The Rule of Taxation and Private Insurance in Funding Health Care - Essay Example

The rule of taxation and private insurance in funding health care Introduction: Sustainable systems in healthcare are based on consumable resources,capital and reliable access to all peoplehumans. In order to secure these inputs, it is important to provide financial resources to pay salaries for the health care workers , to pay for investments in buildings and equipment, and to pay for medications and other consumable resources. Most countries around the world have some fears of increased expenditure and limited resources. These concerns about the crisis in health care expenditure has led to some changes in health systems, including their organization and financing. Most systems in European countries rely on various sources of funding. The majority of the funding comes from public expenditure through taxation and social health insurance. Except for Azerbaijan and Georgia, the revenue sources are funded through out-of-pocket payments. United States is the only high-income country which relies on private insurance method to provide insurance to cover the majority of its population. In fact, more than 70% of the population in the United States uses private health insurance coverage for their health services (Mossialos, et al 2002). According to Chang and colleaguese taxes in the United Kingdom is the main source of funding for the public healthcare system. However, private health insurance is another source of funding as the country has a private health sector which provides health services for those with private health companies. This is normally funded by the customer paying directly or supported by various funding schemes in the healthcare system. Health insurance system in the UK is controlled by National Health Services (NHS); it is seeking to publicly fund all healthcare providers around the country. About 85% of healthcare expenses are covered by the government with the assistance from international agencies (WHO). The remaining 15% of the expenses are covered by the private sector, funded by private health insurance, which is used by staff and some individuals who want to get the service directly and quickly. Private companies such as BUPA Aviva AXA and Medicare International, offer private health insurance to cover residents in the United Kingdom. This essay will compare and contrast the public (taxation) and the private insurance approaches of funding for health care. It will also identify the strength and weakness of these two approaches. Furthermore, it will analyse some issues arising from the use of these methods. . It will also discuss how managers are implementing these appraches. Main body: Taxation approach: In most European countries, taxation plays an important role in the financing of health care. Taxes are a source of revenue in some countries such as Denmark and Romania, Spain, Sweden, Poland and the United Kingdom. While social health insurance is a source of revenue in Hungary, France, Croatia, Germany, the Netherlands, and Slovakia. Some countries such as Belgium, Switzerland, and Greece fund their health care using both taxation and social health insurance. Taxes are either direct or indirect. Direct taxes, are levied on individuals, households and companies; while ndirect taxes are levied on transactions and commodities. However, both direct and indirect taxes may be imposed at the local level or even the national and regional levels. Taxes are usually general and are allocated to a specific area of expenditure(Mossialos,et al 2002). The taxation funding is different from country to country and from one system to another. For example, In the UK, the source of funding for health care is the direct tax, while tax hypothecated is a source of funding for health care in both France and Italy. Since 2000, Italy began using the local taxes and soon became the main source of health care financing for the country. In countries such as Bulgaria, Denmark, Sweden and Norway, local taxes has long been the main source of health financing. In Belgium and the United Kingdom, taxes leviedon cigarette sales has been considered part of the health care funding source. In Greece, Portugal, Albania, Spain Poland and the United Kingdom, the national taxes were used as a main source of revenue (Mossialos, et al 2002). According to Savedoff, 2004, there are many advantages to the application of tax revenues. For example, it pools the health risks effectively through contributions from a large number of the population. Individuals in such systems can participate in the provisions for health services through the taxes levied on their income and property, as well astheir purchase of goods or their participation in any activities. In contrast to some systems that rely on insurance, whether public or private, taxes are aimed towards raising funds from all citizens regardless of their income level, their state of health, employment status. In many countries, there is a growing concern about the sustainability of financing taxes on healthcare. There is a common argument that many countries cannot provide for the healthcare needs of people through the tax revenues and that they must find an alternative source of funding (Mossialos, et al 2002). This may considered as a weakness point of tax systems. In 12 OECD countries, Wagstaff et al (1999) examined the funds progressivity on health care. The results showed the progressivity of direct taxes that used to fund healthcare. This was mostly true in countries like Germany, Ireland and the UK. However, in Finland and Sweden it appears less true as the direct taxation for health care comes from local revenue taxes that are less progressive than national taxation. The results also indicate the regression of indirect taxes in all 12 OECD countries. In contrast, private insurance progressivity relies on what private insurance purchases. In some countries such as Denmark and France, progressivity is lower than the co-payments because of poorer citizens individuals pay most of their income to insure against co-payments. Generally the insurance can be progressive in countries such as Italy, the UK, Spain and Portugal where the private insurance is considered an extra method of cover, with some rich people paying for cover twice. In the United States and Switzerland the insurance is highly regressive as most of the population uses it as a sole form of cover. In Germany and the Netherlands, it is progressive, as it is used as a sole form of cover for rich people. Taxation efficiency and progressivity seems to be dependent more on tax system effectiveness to increase funding.. For instance, tax systems in some European countries are not progressive. This means that households pay taxes commensurate with their income. In these countries, the impact of redistribution of public policy has a strong influence. This comes from the increase in the percentage of money that comes from taxes. ( Savedoff, 2004). A similar situation happened in Latin America. For example, Chile has a tax structure which seeks to mobilize a large share of GDP to finance public spending gradually. In contrast, Argentina has a tax structure which is more progressive, but on which produces fewer resources. Its impact is less on redistribution (Inter-American Development Bank 1996). According to Tanzi, and Zee, 2000, p. 16) overall, there is a small increase in income taxes in developing countries and their insignificant progressivity is almost strictly offset by the high percentage of personal exemptions. Private insurance approach: The early improvement of voluntary associations in Europe and their following appearance as a unified national health insurance funds has made an important role for private health insurance. Private health insurance can be distinguished further depending on the method of calculating premiums ( Mossialos,et al 2002). In some researches, long term private insurance has been recommended against health risks in old age. However, other researches have shown that this insurance is expected to be inefficient. There is a relationship between tax and private insurance. According to Mossialos, et al, 2002. taxation may be an important element in supporting private insurance. Taxes income can help the poor to purchase private insurance for themselves. These can be as direct purchase by the government on behalf of those people or as vouchers. The aims are to provide wide coverage among low-income populations and to reduce the problems of adverse selection in the market. Tax expenditure to subsidize the purchase of private insurance could be in the form of tax relief, as well as deductions on premiums from gross income. Tax credits can also be used. This can be deducted from households and from individual liability from taxes. Subsidies of tax expenditure not always recorded in national accounts and are thus considered a covert way of securing public expenditure. This way may have some political advantages, particularly in countries that increased public. However, some researchers found that the subsidies of tax expenditure are sometimes used inequitably and inefficiently. According to the OECD health data report (2007), the United States in 2005 spent about 15.3% of its gross domestic product (GDP) on healthcare. This was equivalent to more or less $ 6401 per person. The UK spends about 8.3% equivalent to $ 2724 per person. Private health insurance appears more complicated than the alternatives offers. Private insurance has some weaknesses. According to Wanless (2002), systems based on private insurance have experienced poor cost control and increased spending demands. Another weakness, as states by Krugman and Wells (2006) indicate that poor experience of administration can lead to higher cost of systems that rely on private insurance. For example, some private insurers spent a significant amount og money just to determine high cost customers. Furthermore, goods and services prices are high because of the inability of the insurance service providers to bargain with suppliers, especially companies that sell drugs. When private insurance is the only method of cover, access to health services is determined based on the level of insurance coverage that individuals can afford to purchase. Insurance provider considered the poor and the elderly at most risk in their health; therefore, they werelikely to have high premiums (Wanless, 2001). In the United States, this point has forced about 15% of the population to have the greatest health risks as they did not have access to health services, and the highest possible points of accessibility is the emergency room. In the U.S, insurance providers have cancelled about 12% of the applicants and about 30% from the elderly population that aged over 60 years. At the national level, evidence from UK indicates that the users of the private sector are less supportive in terms of funding healthcare.  The majority of users of the private sector institutions typically use private insurance to pay for the servicesprovided. Thus, they are less supportive in raising the rate of expenditure on the NHS or the NHS goals in terms of equity (Burchardt et al 1999, Hall and Preston 1998). According to Besley, et al 1999, there is also evidence from UK indicating that the quality of health services provided by the NHS has a direct relationship with the use of the private sector. Long waiting lists have an association with the demands of the private insurance, however not with use of the private sector (Burchardt et al 1999). Besley et al and Calnan et al (1993) identify more evidence that suggested a link between dissatisfaction in the quality of services provided by the NHS and the services provided by the private sector. However, both face a pressure of dissatisfaction among users with the quality of service, rather than the concept of public provision, which leads people to use private sector services. Discussion: You should link your discussion to a service of your choice looking at how that organisation would respond to the funding systems. (Really not sure what to write in this section) please help (maybe 200-300 words enough) Conclusion: Taxes and insurance are both funded health care, however, taxes in the UK are the main source of funding for health care, while private insurance in the United States is the source of funding for health care. There is a possibility for private insurance companies to receive support from taxes in order to support the low-income people who prefer treatment in the private sector, however, securing such support from private insurance companies may be a difficult process. Long waiting lists in the public health care sector have an impact on the quality of service and these lead people to use of the private sectorrequiring private insurance. Managers in health care should seek to reduce waiting lists and seek ways that increase the quality of services. Managers in the private insurance companies should manage companies perfectly and try to get the low price items from suppliersthat help the poor people get low private insurance premiums. Moreover, considerations for both private and public financing must be considered by institutions in order to ensure full coverage and stable healthcare financing. Reference: Mossialos, E. Dixon, A. and Figueras, J and Kutzin, S,. (2002) Funding health care: options for Europe. European Observatory series . Open University Press, Buckingham, [ONLINE] available at: http://cdrwww.who.int/health_financing/documents/europe_funding_options.df#page=289 (Accessed 20 December 2012) Wanless D. Securing our future health: taking a long-term view (final report) London: HM Treasury, 2002. Organisation for Economic Cooperation and Development. OECD health data report (2007) Health expenditure. [ONLINE] available at:http://stats.oecd.org/wbos/Index.aspx?usercontext=sourceoecd. (Accessed 20 December 2012) Krugman P, Wells R. The healthcare crisis and what to do about it. New York Rev Books 2006;53(5):38-43. Wanless D. Securing our future health: taking a long-term view (interim report) London: HM Treasury, 2001. Hall, J. and Preston, I. (1998). Public and Private Choice in UK Health Insurance’. Institute for Fiscal Studies Working Paper Series, W98/19 Burchardt, T, Hills, J and C Propper (1999). Private welfare and public policy. York: Joseph Rowntree Foundation Besley, T., Hall J. and Preston, I. (1999). The Demand for Private Health Insurance: Do Waiting Lists Matter? Journal of Public Economics 72 (2), 155-181 Calnan, M, Cant, S and J Gabe (1993). Going Private: why people pay for their health care. Oxford: Oxford University Press. Savedoff, W. (2004) Tax-Based Financing for Health Systems: Options and Experiences. [ONLINE] available at: http://apps.who.int/iris/bitstream/10665/69022/1/EIP_FER_DP_04.4.pdf (Accessed 20 December 2012) Wagstaff, A et al (1999). Equity in the finance of health care: some further international comparisons. Journal of Health Economics 18, 263-290. Tanzi, V., Zee, H. H. "Tax Policy for Emerging Markets: Developing Countries." National Tax Journal, 2000, 53 (2), 299-322 Inter-American, Development Bank. Economic and social progress in Latin America, 1996 report: Special section, making social services work. Washington D.C.: Johns Hopkins University Press, Inter-American Development Bank, 1996 Chang, J. Peysakhovich, F. Wang, W. Zhu, J . 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