Malaysia health reform socio-economics (Part 3)

— David Quek
The Malaysian Insider
Feb 09, 2012

FEB 9 — Ability-to-pay model in healthcare financing

Ability-to-pay encompasses the concept that people or households would choose an economic activity or service according to their capacity to afford such an activity based on their perceived hierarchy of needs, and also what goods or services to give up or sacrifice.

If healthcare or medical services are priced too high and are perceived as too unaffordable, health care considerations might be placed under such a low hierarchy of needs that it could be sacrificed for more urgent day-to-day needs and essentials.

That is why most countries around the world, if not all, offer a basic basket of health services (safe clean water supply and sanitation, childhood vaccinations, preventive child-maternal health services, etc), which are not taxed and are freely accessible to all, without the need to consider affordability or ability-to-pay. Thus, there is no question of having to consider these basic health services as an economic sacrifice for all income groups. The question arises as to how big or wide a basket of such health services, any country can afford to provide, without the need to impose co-payment mechanisms or additional taxes.

The ability-to-pay (ATP) in relation to health care costs may be measured using public finance assessment tools. A health payment model is considered progressive (or regressive) if it accounts for an increasing (or decreasing) proportion of people whose ability to pay, increases proportionally, and vice-versa. In other words if more people can afford or are able to pay for their healthcare costs and continues to do so despite increases in costs, then this is a progressive (hence ‘fair and good’) form of health payment model.

A progressive system means that individuals or households with greater ability-to-pay (ATP) are paying more proportionally in financing health care, and vice versa. Economically, this is considered as equitable. This of course, implies that those who cannot afford to pay more are equitably or adequately subsidised by some form of assisted mechanisms, i.e. usually government allocated taxes (also known as general government revenue, GGR), which provide the bulk of the costs subsidised.

There is, of course, a limit as to how much this GGR can cross-subsidise the poor and how sustainable the allowable basket of health services provided or demanded can go on. Conversely too, for the better-off, the question arises as to how high the ability-to-pay can continue to rise, before the risk of impoverishment or medical bankruptcy sets in.

Using these economic models of computation, Chai Ping Yu and others have found that Malaysia’s predominantly tax-financed system was overall progressive with a Kakwani progressivity index of +0.217 (range -2 being most regressive to +1 being most progressive) and concluded that “Malaysia’s two-tier health system, of a heavily subsidised public sector and a user charged private sector, has produced a progressive health financing system.”

What is interesting is that our own Health Ministry’s Health Economic Study in 1998/99 also points to an overall fairness of financial contribution index of 0.982, which is close to 1 of perfect equality, indicating that in Malaysia, health financial contribution is fairly and equitably distributed!

Thus, it is arguable if the current scenario has changed so much that these indices reflect an untenable position of unfairness in financing options when it refers to Malaysia’s health expenditure. Aside from Health Ministry planning division projections of healthcare costs, based on current trends and trajectory, where is the economic evidence to push us in another direction for such aggressive health reform plans?

For the poor, this does not make much more sense. Although arguably imperfect, we already have a reasonably progressive and equitable tax-based total health financing system, which is pro-poor, with our richer citizens paying taxes and more, for their own private healthcare of their own choice.

Public health system can be improved

It is true that for the poor, healthcare access can be improved and made more seamless and equitable. Among health officials, there is mounting acknowledgement and expectations that the public sector could do much more to match the competency and efficiency believed to exist in the private sector. Our health authorities fear that the chasm of public-private sector healthcare services would continue to widen, so much so that inequity of access could become serious bones of contention and attract adverse public opinion.

As more people become more knowledge empowered and demanding, more and more too among the perceived disenfranchised would find the congested public sector services increasingly unacceptable and unsatisfactory. So there is a great need for the public sector to modernise and improve.

While we recognise the fact that the clogged-up public sector services are bursting at the seams and are harried by long queues and wait times, and occasional long delays in elective surgeries or therapies, there is no reason why such services cannot be made more efficient or cost-effective and productive. Revamping the public sector may be the more prudent way forward, by tightening up all the leakages and strengthening its service quality and safety, perhaps by greater injection of allocated government taxes and revenues.

Although there’s increasing talk that subsidies for health care would be cut and that the public is expected to help contribute more to help defray the rising costs, this has not gone down well with our citizens. It appears that the government is ready to impose more cost-sharing initiatives. It does not mean however, that many people are agreeable to contributing more toward helping to finance this improvement.

This is especially so, if this obligatory co-payment or tax of sorts could also reduce disposable incomes even more disproportionately for the poor or even the middle-income public. For the poor, the additional burden of any extra deduction for health taxes could prove to be extremely burdensome. Ironically, a recent 2007 World Bank Report also found that our current public health sector subsidy is both inequality-reducing and pro-poor.

Social scientists studying our health system and its financing mechanisms at local and foreign universities have also argued that the private sector does serve as a systematic safety valve for those who can find the resources to tap into this sector and access modestly-priced private medical services, thereby affording much relief from the public sector congestion. There have been studies which show that the private sector caters to a different segment of patients or cohort of people, who are able to afford the current prices of private care, and that the system appears robust and functioning well.

Is our out-of-pocket (OOP) spending on health too high?

Remember that one of the major concerns of the government is that Malaysians are paying too much out-of-pocket for healthcare, i.e. around 40.7 per cent, which is being targeted to be reduced to a manageable 25 per cent or less. But we are aware that our entire total expenditure on health (TEH) forms 4.8 per cent of the GDP.

In 2009, the national health accounts data estimated our nation’s TEH to be around RM35 billion, some RM14.6 billion from the government coffers and RM18.0 billion from private spending and other third party payer (TPP)/insurance options. Insurance and third party payment (TPP) contribute about 14.4 per cent of the private sector health expenditure, or around 6 to 7 per cent of the TEH.

With the proposed imposition of social health insurance by 2018, the health reform plan is supposed to be able to expand its coverage while reducing the government subsidy for healthcare, while mandating that the public contribute towards this compulsory health insurance.

But this is a grandiose plan, which might not be implementable so soon so fast, because of technical and practical requirements that are often not foreseeable in the planning stages. There are in fact, grave doubts that private spending (including out-of-pocket payments) can be so drastically reduced so precipitously within the next few years or so!

Increase government budget allocation to health, not another tax like SHI

Let’s return to the problem at hand. Have we indeed spent enough for our health system to function well? Or can more be done from the point of view of the government through its general tax offerings? Instead of pushing forward this implementation of a new public contribution towards another form of taxes (SHI), could the government in fact contribute more to strengthen the public sector so that health services could be made more reachable and seamless, which the public (whether rich or poor) can access without any constraining co-payment?

In fact all through the recent years, the government’s contribution from general tax allocation is a paltry 2.0 to 2.2 per cent of the GDP, although it does form around 44 per cent of the total expenditure on health, TEH. Imagine if this can be increased or doubled, then clearly the proportion of out-of-pocket, OOP payments would be very much different and lower, e.g. if the government were to allocate higher tax revenues toward healthcare to, say, 4 per cent of our GDP (to around RM30 billion per annum), then our OOP would fall to around 25 to 28 per cent of the TEH, which is an acceptable number.

What is interesting to note, is that since 1995 to 2006, the out-of-pocket, OOP spending for Malaysians has been hovering consistently around 73 to 75 per cent of the total private health sector expenditure (around RM12 billion to RM14 billion; the other remaining private sector component is by insurance or third party payers). Despite official projections, it has not shown any trends of increasing, although of course this cannot be predicted to remain so in the future. In fact, a recent in-depth analysis by health economists have shown that Malaysia, despite having a relatively high 40 per cent OOP expenditure on health, is one of the Asian countries which have thrived well, and which has not unduly increased the risk of impoverishment for its citizens.

  1. #1 by dagen wanna "ABU" on Thursday, 9 February 2012 - 12:21 pm

    Errr whaaaa this is tooo deep for me to understand. So what is the conclusion? I get it. Must be something like well maybe the idea is bad and so umno is bad. Yeah. I guess that must be it. Yeah!


  2. #2 by k1980 on Thursday, 9 February 2012 - 12:23 pm

    Make this 10% salary cut for healthcare insurance an issue in the coming 13GE, and we will be able to send off the trash that is BN.

  3. #3 by k1980 on Thursday, 9 February 2012 - 12:58 pm

    Employees will be forced to contribute 10 per cent of their monthly salary to the 1 Care scheme. That is almost equivalent to what employees contribute to the EPF! And what do we get for paying this extortion rate to the health scheme? Six visits per year to an assigned general practitioner (GP) who will prescribe only cheap generic medicine. You want better medicine? Too bad you have to pay yourself.

    By the way, what do we pay our taxes for? Part of taxpayers’ money is already being used to finance the public healthcare system. Why do Malaysians have to pay an additional 10 per cent of their salary to the 1 Care scheme with no additional health benefits?

  4. #4 by drngsc on Thursday, 9 February 2012 - 2:25 pm

    Hi David,
    lets us cut off all the rhetoric. We have both examined this 1Care proposal, where do you stand on this issue? Is this 1Care good for Malaysia at this point in time, or not. If not, what is your proposal, as one who has study the all of healthcare economics!!!

    I am quite clear. Any increase in taxes ( direct or indirect, in any form ), to supposedly improve a system that is not broken, is bad for Malaysia at this point in time. We do not need a transformation now. We need to further improve the system, with no new mandatory contribution by the people.

    We need to change the tenant at Putrajaya. This 1Care thing only give us one more reason why. GE 13 is coming. make your choice wisely.

  5. #5 by SENGLANG on Thursday, 9 February 2012 - 3:02 pm

    The 1 Care proposal is simply another set of well thought of scheme to get certain cronies well off.

    Much of the money have long wasted via rampant corruptions and wastefulness. It was not the problem to allocate more on healthcare but the coffer is drying fast, so they have to think of a scheme to top it up.

  6. #6 by Loh on Thursday, 9 February 2012 - 3:04 pm

    NHS reform in the UK is about cutting bureaucracy and putting resources into the actual provision of health services, to cut down waiting time for consultation, surgery and other health services, and to improve the health conditions of the people. But 1-care in Malaysia is adding bureaucracy by making private health services part of government bureaucracy. Health services would be adversely affected when funds have to be diverted to keep non-health personnel such as in the reimbursements to private clinics for fees, and in making matches of patients to clinics/doctors. The worse of 1-care relates to mandated health insurance payment to government 1-care scheme, and yet the insurers lose their right of choice.

    All the disadvantages that 1-care entails are imposed on the people so that the powers-that-be can choose his cronies to profit from the 1-care scheme. Institutionalized corruptions legally carried out is worse than absolute monarchy.

  7. #7 by Winston on Thursday, 9 February 2012 - 6:07 pm

    Well, well, well!
    Folks, there’s no need to write verses and chapters about
    anything hatched by the BN.
    Don’t waste time going around the mulberry bush.
    Take the kid-gloves off!!!
    We all know from five and a half decades of experience that
    they have nothing that will promote the interests of the citizens
    of this country.
    They only promote their own interests.
    And here, we are still arguing like school kids about what to
    do with this infamous government.
    And still talk about 1this and 1that when we all know that
    all these Ones are just cock and bull!
    It’s well past time to talk straight!
    Don’t waste any more time, go forth and get as many voters
    as you can to vote for the PR, especially in the rural areas and
    Especially in the so-called fixed deposit areas in East Malaysia.
    Hit them hard where it will hurt most.
    This will also wipe the perennial smirk off Mamak’s face!!!

  8. #8 by Loh on Thursday, 9 February 2012 - 6:35 pm

    ///But Dr Hasan told state-owned TV channel RTM1 in an interview on its show “Dialog” aired last night “Wouldn’t it be wonderful if without counting on whether it is government or private service the public could afford easy access to healthcare a simplified access with a high responsive rate ”.///–MalaysianInsider

    It would be wonderful if the people are not asked to pay more. The new levy for 1-care at any percentage is a new and additional cost. It cannot be wonderful if the government decides that the citizens pay the government to determine how the money are put to use!

    People do not care where they receive treatment as long as they get cured. If the government can improve on its public health services which has no profit motivation, it should be able to provide health services cheaper than those available from private health services. With efficiency, the waiting time would be reduced. Through 1-Care, the government transfers people who normally get treated in public hospitals to private hospitals and 1-care mandates that those who pay full medical bills in the private hospitals to subsidize more people, with the 10% levy, to compete with them for treatment in the private hospital, and at the same time driving up costs because of added bureaucracy to be carried by 1-care.

    It is said that because of the proliferation of private hospitals set up for profit motives some of them are not economical. Those with connections is seeking government to bail them up by turning away from government clinics to private hospitals. In addition to using government funds, it forces people, particularly those in the private sector, to pay into 1-care.

    BN should be removed by GE 13. Pakatan Rakyat should make 1-care the election issue.

  9. #9 by k1980 on Friday, 10 February 2012 - 3:14 am

    Each year, Malaysians will pay RM44.24 billion for health care; to be called National Healthcare Hospitals and clinics featuring an integration of public hospitals and clinics, private hospitals and private general practitioners. It is in reality another privatisation of public and nationalisation of private healthcare facilities (Like any previous BN government privatisation con, some BN crony will benefit;
    Upon privatisation, all healthcare will be managed and handled by 1Care which will get RM44.5 billion a year; and
    The administrative cost is likely to be 10 percent or about RM4.5 billion! (Who is the crony who will be getting this year in and year out?) You need not look far, just look at the ongoing expose of the National Feedlot Corporation financial fiasco, now dubbed the Cowgate Scandal by Malaysians, to determine what sort of health services you can expect from 1Care.)

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