Chapter 11 State healthcare provision

Question 1

Briefly outline the impact of the State on the provision of healthcare to its citizens (5)

(Consider what role the State may play in the healthcare system used by its citizens)

Answer 1

• The role of the State in the provision of healthcare to its citizens has a large impact on the market for health insurance products.
• This is especially so, given the State can be the…
  • …administrator/regulator…
  • …financier, and…
  • …purchaser…

of healthcare all at the same time

Question 2

What are the overall objectives of government regarding provision of healthcare? (4)

Answer 2

• Protecting the nation’s health
• Subsidising the poor
• Balancing the budget
• Following social culture and/or political promises

Question 3

In regards to the State’s provision of healthcare to its citizens, what do the State’s objectives depend on? (4)

Answer 3

• Political stance, history of State care, and social and cultural stance
• Other State benefits, and quantity/quality of med services & expertise available
• Economy, state of infrastructure and state of development
• Population characteristics

Question 4

State healthcare objectives: protecting the nation’s health

Give a brief overview of this objective (2)

In what ways may the State execute this objective? (4)

What is the key outcome/benefit of State protecting the health of its citizens? (3)

Answer 4

Protecting the nation’s health

• is usually the primary objective of State healthcare
• the extent to which the objective can/is executed depends on the nation’s
  
  • wealth and priorities
  • style and culture of politics also plays a role

The key ways through which State protects nation’s health

• firstly, is to address availability of food, water, hygiene, etx.
• provide medical services
• engage/sponsor latest tech development, research and scientific advances
• education about the benefits general healthy lifestyle

The biggest benefit from the State protecting its nation’s health is that

• keeping a productive workforce that’s healthy grows GDP
• this gives government money to sustain the healthcare provision
• ..ie..in an ideal environment, the objective is somewhat self-funding

Question 5

State healthcare objectives: subsidise the poor

Give a brief overview of this objective (2)

What is the key outcome/benefit of State subsidising the poor? (1)

Answer 5

Even where healthcare is heavily commercialised

• the State will have a role in providing healthcare (primary medical assistance and hospitals) to the poorest
• especially children and the elderly (either of whom aren’t always able to care for themselves)

Provision of healthcare in this manner is seen as state’s wellfare package

• it serves as useful tool to redistribute wealth among citizens

Question 6

State healthcare objectives: balancing the budget

Give a brief overview of this objective (2)

How does the state fund its healthcare provision? (4)

What key healthcare factors affects the level of funding the State requires in its budgeting for healthcare costs? (4)

Answer 6

Provision of healthcare

• is part of the state’s budget (sometimes significantly so)
• whether services are provided to everyone or just those that cannot afford private care

Funding the cost of State healthcare provision

• usually through health charges (eg national insurance), general taxation, VAT or a mixture of them all
• usually involves some redistribuition/cross subsidy from health to unhealtly or from rich to poor

The State should be aware that due to

• technological advances, expectations from the public, and the use of more advanced medical treatment, healthcare costs will increase by more than CPI.
• this may in turn be exacerbated by increasing longevity and morbidity.

Question 7

State healthcare objectives: following social culture and/or political promises

In what way may political parties influence the State’s provision of healthcare to its citizens (1)

In what way may social culture influence the State’s provision of healthcare to its citizens (1)

Answer 7

• State’s healthcare approach may be determined by a political party’s ethics. This may change with changing parties.
• State healthcare may be part of national culture and so radical changes may be hard to introduce especially in the short-term.

Question 8

State healthcare objectives: following social culture and/or political promises

Social practices in terms of purchasing in insurance can influence the level of State healthcare provision.

What do we mean by the following groups of commercial insurance products, in terms of how private insurance may coexist with State provision?

• optional alternative (3)
• optional complement (4)
• compulsory alternative (3)
• compulsory complement (3)

Answer 8

Optional alternative

• comprehensive State provision, with private insurance offering more quality/choice
• opting to use commercial insurance products as an alternative to what the public sector already provides
• hence, paying for commercial insurance products to cover expenses in private sector

Optional Complement

• limited state provision, with private insurance providing balance
• opting to use commercial insurance products to complement what the public sector already provides
• eg for elective procedeurs soner than the state would provide
  
  • waiting policy or gap cover

Compulsory Alternative

• comprehensive State provision for the poor, with private insurance purchase by those who State sees as not poor
• using commercial insurance products where the health system has made it compulsory to fund alternative benefits to that given by the state
• eg comprehensive cover for the wealthy whom the state considers can afford comprehensive cover

Compulsory Complement:

• State providing some benefits for free (to all), with private insurance being used to cover the rest
• using commercial insurance products for funding where the health system has made it compulsory (compelled) to obtain benefits not provided by the State to anyone at all
• eg purchasing top-up plans, dental plans

Question 9

What challenges does the State face in its objectives of providing healthcare to its citizens? (12)

Answer 9

• Demographic
  
  • increasing/aging population=> increased costs of healthcare
• Technological
  
  • tech medical advances => increased demand for healthcare
• Challenge of Sysyphus
  
  • ironically, successful healthcare provision=> life expectancy gains in older age groups and tech innovation=> to constant budget pressure
• Burden of disease
  
  • general health of the population (e.g. HIV prevalence) may increase the cost of healthcare
• Access to skilled medical professionals and insfrastructure
  
  • cost and duration of medical training is extensive
  • professionals may leave to other countrires after training
• Competition and regulation in healthcare
  
  • possibility for market failure in healthcare market => need for regulation.
  • strike balance between regs vs allowing competition

Question 10

State healthcare: resource allocation

What kind of decisions must the State make regarding resource allocation in regards to provision of State healthcare to its citizens? (3)

What methods may the State use for this decision making process? (5)

Answer 10

State resources are limited, and hence the State needs to make decisions regarding:

• how to allocate resources, and
• costs of healthcare provision relative to the effectiveness/benefits of treatment

The State may use the following approaches to assist its decision making process:

• cost analysis
• cost-effective analysis (CEA)
• cost-utility analysis (CUA)
• cost-benefit analysis (CBA)
• willingness to pay (WTP)

Question 11

Resource allocation approaches: cost analysis

Describe this tool for resource allocation (3)

What is the biggest disadvantage of this tool for assessing resources allocation within a State’s healthcare budget? (1)

Answer 11

Overview:

• Simplest method of economic evaluation of a healthcare system, and whether it’s sustainable over time
• Estimate the budget required by calculating the costs of all resources (initial/recurring, fixed/variable, direct/indirect, current and future) and cost recoveries from insured
• Can provide breakdown of future and current costs

Biggest disadvantage of this measure:

• Doesn’t consider the quality and effectiveness of the healthcare system/services provided e.g improved health

Question 12

Resource allocation approaches: cost-effective analysis (CEA)

Describe this tool for resource allocation toward State healthcare systems (3)

What is the calculation for cost-effective analysis (CEA) (2)

Answer 12

Overview

• Assess the costs of a healthcare system relative to the non-monetary benefits of the healthcare system (eg. infant mortality)
• It is a relative concept, which is useful for comparing systems or allocating a fixed budge

Calculation:

• CEA = cost of healthcare system in monetary units / measure of effectiveness (measure in a scale)

Question 13

Resource allocation approaches: cost-effective analysis (CEA)

Strengths (3)

Weaknesses (4)

Answer 13

Strengths

• Benefits relative to the costs can be easy to understand
• Benefits don’t have to be converted to monetary terms
• It is a relative concept, which is useful for comparing systems or allocating a fixed budge

Weaknesses

• Need for all healthcare systems assessed to have same metric/ measure of effectiveness for comparability
• Inability to account for multi-dimensional effects
• Possibility that CEA will under-estimate the value of various healthcare interventions.
• Doesn’t reflect utility of healthcare servivces to population covered.

Question 14

Resource allocation approaches: cost-utility analysis (CUA)

What do we mean by cost-utility analysis? (2)

What is the calculation for cost-utility analysis (CUA)?

Answer 14

Cost Utility Analysis

• asesses the costs of healthcare relative to the changes in quality of life as well as in mortality.
• emphasis on healthy years of life saved rather than number of lives saved.

Calculation

• CUA = Costs in monetary terms/ (Benefits in QALYs) QALYs - quality adjusted life years.
• Benefits can either be measured in
  
  • QALYs: quality adjusted life years
  • DALYs: disability adjusted life years
  • HYEs: health years equivalent

Question 15

Resource allocation approaches: cost-utility analysis (CUA)

Strengths (3)

Weaknesses (4)

Answer 15

Strenghts

• It is a relative concept, which is useful for comparing systems or allocating a fixed budge
• Benefits don’t have to be converted to monetary terms

Weaknesses

• Need for all healthcare systems assessed to have same metric/ measure of effectiveness for comparability
• Relies on appropriate scale
• Sensitive to function chosen and may not reflect the value of a system to the population

Question 16

Resource allocation approaches: cost-benefit analysis (CBA)

What do we mean by cost-benefit analysis? (1)

What is the formula for cost-benefit analysis (CBA)? (2)

Strenght of CBA? (1)

Weakness of CBA? (1)

Answer 16

CBA puts a monetary value on the cost of the healthcare system.

Formula for CBA

• CBA = costs in monetary terms / benefits in monetary terms
• CBA < 1 for a project to be recommended.

Strength

• Advantage is that a healthcare system can be analysed on its own merit wihtout comparing it to other systems.

Weakness

• it is challenging to put amonetary value to changes in a person’s life.

Question 17

Resource allocation approaches: willingness to pay (WTP)

What do we mean by willingness to pay? (1)

How might willingness to pay be evaluated (4), and what drawbacks might each method have? (3)

Answer 17

This tool for measuring resource allocation

• can be used to measure the value that an individual places on a health system.

Willingness to pay may be assessed either via

• direct method: done through questionnaires, however,
  
  • may not reflect actual behaviour
  • may be influenced by emotions
• indirect method: by observing an individual’s behaviour and identifying how much he/she is willing to pay for medical treatment
  
  • may suffer from confounding factors

Question 18

Methods of State healthcare provision (5)

Answer 18

• Provided directly by its own medical establishments or by commercial establishments
• Provided to all or means-tested
• Lump sum or regular income (if regular payments are required eg LTC)
• Flat-rated or earnings-related -linked to some form of CPI -different for different stages of disability
• Different for different lifestages/circumstances

Question 19

Manner of State healthcare provision: means testing

What do we mean by ‘means-testing’ of State healchcare benefits provided by the State? (2)

What are the advantages of means-testing State healthcare benefits? (2)

What are the disadvantages of means-testing State healthcare benefits? (5)

Answer 19

Means-testing

• State benefits are means-tested if they pay for full healthcare only in cases of financial hardship
• Means-tested benefits are provided to people who earn less than a certain amount or to those who accumulated less than a certain level of wealth

Advantages of means-testing State healthcare benefits?

• it may be redistributive (taxes)
• it may encourage return to work for those who fail means test

Disadvantages of means-testing State healthcare benefits?

• it may also discourage from self-provision
• benefit recipients may be discouraged from work
• it may create poverty trap
• may be perceived as unfair
• may raise stigma/be seen as degrading

Question 20

Manner of State healthcare provision: direct provision of treatments/services

In what ways may the State directly provide for health treatments and services? List some advantages/disadvantages associated with each method

(10)

Answer 20

• The state may provide its own medical establishments that provide the necessary treatments/services
  
  • the State will have to keep a closer eye on costs/claims control
  • main benefit is State not having to pay for provider profits
• Alternatively the commercial healthcare system may provide services and gov may reimburse the expenditure, partially or fully, allowing the State to benefits from
  
  • expertise
  • well established resources which might otherwise be unaccessible
  • economies of scale
  • transfer of administrative requirements
  • competition among providers=> might reduce prices, encourage innovation, uphold quality of service

Question 21

Manner of State healthcare provision: lump sum cash payment

Briefly describe this method through which the State may provide healthcare benefits (2)

Answer 21

• The State may use a lump payment to cover the actual cost of help needed
• This is deemed appropriate if the health event or need for care creates the need for capital expenditure e.g. redesign a house in light of restricted mobility.

Question 22

Manner of State healthcare provision: regular income

Briefly describe this method through which the State may provide health benefits to its citizens (1)

Answer 22

• The State may also provide an income or care as long as long-term care is needed.

Question 23

Manner of State healthcare provision: salary-rated or flat-benefit

What are the arguments in favour of the State providing health benefits which are either salary-related (1) or flat i.e. fixed (1)?

What increase rate may be applied for income benefits provided by the State? (1)

Answer 23

A salary-benefit will reward those who have contributed more through taxation.

A flat benefit will provide an incentive to return to work to minimise the cost on the State.

Income benefits often increase in payment in line with some form of CPI.

Question 24

Manner of State healthcare provision: differentiation of state benefits

In what way may the State differentiate the health benefits it provides to its citizens? (5)

(ie according to what factors may the State choose to offer different benefits/benefit levels from one person to another?)

Answer 24

State may use the following to differentiate the benefits offered

• benefit level may depend on the severity of disability
• benefit may differ if unemployed
• benefit may differ if educated
• benefit may differ if retired
• benefit may differ if widowed

Question 25

Funding healthcare systems

What are the various means/funding models through which healthcare systems may be funded? (3)

(this question refers to how the State would essentially ‘budget’ for healthcare systems, not what the source of funding would be)

Answer 25

• Pay-as-you-go (PAYG)
• Forward funding
• Using incentives for self-provision to ease the burden of funding needed

Question 26

Funding healthcare systems: pay as you go (PAYG) systems

Give an overview of this method of State healtchcare funding (2)

Briefly describe the key points regarding setting up/calculating this funding model (5)

Answer 26

Overview

• This method is seen as a more short-term approach to funding
• The current working population pays for those currently in need of benefits; if there is a shortfall in any budget year this will be funded by the State from general tax revenues/earmarked funds

In order for this funding model to work, the State must:

• establish degree of state subsisdy to be provided
• estimate outgo for coming year’s (this tax year + future)
• estimate
  
  • coming year’s revenue (tax/other earmarked)
  • adjust this so as to incorporate healthcare outgo

Question 27

Funding healthcare systems: forward funding

Give an overview of this method for funding State healthcare funding (2)

Describe the steps involved in this method of State funding for healthcare (7)

Answer 27

Overview​

• This method is seen as a more long-term approach to funding
• Here State estimates future benefit costs and builds up a provision for these costs before they arise.

The process works as follows:

• Take a view on some future period eg 5 yr or 10 period.
• Analyse the level of state provision at this point.
• Produce model of State outgo at this and intervening years.
• Estimate population and workforce trends
• Forecast taxation revenues
• Calculate a specific healthcare fund such that taxation will over the period meet intended state healthcare provision.
• Intermediate models that part model and part yearly are also used, especially when workforce reducing relative to beneficiaries (aging population)

Question 28

Funding healthcare systems: incentivising self-provision

One of the ways in which the State can help with funding for healthcare is by incentivising its citizens to ‘self-provide’, as this might help alleviate some of the burden on the State.

In what ways can the State incentivise self-provision of healthcare among its citizens? (4)

Answer 28

These incentives can take numerous forms

• State may offer tax relief on premiums for certain insurance.
• The State can exclude some or all of the population from certain aspects of the State benefit system.
• The State can offer a reduction in general taxation where appropriate insurance is in place.
• The State can use direct subsidy to providers to reduce the cost of private purchase of healthcare

Question 29

The role of insurance

Briefly describe the role of insurance in the provision of State healthcare benefits (4)

Answer 29

The role of insurance will depend on:

• historically evolved cultures and expectations
• budget constraints
• differing priorities to different population segments
• the approach taken to funding and self-provision.