Tax-funded health systems - TU Berlin · Health Care Financing module, 6-15 November 2019 * Department of Health Care Management (WHO Collaborating Centre for Health Systems Research

Health Care Financingmodule, 6-15 November 2019

* Department of Health Care Management (WHO Collaborating Centre for Health Systems Research and Management), Technische Universität Berlin, Germany & European Observatory on Health Systems and Policies** School of Public Health, KNUST, Kumasi, Ghana

Tax-funded healthsystems

Reinhard Busse*

Peter Agyei Bafour**

Use Examples

Primary source of

health care finance

Tax-funded systems

Secondary source of

health care finance

Tax support in other

systems

Tax expenditure

subsidies

Tax relief / credit for PHI /

MSAs / OOPs

The use of tax in financing health care

8 November 2019 Tax-funded health systems 2

• Tax policy is highly politicised (an important election issue).

• Taxes signal societal values and approval/ disapproval.

• Often there are inter-temporal issues (balancing the budget today versus long term growth).

• Hidden taxes

Taxation and Politics


• Not costly for either government or taxpayers to calculate or administer; Compliance Costs = time, money inconvenience; Administration costs

• Tax evasion is difficult and risky. No corruption.

• Transparent; people know the burden that it imposes (disguised or stealth taxation)

48 November 2019 Tax-funded health systems

What is a good tax?

Third-party Payer

ProvidersPopulation

Collector of resources

• Fair: people believe that the tax burden is equitably distributed

• Fiscal neutrality: the tax should not introduce undesirable distortions into the economy.

• No distortionary cost: people or firms may change their behaviour to reduce the amount of tax they must pay.

→ exception: Pigovian or sin-tax, e.g. on tobacco, alcohol


What is a good tax?

Third-party Payer

ProvidersPopulation


Type Examples

Direct Levied on income / revenue/ assets

Indirect Levied on consumption

National Levied by central government

Local Levied by local government

General Assigned to general revenue

Earmarked Assigned to specific sectors

Different types of tax


Direct

▪ usually progressive

▪ usually redistributive

▪ may breach horizontal equity

▪ depends on what is taxed / exempt

▪ tax resistance

Direct vs indirect tax

Indirect

▪ usually regressive

▪ poor spend more on heavily taxed goods

▪ rich save more

▪ transparent

▪ difficult to evade


• People with higher income save more, and savings are not subject to indirect taxes;

• Depending on the tax rates of different products (food, alcohol, gasoline, etc.) people with lower incomes may pay more (or less) taxes;

• Many indirect taxes are set as lump-sum amounts (for example, vehicle licenses)

Indirect taxes can be regressive



Direct vs. indirect taxes

Direct(progressive)

taxes

Indirect(regressive)

taxes


Public health spending and tax revenue

Higher percentage

Lower percentage

Advantages

▪ transparent?

▪ accountable?

▪ responsive?

Local vs national tax

Disadvantages

▪ inertia?

▪ inequitable?

▪ redistribution?

▪ local plans and priorities or national frameworks?

▪ Funding of specialised services?

Possible solutions

• Transfers from rich to poor regions?

• Combining national and local taxes?


• When income tax rates vary geographically

• When some forms of income are exempt fromincome tax; and

• When some forms of expenditure are tax deductible

Taxation and horizontal inequity


General tax

▪ broader base?▪ trade-offs between

spending priorities?▪ reflects citizens’ priorities?

General vs earmarked tax

Earmarked tax

▪ tax resistance?▪ transparency?▪ accountability?▪ protects health from

competing national priorities?

▪ economic cycle?▪ political control and

management of crises?



Earmarking: debate


Earmarking: overview

Social healthinsurance?


Options to raise more taxes


Options to raise more taxes II

Third-party Payer

ProvidersPopulation


Financing II:Resource pooling & allocation

Financing I:Raising resources/

funding

Financing III: Purchasing/ contracting/

paying providers

Access to services

Steward/ Regulator

Coverage:Who? What?How much?


System typology: tax-funded systems

Provision of services

Regulation

Taxes &

governments/ health authorities

= tax-funded system (NHS)

Tax-funded systems in Western Europe

http://mig.tu-berlin.de8 November 2019 Tax-funded health systems 19

NHS principles: “Universal, comprehensive,free at the point of service” →Focus on equity!


• Usually: health care is a right for the entire population

• Service coverage: may vary across regions, in particular, in decentralized systems

• Cost coverage: usually quite good.


Coverage

Third-party Payer

ProvidersPopulation


▪ a broad revenue base

▪ enables the government to make choices betweenspending on health care and other priorities

▪ equity in access to health care: who gets? what? when?

▪ equity in financing health care: vertical, horizontal, redistribution?

▪ efficiency: cost control, purchasing, transaction costs

▪ accountability and choice


Advantages of tax-funded systems

Central government (Ministry of Health)

PublicProviders

Population

Central government (Ministry of Finance)

Limited choiceUniversal coverage


Traditional integrated NHS-type system in Europe (ca. 1990)

General taxation

Direct government control (“command-

and-control”)

NHS =Payer &

Provider

Central Regionalgovernment

ProvidersPopulation

Central government

(MoF)

Increased choiceLimited

Universal coverage

8 November 2019

Autonomous publicand private providers

Purchaser –

Provider

split

24

General (or earmarked) taxation

→Convergence with SHI systems

New NHS-type systems in Europe

Tax-funded health systems

MOH: Regulation, supervision and

enforcement

Central Regionalgovernment

ProvidersPopulation

Central government

(MoF)

More choiceLimited

Universal coverage


General taxation

Regulator

Public and privateproviders

Purchaser –

Provider

split

Questions arising:

• Funding from national or regional taxation?

• Benefit catalogue uniform?

• Supply density and quality regulated uniformly?

• Access to services across regional borders?

New NHS-type systems in Europe

NATIONAL

BUDGET

Budgetof National

HealthSystem

RegionalHealthService

REGIONAL

BUDGET

• National taxes• Regional taxes

LA

W O

F R

EG

ION

AL

PA

RL

IAM

EN

T

LA

W O

F N

AT

ION

AL

PA

RL

IAM

EN

TNational

taxes

Regional

taxes 268 November 2019 Tax-funded health systems

Different options for regionalisation


age

area/ population factors

other individual factors (esp. morbidity)

ne

ed +

+ / x

Also in decentralized tax-funded systems, allocationbased on individual factors is important

• Gender (x2)• Age group (x13)

– Groups: 0, 1-4, 5-9, 10-14, 15-19, 20-24, 25-29, 30-39, 40-49, 50-59, 60-69, 70-74 and 75- .

• Marital status (x4): children; single (18+); married; previously married

• Employment Status (x4)– Employed with children under 16 years of age; Not employed

with control task; Not employed without control task • Income (x3): Non-income earners and children (under 16 years);

Earners up to median income; Over median income.• Accommodation type (x2): Small houses and agricultural property

(all with type code <300); Others (all with type code> 300, generally multi-family houses).


Sweden: individual factors – but not based on morbidity (diagnoses) directly


age

area/ population factors

other individual factors (esp. morbidity)

ne

ed +

+ / x

Besides age, these were the traditional factors usedin tax-funded systems with non-competing purchasers;

meanwhile getting less important

Needs variables• Proportion aged 16-74 people never worked• Proportion Single (never married)• Proportion Divorced• Rented from private landlord or letting agency• Proportion (unstandardised) with ‘not good health’• Average with (long term) medical condition for those with at least one• 2012-13 QOF Kidney Disease Total Exceptions• 2012-13 QOF Epilepsy Prevalence• 2012-13 QOF Mental Health Prevalence• Health Deprivation and Disability Score

Supply variable• 2012-13 Median waiting times (weeks) of the 95th percentile for

Neurosurgery Patients


England: results 2015, small area variablesexample, age 16-64

Main advantages

▪ automatic population coverage

▪ broad revenue base

▪ equity of financing?

▪ enables trade-offs between spending priorities

▪ tight cost control

▪ responsibility for population health in the hands of gov’t

▪ democratic accountability

Pros and cons of tax-funded systems

Main disadvantages

▪ funding depends on fiscal space

▪ funding depends on political priorities

▪ regional inequity in case of decentralized revenue generation/pooling/purchasing

▪ often weak purchasing arrangements

▪ still less choice

▪ political decision-making


Documents

Tax-funded health systems - TU Berlin · Health Care Financing module, 6-15 November 2019 * Department of Health Care Management (WHO Collaborating Centre for Health Systems Research