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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