Health Financing Challenges in the Baltic States Toomas Palu Sr. Health Specialist, World Bank

1. Health Financing Challenges in the Baltic States • Toomas Palu • Sr. Health Specialist, World Bank • Member of Management Board • Estonian Health Insurance Fund

2. Health financing reforms include to a various degree social insurance elements • Estonia • Health Insurance Act – 1991, 2002 • Earmarked 13% payroll tax • Estonian Health Insurance Fund (EHIF Act 2000) • Latvia • Government decrees 1993, 1997, 1999 • Earmarked 28.4% of income tax • Latvian State Compulsory Health Insurance Agency (Gov agency) • Lithuania • Health Insurance Act 1995 • Earmarked 30% of income tax, 3% payroll tax • Administered by State Patient Fund (Government Agency)

3. The main objective of introducing health insurance in the Baltics was … • … to ensure increased and sustainable level of health financing • powered by physician lobby.

4. Health expenditures: appropriate level? how sustainable? * * OECD and EU candidate countries, data from 1998-1999, OECD, WHO

5. Explanation of different health financing reform outcomes • Estonia has higher level of health financing because health insurance is the main source of public health funding • Formalisation of economy, gradual decline of “grey” economy • Productivity improvements • Average salary growths higher than economy in general • In Latvia and Lithuania large part of health financing is determined through political budget negotiations, but … • Health sector neither EU nor NATO priority • Health issues only now becoming part of political (election) debates • Health financing information is not comparable and comprehensive • Standard (OECD, WHO) health accounts are assembled only in Estonia • Latvia accounts only for public sources, Lithuania assembles its own national health accounts

6. HI share of overall health financing. Pooling of funds.

7. Is Estonian narrow tax base sustainable in long term?

8. Cost pressures • Aging population • average life expectancy is increasing • birth rates below population replacement rate • Ever-emerging new high-cost effective medical technologies • high cost of pharmaceuticals • situation worse for economies of transition because they lag behind in introduction as well as penetration rates of already existing medical technologies • Pressure from health care provides to increase reimbursement rates • low salaries of medical personnel • unfunded capital costs • Increased expectations of citizens

9. Costs of various benefits to EHIF

10. Examples of cost pressures in Estonia

11. Solutions to cost pressures • More money for health care!? • Limited by overall strength of economy • Attract private financing - investments, cost sharing, private insurance; PPP - public-private-partnerships • Effective and efficient use of scarce resources • Keywords: cost-effectiveness, appropriateness, needs, incentives, evidence base, transparency • Make choices • What benefits are covered by social health insurance

12. Cost-sharing: regulating user charges • Estonia • Co-payment of Euro 3.2 for outpatient specialist consultation • Co-payment of Euro 1.6 per hospital day up to 10 days (Euro 16) per admission, adjusted annually according to inflation • Few exemptions • Reasonable user charges for above standard accommodation • Patients are charged full cost if the want to by-pass queues • Latvia • Euro 0.8 for outpatient specialist consultation • Euro 8.4 at hospital admission, Euro 2.5 per hospital day up to Euro 25 per admission • Extensive exemptions • Lithuania • Government approves a list of services that are paid out of pocket

13. Making choices about HI benefits • None of the countries has been successful • obvious choices have been done – cosmetic surgery, etc. have been excluded from the public benefits packages • politically very difficult decisions, not popular among electorate • clear criteria are not defined

14. Technical solutions for better use of scarce resources

15. Needs assessment and contract planning in Estonian health insurance fund • Untying contract planning from historical hospital services production, planning according to patients’ needs • Analyze service utilisation variation among 7 population pools as a proxy for need • utilisation of data warehouse concept • Separate supplyinduced demand from medical need as much as possible • consult with GPs • Analyze queues – integrate results • Budget planning and scost-and-volume contracts according to needs assessment results

16. Small area variation in the utilisation of dermatology services, Estonia 2001

17. Monitoring waiting times

18. Prioritizing queues in Estonia • Application of prioritization protocols • joint replacement and cataract surgery queues • evaluate need, e.g. • - physical impairment (visual aquity, functional mobility) • - pain • - ability to work, give care to dependents, live independently • protocols based on New Zealand experience • People with higher needs needs wait less

19. 1993 1999 2001 2015 Number of hospitals 115 78 67 13 Number of hospital beds 14 377 10 358 9160 3500 ALOS 15.4 9.9 8.7 4 Optimisation of hospital capacity in Estonia • Implemented through • Rational “Hospital Masterplan 2015” • Legal hospital reform: incorpororation under private law as foundations (trusts) or joint stock companies under public ownership • Hospital mergers – internalise efficiency problem to hospital management • In 2001 EHIF had 17 hospital contracts in Tallinn • In 2002 EHIF has 4 hospital contracts in Tallinn • Supported by EHIF contracting • Development of conceptual solution for long term care • Solving health sector investment financing problem

20. Hospital capital investment financing reform • Key reform features • capital cost will be included in the EHIF price in 2003 • hospitals will pay capital charge on assets they have received free of charge from the State • hospitals will make their own investment decisions • for expensive investments “certificate of need” is required, issued by the State Health Board • This policy will be additional incentivefor divesting excess hospital buildings and equipment