payment
• 5. Flat-rate payment
• 6. Capitation fee
• 7. Salary
• 8. Budget
Fee for service (and price per item)

• most common method of payment

• most “market-like”
• provider gets paid for each treatment act
or product they provide
• may implement fee schedule
 Fee for service system
• tends to encourage overproduction but may also lead
to a higher quality of service
• effects depend on the design of the fee schedule
• most expensive form of provider payment mechanism
• billing processing claims will be high
• need to establish expensive monitoring procedures to
prevent fraud
 Case payment
 Based on a single case rather than a single
treatment act. Each case the physician treats leads
to the payment of a fee

 Case payment based on a single flat rate per case,

regardless of diagnosis

 Case payment based on a schedule of diagnosis

 Capitation

• Method of payment whereby a

physician or hospital is paid a
fixed amount for each person
in a particular plan regardless
of the frequency or type of
service
 Per diem payment
• A form of payment for services in
which the provider is paid a daily fee
for specific services or outcomes,
regardless of the cost of provision.
Per diem rates are paid without
regard to actual charges and may
vary by level of care, such as
medical, surgical, intensive care,
skilled care, psychiatric, etc. Per
diem rates are usually flat all-
inclusive rates.
 Bonus Payment
• An additional amount paid by
Medicare for services provided by
physicians in Health Professional
Shortage Areas
 Salary
• remuneration which is fixed per
period of time and does not vary
either with the number of
individuals served or with the
number of services rendered
 Budget
• A statement of the financial
resources made available to
provide an agreed level of service
over a set period of time or to use
them for a specific purpose
IMPLICATIONS OF MANAGED CARE FOR
HEALTH SYSTEMS
Positive:
- Better outcomes
- Lower cost
- Better quality
- Improved allocation of resources
- Seamless care
Negative
- Increased costs and time
- Need to overcome resistance to change
- Block to innovation
- Research and education at risk
- Vulnerable populations at risk
IM PLICAT IO NS OF MA NAGED CA RE F OR MDs
• Positive
- Increased professionalism
- Collaboration
- Better information
• Negative
- Reduced clinical freedom
- Reduced status
- Increased supervision
- Conflicts of interest
- Altered doctor-patient relationship
 IMP LI CATIONS F OR P AT IENT S
• Positive:
- Better Outcomes
- Better Informed
- Clearer expectations
- Patient driven guidelines
- Increased satisfaction
• Negative
- Restriction of treatment or doctor
- Increased responsibility not wanted
- Altered doctor patient relationship
- Less satisfaction
An Overview of the National Health Insurance
Program
(RA 7875)
 Events and Milestones
February 1995 - the National Health
Insurance Act of 1995 was signed into law,
giving birth to the National Health
Insurance Program and the Philippine
Health Insurance Corporation (PhilHealth)
 Passing on the Torch

Memorandum of Agreement with the SSS and GSIS on

the phasing-in of the program to PhilHealth

 October 1997 and January 1998 - turn over of

Medicare functions from the GSIS
 April 1998 and July 1999 - PhilHealth took over the
program for private sector workers from the SSS
 From Medicare to the NHIP...

• accelerate universal coverage

• consolidation of separate
components of the GSIS, SSS and
OWWA
• ensure delivery of quality health
care
 Towards universal coverage
Current Program Members
• Non - paying Members - covered for life provided
they have reached the age of retirement (60 y/o)
and paid at least 120 monthly contributions to the
program
• SSS pensioners, including disability
pensioners and death pensioners prior to the
effectivity of RA 7875 in March 4, 1995
• GSIS retirees and pensioners
• Retirees of the AFP, PNP and the Judiciary
 Towards universal coverage:
Current Program Members
Individually Paying Members - voluntarily paying for their
membership in the NHIP
> self-employed
> overseas Filipino workers
> private practitioners – doctors, dentists,
lawyers
> employees of international organizations,
foreign embassies; religious ad civic
organizations
 Towards universal coverage:
Current Program Members

• Medicare para sa Masa - the heart of the NHIP

 INDIGENT
Refers to a person who has no visible means of
income or whose income is insufficient for the
subsistence of the family.
Identified by the Social Welfare and Development
Office through a means test:
Community Based Information System -
Minimum Basic Needs (CBIS-MBN)
 Towards universal coverage:
Current Program Members
• INDIGENT PROGRAM
Implemented as a key component of the NHIP
requiring PHIC-LGU Partnership
Poorest 25% of population as target coverage (AO
27).
Annual Premium of P 1,118 per family.
PHIC-LGU premium sharing ratio from 50:50 up to
90:10. Extension of same benefit package.
 Towards universal coverage:
Current Program Members

• Employed Sector - compulsory members of the program

> private sector

> public sector / government workers
> overseas Filipino workers under
OWWA
> uniformed members of the AFP, PNP,
BJMP, and BFP
 Current NHIP Benefits
In patient Care

• Subsidies for:
• Room and board fees
• Operating room fees
• Drugs and medicine expenses
• Diagnostic and laboratory fees
• Doctor’s professional fees