Methods of Financing Healthcare

James Thompson

Government Actuary’s Department

United Kingdom

Health expenditure as % of GDP (OECD 2004)

0

2

4

6

8

10

12

14

16

% o

f G

DP

Projections of healthcare spending

>Significant pressures on future costs:>Demographic ageing>Increasing expectations>Technological advances

>Latest figures from UK Treasury suggest public health spending will rise from 7.4% of GDP in 2005-06 to 9.9% of GDP in 2055-56>Such projections are very uncertain, much more so than for pensions and other cash benefits

Healthcare in the UK

>86% of healthcare spending is public through the National Health Service (NHS)>NHS established in 1948 with the aim to provide medical care that is:>Universal>Comprehensive>Free at the point of delivery

>Financed by mainly by taxation, plus small co-payments and social insurance contribution

The political agenda

>Previously there was debate over the appropriate method of financing and providing healthcare>Conservative government gave some support for expanding the involvement of the private sector through giving incentives to “contract out”>However, agenda has changed: agreement by both main political parties that the NHS should be the mechanism for providing care>Debate has shifted to how resources can be used most effectively

The original NHS

>Centralised organisation, headed by Secretary of State and the Department of Health (DoH)>DoH allocated resources between regions>Regional health authorities distributed funds to individual hospitals and remunerated general practitioners (GPs)>GPs were not formally employed by the NHS

Reforms in the 1980s and early 1990s

>Initial reforms in 1980s:>Contracting out of services>Development of professional managers

>In 1990s more fundamental changes with the “internal market” – an attempt to bring private sector financial discipline to the NHS – these reforms were reversed by the current Labour Government>Private Finance Initiative (PFI): hospital (and other) infrastructure financed by the private sector which the State pays to use

The current structure

Strategic Health Authorities

Primary Care Trusts

Secondary care providers

NHS hospital trusts

Primary care providers

General practitioners

Other providers

Includes private

Department of Health

Secondary care providers

Foundation trusts

Strategic bodies

>The Department of Health has a reduced role, concentrated mainly on the strategic development of health care and overseeing performance>Strategic health authorities monitor the roles of the buyers and providers of healthcare for their region>Primary Care Trusts (PCTs) commission and pay for healthcare, and therefore receive a large portion of the NHS budget>However, increasingly GPs (or groups of GP surgeries) act as the commissioners of hospital care

Healthcare providers

>General practitioners>NHS hospital trusts>Foundation Trusts>Other providers, including private sector and overseas

Financing and funding

Treasury

Department of Health

Primary Care Trusts

Private providers NHS hospital & Foundation trusts

Capital charges

General practitioners

Financing

>Department of Health determines allocation of funding between PCTs >System of contracts between the commissioners and providers of care>Standard scale of charges>Intention is that patients are given a choice of provider and “money will follow the patient”

Health service efficiency

>Large increases in NHS funding over recent years>However patients are more concerned with outputs rather than inputs>Office of National Statistics has made investigations of NHS productivity by comparing inputs and outputs>A quality adjustment is applied to capture the impact of changing effectiveness of treatments (eg as measured by survival rates) and other factors such as waiting times>Results were mixed