Insured by the State? Health Financing via General Taxes

1. Insured by the State?Health Financing via General Taxes Dr. William D. Savedoff Senior Health Economist Presentation at “Innovations in Health Financing” Mexico City, D.F., Mexico April 2004 Email: savedoff@socialinsight.org

2. Overview • History of health financing “innovations” • Insurance versus Tax-Based Services? • Evolution of Tax-Based Systems • Conclusions

3. History of Health Financing “Innovations” • Out-of-Pocket / Reciprocity • Mutual Associations • Philanthropy • Employer Insurance / Paternalism • Private Insurance • Social Insurance • National Health Services

4. History of Health Financing “Innovations” 1979 WHO Technical Report identified: • Out-of-Pocket / User Fees • Community Health Insurance • Private Commercial Insurance • Social Insurance • General Revenues

5. History of Health Financing “Innovations” • 1979 WHO Technical Report identified: • Out-of-Pocket / User Fees • Community Health Insurance • Private Commercial Insurance • Social Insurance • General Revenues • Probably has been more innovation in organization and delivery than in financing

6. Insurance via Taxes? From Insurer’s Perspective • Affiliation? Benefits? Premium? From Beneficiary’s Perspective • Access? Quality? Cost?

7. Government Spending on Health in Selected Countries, 2000 100 BRA MYS CAN SWE GBR 80 RUS USA 60 Tax-Based Health Expenditure as Share of Public Health Spending (%) 40 ARG MEX KOR 20 JPN DEU FRA 0 20 40 60 80 100 Public Health Expenditure as Share of Total Health Spending (%) Source: NHA Unit, EIP/FER/FAR, WHO, for 2000.

8. Evolution of Tax-Based Systems • Relatively recent (post-World War II) • Two groups of countries • Prior development of social insurance e.g. UK, Sweden, Brazil • Prior development of colonial health system e.g. Malaysia, Hong Kong

9. Britain’s National Health Service • Philanthropic, Local Govt, Employers • Natl Insurance Act of 1911 • Beveridge Report (1942) - “. . contribute according to need . . “ • Labor Party Victory, Min. Bevan • Intention to finance from payroll tax • Impact of rising costs

10. Evolution of UK Spending • Table of total public health expenditure with share from national insurance - 1948 to 1980

11. Political Preconditions • Cross-class solidarity from WWII • Hospitals damaged by war • Concessions to specialists and GPs • Labor Party Victory

12. Trajectory of the NHS • Voluntary takeup by middle class was rapid • Continuity in payment mechanisms • Concerns over rising costs (relative to..?) • Emerging dissatisfactions:waiting lists, quality of infrastructure, & slow innovation • Responses: reform of payment & provision, not the tax base

13. Sweden • 19th century: “Friendly Societies”, employer “paternal” benefits, unions • Government role: encouraging consolidation, expansion, subsidizing • Emerging gap: professionals vs. laborers • 1935 - Forestalled by economic crisis • 1946 passed; 1955 implemented

14. Sweden • Locally financed and managed • Social insurance continues (20% of funds) • Strong support, but concerns with costs, waiting lists, choice, slow innovation • Response: separate purchase & provision (internal markets), funds follow client

15. Malaysia • 1957 inherited colonial health services • Malay dominance & aim for equity • Rapid expansion of rural services • Parallel promotion of private provision • Similar concerns at much lower levels of spending (including costs!) • Questioning tax basis of funding

16. Brazil • Corporatist strategies under Vargas (1930s) • Insurance expansion for formal sector • NGOs, Church & Union resistance in 1970s • Public health legacy (e.g. Oswaldo Cruz) • Convergence on SUS in 1988 Constitution • Payroll set-aside ignored & economic crisis • Decentralization in provision

17. Brazil • Coverage remains limited but improving • Middle class fled to private insurers • Unlike others, costs are high relative to income and health status • But also the newest

18. In comparative perspective Source: NHA Unit, EIP/FER/FAR, WHO, for 2000. Note: Income groups are based on World Bank classification.

19. Total Health Spending and Per Capita Income 15 USA DEU 10 FRA CAN ZAF ARG SWE BRA ITA JPN ESP GBR Total Health Expenditure as Share of GDP (%) POL KOR MEX RUS SAU 5 IRQ MYS 0 0 10000 20000 30000 40000 GDP Per Capita ($) Source: NHA Unit, EIP/FER/FAR, WHO, for 2000.

20. Health Adjusted Life Expectancy and Govt. Health Spending 80 JPN SWE FRA ESP 70 GBR DEU USA KOR MEX ARG POL MYS 60 SAU HALE BRA RUS IRQ 50 ZAF 40 0 2 4 6 8 Public Health Expenditure as Share of GDP (%) Source: NHA Unit, EIP/FER/FAR, WHO, for 2000.

21. Commonalities • Prior development of social insurance • Political crises and movements • Unintentional replacement of payroll tax by general revenues • Strong support for tax funding

22. Commonalities (cont.) • Reasonably successful • Do not appear costly in relative terms • Yet dissatisfactions with provision have led to experiments in payment & management • Private services get funds by advertising, public systems obtain funds by complaining (Evans 2002).

23. Conclusions • Political preconditions • Strategy via Social Insurance? • Which is worse, government failure or market failure? • Caution: as with any investment, past performance is no guarantee of future performance