Thursday, February 9, 2012

Malaysian Health Reform Socio-Economics III... by Dr David KL Quek

Malaysian Health Reform Socio-Economics III
Dr David KL Quek

[Published in The Malaysian Insider, 9 Feb 2012]

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)
[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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