Malaysian
Health Reform Socio-Economics III
Ability-to-pay Model in healthcare financing
Ability-to-pay
encompasses the concept that people or households would choose an economic
activity or service according to their capacity to afford such an activity based
on their perceived hierarchy of needs, and also what goods or services to give
up or sacrifice. (see Appendix for more details)
If
healthcare or medical services are priced too high and are perceived as too
unaffordable, health care considerations might be placed under such a low
hierarchy of needs that it could be sacrificed for more urgent day-to-day needs
and essentials.
That
is why most countries around the world if not all, offer a basic basket of
health services (safe clean water supply and sanitation, childhood
vaccinations, preventive child-maternal health services, etc.), which are not
taxed and are freely accessible to all, without the need to consider
affordability or ability-to-pay. Thus, there is no question of having to
consider these basic health services as an economic sacrifice for all income
groups. The question arises as to how big or wide a basket of such health services,
any country can afford to provide, without the need to impose copayment
mechanisms or additional taxes.
The
ability-to-pay (ATP) in relation to health care costs may be measured using
public finance assessment tools. A health payment model is considered
progressive (or regressive) if it accounts for an increasing (or decreasing)
proportion of people whose ability to pay, increases proportionally, and
vice-versa. In other words if more people can afford or are able to pay for
their healthcare costs and continues to do so despite increases in costs, then
this is a progressive (hence ‘fair and good’) form of health payment model.
A
progressive system means that individuals or households with greater
ability-to-pay (ATP) are paying more proportionally in financing health care,
and vice versa. Economically, this is considered as equitable. This of course,
implies that those who cannot afford to pay more, are equitably or adequately
subsidized by some form of assisted mechanisms, i.e. usually government allocated
taxes (also known as general government revenue, GGR), which provide the bulk
of the costs subsidized.
There
is of course, a limit as to how much this GGR can cross-subsidise the poor and
how sustainable the allowable basket of health services provided or demanded
can go on. Conversely too, for the better-off, the question arises as to how
high the ability-to-pay can continue to rise, before the risk of impoverishment
or medical bankruptcy sets in.
Using
these economic models of computation, Chai Ping Yu and others14 have
found that Malaysia’s predominantly tax-financed system was overall progressive
with a Kakwani progressivity index[1]
of +0.217 (range -2 being most regressive to +1 being most progressive) and
concluded that “Malaysia’s two-tier health
system, of a heavily subsidised public sector and a user charged private
sector, has produced a progressive health financing system.”
What
is interesting is that our own health ministry’s Health Economic Study in
1998/99 also points to an overall fairness of financial contribution index of
0.982, which is close to 1 of perfect equality, indicating that in Malaysia,
health financial contribution is fairly and equitably distributed![2]
Thus,
it is arguable if the current scenario has changed so much that these indices
reflect an untenable position of unfairness in financing options when it refers
to Malaysia’s health expenditure. Aside from health ministry planning division
projections of health care costs, based on current trends and trajectory, where
is the economic evidence to push us in another direction for such aggressive
health reform plans?
For
the poor, this does not make much more sense. Although arguably imperfect, we
already have a reasonably progressive and equitable tax-based total health financing
system, which is pro-poor, with our richer citizens paying taxes and more, for
their own private healthcare of their own choice.
Public Health System can be improved
It
is true that for the poor, healthcare access can be improved and made more seamless
and equitable. Among health officials, there is mounting acknowledgement and
expectations that the public sector could do much more to match the competency
and efficiency believed to exist in the private sector. Our health authorities
fear that the chasm of public-private sector healthcare services would continue
to widen, so much so that inequity of access could become serious bones of
contention and attract adverse public opinion.
As
more people become more knowledge empowered and demanding, more and more too
among the perceived disenfranchised would find the congested public sector
services increasingly unacceptable and unsatisfactory. So there is a great need
for the public sector to modernize and improve.
While
we recognize the fact that the clogged-up public sector services are bursting
at the seams and are harried by long queues and wait times, and occasional long
delays in elective surgeries or therapies, there is no reason why such services
cannot be made more efficient or cost-effective and productive. Revamping the
public sector may be the more prudent way forward, by tightening up all the
leakages and strengthening its service quality and safety, perhaps by greater
injection of allocated government taxes and revenues.
Although
there’s increasing talk that subsidies for health care would be cut and that
the public is expected to help contribute more to help defray the rising costs,
this has not gone down well with our citizens. It appears that the government
is ready to impose more cost-sharing initiatives. It does not mean however,
that many people are agreeable to contributing more toward helping to finance
this improvement.
This
is especially so, if this obligatory copayment or tax of sorts could also
reduce disposable incomes even more disproportionately for the poor or even the
middle-income public. For the poor, the additional burden of any extra
deduction for health taxes could prove to be extremely burdensome. Ironically,
a recent 2007 World Bank Report also found that our current public health
sector subsidy is both inequality-reducing and pro-poor.[3]
Social
scientists studying our health system and its financing mechanisms at local and
foreign universities, have also argued that the private sector does serve as a
systematic safety valve for those who can find the resources to tap into this
sector and access modestly-priced private medical services, thereby affording
much relief from the public sector congestion. There have been studies which
show that the private sector caters to a different segment of patients or
cohort of people, who are able to afford the current prices of private care,
and that the system appears robust and functioning well.
Is our Out-Of-Pocket (OOP) Spending on Health too high?
Remember
that one of the major concerns of the government is that Malaysians are paying
too much out-of-pocket for healthcare, i.e. around 40.7%, which is being
targeted to be reduced to a manageable 25% or less. But we are aware that our
entire Total Expenditure on Health (TEH) forms 4.8% of the GDP.[4]
In
2009, the national health accounts data estimated our nation’s TEH to be around
RM35 billion, some RM14.6 billion from the government coffers and RM18.0
billion from private spending and other third party payer (TPP)/insurance
options. Insurance and third party payment (TPP) contribute about 14.4% of the
private sector health expenditure, or around 6 to 7% of the TEH.
The
pie charts below show the current state of health expenditure for the country
in 2006, with the second chart showing the expected patterns after the 1Care
health reform is implemented. With the proposed imposition of social health
insurance by 2018, the health reform plan is supposed to be able to expand its
coverage while reducing the government subsidy for healthcare, while mandating
that the public contribute towards this compulsory health insurance.
But
this is a grandiose plan, which might not be implementable so soon so fast,
because of technical and practical requirements that are often not foreseeable
in the planning stages. There are in fact, grave doubts that private spending
(including out-of-pocket payments) can be so drastically reduced so
precipitously within the next few years or so!
Increase Government Budget Allocation to Health, not another tax
like SHI
Let’s
return to the problem at hand. Have we indeed spent enough for our health
system to function well? Or can more be done from the point of view of the
government through its general tax offerings? Instead of pushing forwards this
implementation of a new public contribution towards another form of taxes
(SHI), could the government in fact contribute more to strengthen the public
sector so that health services could be made more reachable and seamless, which
the public (whether rich or poor) can access without any constraining
copayment?
In
fact all through the recent years, the government’s contribution from general
tax allocation is a paltry 2.0 to 2.2% of the GDP, although it does form around
44% of the total expenditure on health, TEH. Imagine if this can be increased
or doubled, then clearly the proportion of out-of-pocket, OOP payments would be
very much different and lower. E.g. if the government were to allocate higher
tax revenues toward healthcare to say, 4% of our GDP (to around RM 30 billion
per annum), then our OOP would fall to around 25 to 28% of the TEH, which is an
acceptable number.
What
is interesting to note, is that since 1995 to 2006, the out-of-pocket, OOP
spending for Malaysians has been hovering consistently around 73 to 75% of the
total private health sector expenditure (around RM 12 to 14 billion; the other
remaining private sector component is by insurance or third party payers).
Despite official projections, it has not shown any trends of increasing, although
of course this cannot be predicted to remain so in the future. In fact, a
recent in-depth analysis by health economists have shown that Malaysia, despite
having a relatively high 40% OOP expenditure on health, is one of the Asian
countries which have thrived well, and which has not unduly increased the risk
of impoverishment for its citizens.[5]
[1] Kakwani
index measures progressivity of tax payment systems, especially in the context
of healthcare payments, comparing the Gini Index for incomes with concentration
index for out-of-pocket payments. It is an economic measurement of distribution
of income and spending for families or household, expressed along the Lorenz
curve, to determine fairness of distribution of healthcare payment patterns for
the rich versus the poor; Kakwani index is positive (from -2 to +1) and
considered progressive, when the concentration index lies below the Lorenz
curve. Strong positivity of the Kakwani index indicates fairness of healthcare
payment mechanisms with the rich contributing progressively more than the poor,
based on ability-to-pay principles.
[2] Ministry of
Health Malaysia. Fairness in Financial Contribution. Malaysia. Ministry of
Health 2001.
[3] Owen
O’Donnell… Chiu Wan Ng, and others. The
Incidence of Public Spending on Healthcare: Comparative Evidence from Asia.
The World Bank Economic Review, 2007, 21(1):93-123. (doi:10.1093/wber/lhl009)
[4] W.H.O.
Global Health Expenditure Database. Malaysia - National Expenditure on Health (Ringgits) http://apps.who.int/nha/database/StandardReport.aspx?ID=REP_WEB_MINI_TEMPLATE_WEB_VERSION&COUNTRYKEY=84679
[5] Van
Doorslaer E, O’Donnell O, Kannan-Eliya RP… Chiu Wan Ng, et al. Catastrophic
Payments for health care in Asia. Health Economics, 2007; 16 (11): 1159-1184.
(Doi:10.1002/hec.1209)
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