50834 Mitigating the Impact of the Global Economic Crisis on Household Health Spending Elizabeth Docteur necessary health services and medicines, and face other health-related financial hardships as well. Key Messages The economic crisis is impacting the ability This Brief draws on the experience of countries (outside of households in ECA countries to pay for ECA) in coping with public financing shortfalls, to health care. Declining government provide suggestions for mitigating the impact on ECA revenues and spending on health are households of reduced public health spending. First, likely to exacerbate health-related however, it is important to examine private health financial hardships for households. spending patterns in the ECA region. There are a number of approaches ECA policy makers can take to mitigate the Private Health Spending in ECA Countries impact of reduced public sector budgets on household health spending. Private health expenditure accounted for 40 percent of total health spending in the ECA region in 2006 (Figure Most common instruments to protect lower- 1), compared to just 27 percent in countries that are income groups against higher out-of- members of the Organization for Economic Cooperation pocket health spending include and Development (OECD). In six ECA countries, the transparent cost-sharing mechanisms with private share exceeded 50 percent. explicit exemption criteria; and targeting of public funds to pay for services In the ECA region, most private health expenditures predominantly used by lower-income comprise out-of-pocket payments for health care, groups. including user fees or co-payments for insurance-covered services, payments for health services not covered by insurance and informal (or under-the-table) payments to Introduction providers. Private health expenditure is underestimated in The ongoing financial and economic crisis has hit hard the many ECA countries due to difficulties in obtaining lives of citizens in Eastern Europe and Central Asian information on informal payments for services (a common (ECA) countries. Economic growth has started to dip, practice in the region). unemployment is rising and government revenues are expected to fall. The crisis is having a direct impact on the Out-of-pocket health expenditures represent a significant ability of households to pay for health care, a situation that burden on households in some ECA countries. For will likely be exacerbated as real government spending on instance, in Latvia, where the private share of total health health care declines in many countries due to reduced expenditure is almost 40 percent (Figure 1), out-of-pocket revenues from the general government budget and payroll- (OOP) expenditure for health care represented 4.7 percent funded health insurance. Patients may have to pay higher of household expenditure in 2006.1 An analysis on the prices for health care, make do with reduced access to 1 Xu, K et al. (2009), Access to Health Care and the Financial Burden of Out-of-Pocket Health Payments in Latvia, WHO. SOURCE: World Health Organization Statistical Information System. equity impact of OOP payments charged from 2003-2006 Pharmaceuticals represent the largest component of out- in Slovakia found that co-payments caused the share of of-pocket spending for most people in the region. In household income spent on health to increase on average Hungary, for instance, two-thirds of out-of-pocket health from about 1.4 percent in 2000 to 3 percent in 2005. The expenditures are on medicines. Although pharmaceutical lowest income groups were paying almost 5 percent prices vary across countries, there is evidence that they compared to the richest groups who spent only 2 percent vary less than income differentials, particularly in of household income on health2. countries where parallel trade3 is possible.4 In countries with formal cost-sharing requirements, rates are often Why is Spending on Private Health Care so High? highest for pharmaceuticals. For example, in Bulgaria, about 52 percent of total household health spending is on The underlying reasons for high private spending on pharmaceuticals. health care in the ECA region vary by country, but there are some common explanatory factors. In order to finance the increasing cost of health, many ECA countries have established cost-sharing requirements OECD experience shows a strong link between national where patients pay user fees and co-payments when income and health expenditure, with relatively richer receiving care. This practice is, however, politically countries spending a higher share of income on health. In unpopular in a region that has a tradition of publicly- many ECA countries, total health spending has outstripped financed health care which is nominally free to the users economic growth over the past years. Rapid advances in (although under-the-table payments are expected as medical technologies, population ageing and rising public gratuities for special treatment, like faster service). expectations were largely responsible for the growth in health spending, which was particularly notable in the area How Will the Economic Crisis Impact Household of pharmaceuticals. However, in less wealthy ECA Spending on Health Care? countries in particular, public expenditure on health has not increased at a rate commensurate with total health The economic crisis will have both a direct and indirect expenditure and economic development. This has impact on private health spending and population health. increased the pressure on private sources of financing to make up the shortfall between total expenditures and 3 available public resources. Price differences between countries invite traders to arbitrage, that is, buying pharmaceuticals in low price countries and selling them in high price countries. The effect of this "parallel trade" on prices depends on the nature of price regulation. Parallel trade may cause prices to rise in low price countries and may lower prices in high price countries 2 4 Kiss, Stefan et al. (2007), Equity in Health Care Finance in Slovakia - See OECD (2008), Pharmaceutical Pricing Policies in a Global the Impact of the Reform, Erasmus University, Rotterdam. Market. Experience with past crises in middle-income countries economic setbacks due to the downturn, even if, suggests that reduced employment and household incomes on average, private health expenditure does not will have a negative impact on nutrition and utilization of increase. health services. The vulnerable groups--such as women, children, the poor, and informal sector workers--are at Increased out-of-pocket health spending may push greatest risk.5 more individuals into poverty. According to a paper prepared by the Norwegian Ministry of The indirect impact of the crisis depends on government Health Care for a recent European region actions taken in response to reduced revenues. Possible Ministerial meeting, out-of-pocket payments for actions include cutting budgets for health care providers, medicines for persons with chronic conditions increasing cost-sharing, cutting benefits (or foregoing were among the most significant causes of health- expansion of benefits to coverage of new medicines and related financial catastrophe in middle-income devices), and/or reducing the supply of services countries. (effectively increasing waiting times). An unintended effect of many such actions will be reduced access to These risks may be increased by crisis-related services due to increased financial barriers and increased developments. Prices of imported medicines will increase risk of health-related financial hardship. Specific due to currency depreciation in some countries, making concerns include: them less affordable for public and private purchasers. The pharmaceutical cost problem is likely to be further Decisions to cut health professionals salaries or exacerbated in some countries that are implementing or to delay salary payments to staff may exacerbate increasing a value-added tax on pharmaceuticals as a the pressure on patients to make informal revenue generation tool, and by cost-sharing increases that payments for services. Unpaid staff members are have been planned and implemented in countries such as also more likely to moonlight and have private Croatia. practices, which will negatively affect the availability of service delivery in public facilities. What can be done to mitigate the Impact of This may also force patients to seek care in the Reduced Public Sector Health Spending? more expensive private sector. There are a number of approaches ECA policy makers can Patients may respond to increased costs by take to mitigate the impact of reduced public sector reducing compliance with prescribed treatments, budgets on household health spending. which could ultimately lead to complications or flare-ups of chronic conditions and increased A first approach is to ensure and maintain adequate prevalence of conditions, especially among the financing for those services that are used by the poorest poor. Evidence from experience in Europe, in the and most vulnerable (for example, primary care services United States and in developing countries shows rather than specialist care). Careful targeting of public that reduced service utilization (associated with resources to vulnerable groups is needed to minimize the increases in cost-sharing) affects poor people overall impact of real reductions in public spending and to disproportionately.6 counteract the tendency of health spending to become less progressive during times of economic contraction. Cuts in public health spending and services will Consequently, public funds could be targeted to services also disproportionately affect the poor, unless that are predominantly used by lower-income groups or in steps are taken to counter this move. During a low-income areas. For example, governments may want to previous financial downturn, for example, protect funding for maternal and child health care services preventive health care for children in Argentina provided in public primary health care facilities, and for dropped 38 percent in the general population but the treatment of communicable diseases like tuberculosis much more (57 percent) in the poorest that mainly affect lower-income groups. households. A second approach is to introduce formal cost-sharing (or Out-of-pocket spending may raise the financial co-payment) requirements where these do not already burden on families already suffering from exist, and take steps to reduce the practice of informal payments through public information campaigns and staff 5 See Gottret et al. (2009), ,,Protecting Pro-Poor Health Services during training. In formal cost sharing, access barriers and Financial Crises: Lessons from Experience, The World Bank, March financial hardship risks can be minimized with the use of 2009. caps and exemptions from payments. Most European 6 See Ray (2002), ,,User Charges for Health Care, in Funding Health countries have explicit exemption criteria for co- Care: Options for Europe, European Observatory. payments. Population groups and services that tend to be Policy-makers have been tempted to promote voluntary exempt from fee payments include: (i) children under a health insurance so as to shift costs to privately insured specific age; (ii) homeless people; (iii) emergency and individuals while ensuring affordable access to care. preventive services; (iv) public health services, and (v) However, in most countries, private health insurance pregnancy, obstetric and neonatal care services. Sweden (which provides coverage for services that are not publicly provides an example of a co-payment scheme in which financed) is mostly purchased by higher income groups patients receive a ,,green card exempting them from co- that anyway seek care in the private sector. Private payments if they are members of vulnerable groups or if insurance is not necessarily an instrument that will they reach established caps on cost-sharing as defined by a improve access to health care for lower-income groups. maximum amount payable in a year. A third approach is to make targeted cuts in public The Longer-Term Agenda resource allocation and seek increased efficiency in health care delivery. For instance, where excessive, inpatient While policy solutions need to be tailored to national capacity can be pruned, and outpatient care can be circumstances, it is important to keep the focus on the substituted for inpatient care where appropriate. Many long- and medium-term goals that have been established OECD countries used such methods to achieve savings for health systems. Some of these crucial goals are aimed during the 1990s.7 Although politically challenging given at addressing inequalities in health financing, health the status of hospitals and important local employers, the service use, financial sustainability of health systems, and crisis can provide an opportunity to make much needed general population health. Keeping these goals in mind spending cuts. Thailand provides an example of a country will ensure that actions taken in response to the economic that used a previous financial crisis as an incentive to crisis do not run counter to the progress already made in make major efficiency-enhancing reforms. strengthening the health systems. At the same time, health sector policy-makers will need to recognize that the In the same vein, policy makers can target cost-sharing economic crisis is having an impact on the health systems increases, to the extent possible, so as to increase and the populations they serve, and take the necessary efficiency. The use of ,,reference-pricing schemes, in steps to address the immediate and related issues. which patients pay more out of their own pockets for brand name medicines that have low-cost alternatives, is About the Author an example. Variable reimbursement rates, common in Elizabeth Docteur is an independent research analyst with many western European countries, can also be used to more than 15 years experience informing public policy ensure access to medicines that are considered essential. decision making through positions in the legislative and For example, in Switzerland, patients have to make higher executive branches of US government, the international co-payments for non-generic drugs than for equivalent arena and civil society. generics. As a result, patients purchased lower-priced generic drugs instead of brand-name drugs, leading to a __________________________________ market share increase for generics from 20 percent in 7 See Docteur and Oxley (2003), ,,Health-Care Systems: Lessons from 2005 to 33 percent in 2006. At the same time, prices for the Reform Experience, OECD Health Working Paper No. 9. non-generic drugs declined, narrowing the price difference between generic and non-generic drugs. 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