Understanding health

services and health systems

DR. OLGA PENINA. NICOLAE TESTEMITANU USMF
LEARNING OBJECTIVES

• define health (care) services and classify

them by different criteria
• understand health system organization, their
main goals and functions
• distinguish between the principal ways of
funding health service
• classify health systems based on their
sources of funding
LEARNING OBJECTIVES

• define health (care) services and classify

them by different criteria
• understand health system organization, their
main goals and functions
• distinguish between the principal ways of
funding health service
• classify health systems based on their
sources of funding
 Defining health services (1)

Health services are defined as the full

range of activities that are undertaken
primarily for health reasons.

Health services are first and foremost

undertaken to have a direct effect on
people’s health.

The activities with indirect effect on people’s

health are excluded from health services.
Source: Nick Black & Reinhold Gruen, 2005. Understanding Health Services.
 Defining health services (2)

So it is important to consider health care as an

activity with a primary intention to improve people’s
health, as opposed to other activities which, while
they may have an indirect effect on health, do not
have this as their primary intent.

The spectrum of health services range from health

promotion and disease prevention, through curative
care, rehabilitation and long term care, to palliative
care and custodial care.

Source: Nick Black & Reinhold Gruen, 2005. Understanding Health Services.
 Types of health services (1)

• by the place in the evolution of a disease:

preventive, curative, rehabilitation, long-term care,
custody

• by the technology involved: laboratory, radiological,

etc.

• by who delivers health care: medical, nursing,

surgical

• by the recipients of care: e.g. mother and child care

 Types of health services (2)

WHO distinguish personal and population-based health

services:

• Personal health services are those that are delivered

to individuals on a one-to-one basis such (e.g.
surgical operation)

• Population-based health services are those delivered

to a group or an entire population (e.g. immunization
campaigns)
 Levels of health services

Primary care: formal care that is the first point of

contact for people. It is usually general rather than
specialized (e.g. general practitioners).

Secondary care: specialized care that often can

only be accessed by being referred by a primary
care worker. It is usually provided in local hospitals.

Tertiary care: highly specialized care that often can

only be accessed by referral from secondary care. It
is usually proved in national or regional hospitals.
 FORMAL AND LAY HEALTH CARE
80% of all health care is provided
by lay people

Lay people may be involved in

health care in three main ways:

1. Providing information and

advice
2. Emotional support
3. Practical assistance

Distinction between lay carer

and formal carer:

1. Settings
2. Training
3. Rewards

Source: Nick Black & Reinhold Gruen, 2005. Understanding Health Services.
 Donabedian’s health care triad

INPUTS PROCESSES OUTCOMES

(STRUCTURE) • Patient-related • Final
• Material processes • Mortality
resources • Organizational • Morbidity
• Intellectual processes • Quality of life
resources • Intermediate
• Human • Blood pressure
resources • Improved
knowledge
• Functional
ability

“Good structure increases the likelihood of good process, and good

process increases the likelihood of good outcome” (Donabedian 1988).
LEARNING OBJECTIVES

• define health (care) services and classify

them by different criteria
• understand health system organization, their
main goals and functions
• distinguish between the principal ways of
funding health service
• classify health systems based on their
sources of funding
WHO definition of health system

“A health system consists of all

organizations, people and
institutions producing actions
whose primary intent is to promote,
restore or maintain health”.

Source: WHO, World Health Report, 2000

Boundaries of health system

Activities with indirect effect on

people’s health are excluded
(e.g., the general education system
is outside the boundaries of the
health system)
Health systems (HS)

• Complexity: HS are extremely complex. They have

common features, but are strikingly different

• Environment: each HS is influenced by its economical,

political, historical, cultural environment

• Pluralism: there is a plurality of health systems in most

countries

• Health systems are dynamic & evolve over time by

means of reforms
 Minimum requirements for health system

• Access to quality services for acute

and chronic health needs;

• Effective health promotion and

disease prevention services;

• Appropriate response to new threats

as they emerge.
WHO. Improving Performance. World Health Report 2000, Health Systems.
 Three main goals (objectives) of health
system

According to the World Health Organization, each

national health system should be directed to achieve
three overall goals (objectives):
1) good health
2) responsiveness to the expectations of the
population
3) fairness of financial contribution.

WHO World Health Report, 2000

 Four main functions of health system

1. Financing

2. Generation of human and physical resources

3. Organization and management of health

service delivery (provision)

4. Stewardship (often referred to as governance or oversight)

World Health Report 2000, WHO

 WHO Conceptual framework of health
system

World Health Report, WHO 2000

LEARNING OBJECTIVES

• define health (care) services and classify

them by different criteria
• understand health system organization, their
main goals and functions
• distinguish between the principal ways of
funding health service
• classify health systems based on their
sources of funding
 The two basic ways of paying for
health services
Out-of-pocket payments:
this is the simplest and
earliest form of transaction
between patients
(households) and
providers.

Third-party payments
(financial intermediary):
where providers are paid
by the insurance
company or a
government.
Source: Nick Black & Rosalind Raine, Financial Management in Health Services
 The health care triangle

In most of the countries

people choose to finance
health services through
payments to a third party
(purchaser).

The third party may be a

public or private body.

Reasons:
1. High costs of health
services
2. Equity

Source: adapted from Reinhardt (1990)

 HEALTH SYSTEM FINANCING

Health system financing is “the

process by which revenues are
collected from primary and
secondary sources, accumulated
in fund pools and allocated to
provider activities”

Source: Murray and Frenck, 2000

 FOUR FUNCTIONS OF THE HEALTH SYSTEM

Financing
Revenue collection
STEWARDSHIP

GENERATION
RESOURCE
Fund pooling

Purchasing

Delivery services (provision)

Population
Personal
-based
health
health
services
services

Source: Murray and Frenck, 2000

 Actors of health care financing system
(McPake et al 2002)

One can interpret a health system as being made up of users, payers,

providers and regulators. The 'relations' between them are referring to four
key functions of health systems.
Source: Mills and Ransom, 2001
 Financing of health systems

1. Revenue collection: the process by which a

health system receives money

2. Fund pooling: a way in which revenue is managed

to ensure that the risk of having to pay for health
care is borne by all rather than by the individual.
(contributors to the pool share risks).

3. Purchasing: the process by which funds are used

to pay providers; the process of allocating funds
to the providers.
 REVENUE COLLECTION

The process of revenue collection is specifically

concerned with:

• who pays?
• What are the type of payment?
• who collects it?
 Revenue collection: who pays?

Who pays? What are the “sources” from which funds

are taken?

❖ Individuals
❖ Households
❖ Employees
❖ Employers
❖ Foreign governments
❖ NGOs and charities
Revenue collection: financing mechanisms

How are contributions made? What is the “type” of

payment?

❖ Direct and indirect taxes

❖ Compulsory insurance contributions and payroll
taxes
❖ Voluntary insurance premiums
❖ Medical savings accounts
❖ Out-of-pocket payments
❖ Loans, grants, and donations
 Structure of total health financing
by world regions

Generally, most high-income countries use taxation and social health

insurance. By contrast, low-income countries depend far more on out-of-
pocket financing and donor contributions.
 Revenue collection: collection agents

Who collects the revenue? Which agencies can be

involved in this process?

❖ Government agencies – central, regional, local

❖ Independent public body or social security agency
(insurance agent)
❖ Private “non-for-profit” insurance fund
❖ Private “for-profit” insurance fund
❖ Direct to providers
 Private and public methods of funding
health care systems
Health care
financing
systems

Privately Publicly
financed financed

Out-of- Taxation
Private health Social
pocket based
insurance insurance
payments systems

Depending on the sources of financing health services, one can

distinguish publicly and privately financed health systems.
 Four main financing mechanisms

Four main types of financing mechanisms are as follows:

1. Taxation
2. Social health insurance (compulsory insurance
contributions)
3. Private health insurance (voluntary insurance
premiums)
4. Out-of-pocket payments

Further, let’s focus on the advantages and disadvantages

of the first three ones.
 Main financing mechanisms:
1. TAXATION
General versus hypothecated
Taxes may be raised for unspecified (general taxes)
purposes or specifically for health needs
(hypothecated taxes)

Hypothecated taxes are more transparent than

general taxes, but less flexible in relation to investing
more resources where needed.

General taxation enables tax to be drawn from a far

wider variety of sources.
 Main financing mechanisms:
1. TAXATION (cont.)
Direct versus indirect
Direct taxes are levied on individuals, households or firms. Indirect taxes are
taxes on transactions and commodities (e.g. tax on the sales of goods,
export, import taxes)

Direct taxes, based on incomes, are progressive since the richest

population contributes a higher proportion of their income than the
poorest.
In low-income countries, the tax-based option can be impossible.

Indirect taxes are regressive, since the rich pay a relatively smaller share of
their income than the poor.

Taxation on harmful goods (e.g. tobacco) may reduce

consumption and improve health
 Main financing mechanisms:
2. SOCIAL HEALTH INSURANCE

• Social health insurance contributions are usually compulsory

and shared between the employee and the employer
(contributions from payroll).

For example, if the total social security contribution is 6%. This

may be made up of a 3% contribution by the employee and a
3% contribution by the employer.

• The collection agent can vary across countries from a single

national insurance fund (like in Slovakia) to local branches of a
national fund (Romania), to smaller independent funds
(France).
 Main financing mechanisms:
2. SOCIAL HEALTH INSURANCE (cont.)
Advantages:
• Ability to create a large risk pool through the prepayment of
funds (like taxation-based funding)
• Funds for health care are clearly identified and do not
compete with other demands
• More socially acceptable to the public

Disadvantages:
• Increasing labour costs
• The amount raised varies with the number of people employed,
so the health system has no guaranteed income
• the cost of collecting funds from employees and employers
(extra costs that do not arise with tax-based systems)
FINANCING MECHANISMS IN OECD COUNTRIES
OECD: ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT
 Main financing mechanisms:
3. PRIVATE HEALTH INSURANCE

Private health insurance is defined as a set of health

services that are financed by a third party through private
non-income related payments called premiums.

Enrollment in private health insurance is voluntary.

Private health insurance is one of the four major

mechanisms used in financing health care, but in
practice, it plays a limited role in most countries.
Health expenditure by source of funding in
OECD countries

OECD: Organisation for Economic Co-

operation and Development
 Three main models of health systems

There are three models of health systems

based on the sources of funding

1) Tax-based system (Beveridge model)

2) Social health insurance (Bismarck

model)

3) Private insurance model

 Three main models of health systems:
1. Tax-based system (Beveridge model)
• In 1942, The British National Health System (NHS) was
established as a major part of social reforms
recommended by William Beveridge to provide health
services for the whole population. The UK extended the
universal coverage of health services in 1948.

• Funding is based on taxation, i.e. funds from those who

pay taxes are used to finance the provision of health
services to the general population.

• Funds can flow directly to health providers or through an

intermediary that purchases services on behalf of the
population (ensuring a purchaser-provider split).
 Three main models of health systems:
1. Tax-based system (Beveridge model) (cont.)
• Very progressive, i.e. the rich pay a higher proportion of
their income than the poor.
• The population coverage has no limitations in theory
• Tax funding is the only reliable method for covering hard-to-
reach groups
• Administrative simplicity
• The healthcare budget has to compete with other state
demands, such as defence
• Health services are provided by mainly public providers
• Countries: UK, Ireland, the Nordic countries (Norway,
Finland, Denmark, Sweden, Iceland), Spain, Portugal, Italy,
Canada, Australia, New Zealand
 Three main models of health systems:
2. SOCIAL HEALTH INSURANCE (BISMARCK MODEL)

• Social health insurance was introduced in Germany

in 1883 by Otto von Bismarck.
• Funding is based on compulsory contributions from
payroll, usually divided between the employee and
employer.
• The membership is compulsory.
• The social health insurance system is run by public
bodies, either single or multiple organizations.
• Funds for health care are clearly identified and do
not have to compete with other demands on
government, such as defence, housing, social
insurance.
 Three main models of health systems:
2. SOCIAL HEALTH INSURANCE (BISMARCK MODEL) (cont.)

• Since social health insurance is a form of employment tax

(i.e. it is paid by those in employment), this may discourage
employers from creating new jobs and lead to under-
reporting of salaries.

• The healthcare system financed through social insurance

contributions has no guaranteed income since the amount
raised will vary with the number of people employed.

• The system is complex and expensive to administer.

• Countries: Germany, France, Netherlands, Belgium, Austria,

Switzerland, Luxembourg, Israel, Japan, Central and South
East European countries, Former Soviet Union countries.
Aspect Tax funding Social health insurance
Source of All who fall within the Employers and employees
funding taxation (direct, indirect in the formal sector
taxation)
Equity of Generally progressive Less progressive
financing
Population No limitation in theory Depends on the size of
coverage formal sector
Coverage of No barriers in principle Needs additional
hard to reach mechanisms
groups
Health care No link between payment Contributions and benefits
benefits and benefits closely linked
Demand on Low management costs High management costs
management
Political Share allocated to health is Funds for health care are
dependent on political clearly identified
decision-making process
Economic Depends on taxation Increases cost of
implications structure. Does not need to employment
be tied to employment
 Three main models of health systems:
The private insurance model
• The “private” insurance model is also known as the
model of “independent” customer.

• Funding of the system is based on premiums paid

into private insurance companies.

• In the USA, healthcare funding is predominantly

private, except for social care for the poor and
elderly through Medicare and Medicaid
governmental funded programmes.

• The great majority of healthcare providers belong to

the private sector
LEARNING OBJECTIVES

• define health (care) services and classify

them by different criteria
• understand health system organization, their
main goals and functions
• distinguish between the principal ways of
funding health service
• classify health systems based on their
sources of funding