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Brief analytical summaries or syntheses #29

Responding to the challenge of financial sustainability in Estonia’s health system :

one year on

Summary

This WHO follow-up report looks at changes in Estonian health care financing one year after a comprehensive WHO analysis. It reviews developments in four areas where policy recommendations had been made.

Background

Health system financial sustainability has always been a central health policy issue, but the recent financial crisis has forced it to the top of the policy agenda the world over. With the aim of supporting a financially sustainable, high-performing health system, this report assesses health financing policy in Estonia. It looks at how well placed current financing policy is to enable goal attainment in the medium-to-long term (to 2030) and identifies ways to strengthen financing policy.

The report is the result of a year-long process of stakeholder consultations and expert analysis initiated by the Ministry of Social Affairs in 2009 in partnership with the Estonian Health Insurance Fund (EHIF) and the WHO Regional Office for Europe. It adds to previous analyses of the Estonian health system in three ways.

First, it joins an assessment of current health financing policy in the context of broader macroeconomic concerns with projections of health sector revenue and expenditure trends.

Second, the projections go beyond existing work by drawing on the most recent data and accounting for changes in utilization patterns.

Third, the report’s analysis and recommendations are not based on technical assessment alone but also on the views and values of health system actors and political representatives as expressed in interviews and workshops in Estonia.

Analysis and results

Strengths and weaknesses of Estonian health financing policy

Estonia’s health system is largely publicly financed through an earmarked tax on wages (the social tax). Around two thirds of total health financing comes from the social tax, around a tenth from the central government budget and just under a quarter from private sources. Most public funds for health care are pooled by EHIF, an independent and autonomous agency responsible for purchasing a broad range of health services on behalf of its members.

The proportion of the population entitled to EHIF benefits is high (over 95%) and has recently been extended to cover the long-term unemployed – a good example of an effective policy response to changing macroeconomic circumstances. The stated objectives of the health insurance system are solidarity, limits on cost sharing and equal access to care for all those covered. The central government finances services available to the whole population such as emergency care, public health programmes and immunization.

The single payer system has served well since it was established in the early 1990s. Central revenue collection, national pooling and centrally set prices contribute to efficiency in resource use, while the breadth, scope and depth of coverage result in generally equitable access to primary care and most specialist services. In addition, EHIF is internationally recognized for its efforts to engage in strategic purchasing, its high levels of transparency and accountability to the public and its low administrative costs. Stakeholders were unanimous in considering the earmarked social tax and EHIF’s prudent management of resources to be major causes of stability.

The separation of health insurance from other forms of social insurance (e.g., pensions and unemployment benefits) is a further advantage, which should be preserved to ensure clear lines of accountability and transparency in the social sector as a whole.

Alongside these strengths, the report highlights some areas of concern. Public spending on health as a proportion of general government expenditure is low by European Union (EU) standards and fell between 2000 and 2007. This suggests that health spending is not being given priority within public spending as a whole. Public spending on health is also low as a proportion of gross domestic product (GDP), reflecting the relatively small size of government in Estonia.

There was broad acknowledgement among stakeholders of the constraints posed by inadequate public spending on health. Many recognize that future reliance on the social tax may present challenges. However, while stakeholders favour more reliance on central government financing, they are concerned about its potential instability.

Low levels of public investment in health mean that the private share has grown significantly, mainly from rising out-of-pocket payments (OOPs). The growing demand for health care is thus being met privately, rather than collectively. The changing balance between public and private financing, particularly the rise in OOPs, can undermine health system objectives in four ways.

First, it compromises the efficiency gains of health insurance pooling. Second, financial protection for households has fallen as OOPs have increased, particularly among older and poorer people, mainly for outpatient prescription drugs. Third, although health financing policy is mildly progressive overall, echoing stakeholder views about the extent of solidarity in the health system, the degree of progressivity (and thus equity in financing) has decreased significantly since 2000, mainly due to the rising share of OOPs. Fourth, coverage rules and user charges undermine the principle of access based on need rather than ability to pay. Evidence shows that poorer households forego seeking needed health care due to the out-of-pocket costs involved, which distorts equity in the use of health services.

Conclusion

Health financing policy in Estonia faces several challenges. Population ageing poses a moderate challenge to long-term financial sustainability. The major challenges come from factors directly related to financing, notably, relatively low public investment in health, public contribution mechanisms linked to the labour market and weaknesses in resource allocation, purchasing and provider payment. The good news for policy-makers is that these challenges are amenable to multiple policy levers. Strengthening health-financing policy can address many of the inefficiencies in resource allocation and health care utilization that exacerbate cost pressures. The health system’s financial sustainability rests on political decisions about how, and how much, to invest in health and how resources should be allocated. These decisions need to be made sooner rather than later since the projections and evidence of existing inefficiencies suggest that the costs of inaction will be high.

Implications and recommendations

The public revenue base for the health sector should be broadened to ensure that the health system is better able to achieve its objectives now and in the longer term.

Health financing policy can be further strengthened to manage cost pressures better and improve performance.

Action is needed on both fronts to generate sufficient revenue and manage expenditures.

Source

Responding to the challenge of financial sustainability in Estonia’s health system : one year on