FINANCING HEALTHCARE: An

Introduction
Joko Mulyanto
Department of Public Health & Community Medicine
Jenderal Soedirman School of Medicine
OUTLINE
Background
Purpose of Healthcare Finance
Functions of Healthcare Finance
Alternative for Healthcare Finance
Theoretical Basis of Government
Intervention.
Methods of Healthcare Finance
Health Insurance
Provider Payment System
BACKGROUND
Health is basic need for every people
irrespective their background.
Healthcare is needed to maintain health
status of the people.
The way to provide adequate healthcare is
by develop a Health System
Two most important components of Health
System are:
- Healthcare delivery system
- Healthcare financing system
SIGNIFICANCE of HEALTHCARE
FINANCING SYSTEM
Healthcare is costly
Demands of healthcare tend to
increase (unlimited)
Scarcity of resources
The trade-off between efficiency and
equity

PURPOSE OF HEALTHCARE
FINANCING
Make funding available
Set the right financial incentives for
providers
Ensure all individuals have access to
effective public health and personal
health care
FUNCTIONS of HEALTHCARE
FINANCING
Revenue collection
Pooling resources
Purchasing of interventions
ALTERNATIVE TO FINANCE
HEALTHCARE
DELIVERY /
PROVISION
FINANCE
Public
Public
Private
Private
1 2
3 4
PUBLIC or PRIVATE
Public : Government intervention / role
Private : Market competition

ECONOMIC CHARACTERISTICS
OF HEALTHCARE MARKET
Market failure; WHY ?
Uncertainty and demands of insurance
Diseconomies of small scale
Moral Hazard
Adverse selection
Asymmetric information
Licensure
Externalities
CONSEQUENCES OF MARKET
FAILURE
The need of government intervention
The extent of government intervention
depends on social and ideological
consideration.
The characteristics of national health
system will be heavily influenced by
type of government intervention.
METHODS TO FINANCE
HEALTHCARE
General / Direct taxation
Public / Social Health Insurance
Private Health Insurance
Out of Pocket
Miscellaneous, such as HMO, Medical
Saving Account
GENERAL TAXATION
Most equitable
Progressive
Public monopoly
No market competition
Resources: General tax, earmark tax
Effective collection method
No adverse selection
Good control
Generally without cost sharing
SOCIAL HEALTH INSURANCE
Run by government body or quasi
governmental.
Resources: Payroll / income related tax
Percentage of income
Sharing contributions among employer,
employee, government
Less progressive
No adverse selection
Monopoly power (single payer)

Private Health Insurance
Classic oligopoly
Risk adjusted / experience rating
Cream skimming
Adverse selection
Moral hazard
Fee for service reimbursement
OUT OF POCKET
Most regressive
Resources: Directly from patients, in
cash.
Inequitable
Commonly found in Less Developed
Country

Health Maintenance Organization
One of Managed Care forms
Part of PHI
Integration between delivery and
financing system
Capitation Method / PMPM
Medical Saving Account
Individual saving account obliged by
government
No pooling
Percentage of Income

THANK YOU
djokomoeljanto2008