General taxes or insurance premiums: a comparison of funding sources for public health care in OECD countries

Balynin Igor' Viktorovich PhD in Economics Associate Professor, Department of Public Finance, Faculty of Finance, Financial University under the Government of the Russian Federation 125468, Russia, Moscow, Leningradsky ave., 49 igorbalynin@mail.ru Other publications by this author     Grishin Vladimir Vadimovich Doctor of Economics Chief Researcher at the Center for Problems of Organization, Financing and Interterritorial Relations in Health Care, Institute of Regional Economics and Intergovernmental Relations, Financial University under the Government of the Russian Federation 125468, Russia, Moscow, Leningradsky ave., 49 VVGrishin@fa.ru Other publications by this author     Ragozin Andrei Vasil'evich PhD in Medicine Director of the Center for Problems of Organization, Financing and Interterritorial Relations in Health Care of the Institute of Regional Economics and Interbudgetary Relations, Financial University under the Government of the Russian Federation 125468, Russia, Moscow, Leningradsky ave., 49 AVRagozin@fa.ru Other publications by this author

Safonov Aleksandr L'vovich Doctor of Economics Professor, Deputy Director of the Institute of Interbudgetary Relations and Regional Economics, Department of Psychology and Human Capital Development, Financial University under the Government of the Russian Federation 125468, Russia, Moscow, Leningradsky ave., 49 ALSafonov@fa.ru Other publications by this author

Introduction

The relevance of the study of issues related to the financial provision of the healthcare system is due to the fact that the quality of life of the population, including life expectancy, directly depends on it. At the same time, as is known, the amount of financial resources is always a limited amount, which makes it necessary to find ways to use them as efficiently as possible. In this regard, an interesting task is to compare countries depending on the chosen approach to the financial support of the implementation of state guarantees for the provision of free medical care.

The purpose of the study is based on a dynamic and comparative analysis of the sources of financial support for the provision of free medical care to citizens in the OECD countries in dynamics for 2000-2020.  to determine the existing trends in the organization of state financial policy on the implementation of state guarantees for the provision of free medical care to citizens.

The development of the healthcare system is an active focus of Russian and foreign researchers. In particular, the issues of improving the financial support of the healthcare systems of Kazakhstan ^[5], Brazil ^[10], China ^[4,12] and France ^[11] are being actively considered. Russian scientific thought is particularly focused on improving the efficiency of expenditures of the budgets of the budgetary system of the Russian Federation on healthcare ^[1], ensuring social equality ^[7], development in the context of a pandemic ^[2,8] and the post-pandemic period ^[6].

Research methodology. The methodology was based on the classification of health financing programs used by the System of National Health Accounts in the 2011 edition, hereinafter referred to as the NHS 2011 (System of Health Accounts 2011 r.: revised edition. Abbreviated version of the World Health Organization, 2022). As part of the study, data from the national health accounts concerning the HF scheme was analyzed.1 – state and mandatory health financing schemes, which include the HF.1.1 scheme (schemes of the central government and schemes of regional/local governments) and the F.1.2 scheme (scheme of compulsory health insurance).

Accordingly, the income of the mandatory/state FS scheme was considered from the sources of income.1 (transfers from state internal revenue, financed mainly by general taxes) and FS.3 (mandatory social insurance contributions from economic entities).

During the study, methods of analysis, synthesis and grouping of data were used in order to form reasonable conclusions.

Research results

The analysis of the ratio of various sources of financing of public health care HF.1 showed that there are two key sources within the framework of state financing: either through general taxes or through the collection of special insurance premiums that have a special purpose.

Moreover, depending on the degree of predominance of the practical use of budgetary or insurance financial mechanisms for the organization of medical care, the OECD countries were divided into 3 groups.

Thus, the first group includes countries with preferential financial support for the execution of medical guarantees through insurance premiums withheld from economic entities (conditionally: countries with insurance financing of medical guarantees).

In turn, the second group included countries with preferential financial support for the execution of medical guarantees by schemes of central and/or regional governments through the use of a budgetary financial mechanism: so-called "general taxes" (conditionally: countries with budgetary financing of medical guarantees).

Finally, the third group included countries with parity financial support for the execution of medical guarantees, i.e. comparable shares of funds generated through budgetary and insurance financial mechanisms (conditionally: countries with budgetary and insurance financing of medical guarantees).

Table 1 presents the results of the analysis of data on the share of sources in state schemes of financial support for the implementation of state guarantees for the provision of free medical care. So, we clearly see that despite the fact that insurance is declared as the main financial mechanism in these countries, the share of insurance premiums in the volume of financial support for the provision of medical care to citizens is decreasing. So, in particular, in Estonia for 15 years the decrease was almost 11% (from 80.6% in 2005 to 69.9% in 2020), and in Germany for 20 years the decrease exceeds 13% (from 86.9% in 2000 to 73.7% in 2020). Moreover, in 2021 (note: for 2021-2022, the information in the database is given only for some countries), this trend continued to intensify: up to 58.5% in Estonia and up to 72.1% in Germany.  This suggests that the possibility of solving problems in the healthcare sector through an insurance financial mechanism is decreasing.

Table 1 – Shares of insurance premiums and total taxes in mandatory/state financing schemes in countries with insurance financing of medical guarantees, %

Source: compiled by the authors on the basis of the OECD.Stat ^[13]

Table 2 shows countries with exclusively/predominantly budgetary financing of medical guarantees. We can clearly see that in those countries where insurance premiums were present in a small proportion among the sources, it decreased. For example, in Belgium by 7%: from 38.8% to 31.8%. Accordingly, we conclude that countries using the Beveridge model of financing medical guarantees do not seek to switch to insurance.

Table 2 – Countries with budgetary financing of medical guarantees – shares of insurance premiums and general taxes in mandatory/state financing schemes, %

Source: compiled by the authors on the basis of the OECD.Stat ^[13]

Note. * – The national health accounts of France attribute the receipts of the main source of funds - the CSG (contribution sociale g?n?ralis?e) tax to social insurance contributions. Meanwhile, CSG is not a contribution, but a target part of income tax, which is withheld from the total income of all citizens. Therefore, the authors consider France to be a country with almost 100% budgetary financing of state medical guarantees.

Table 3 shows data for those countries that belong to the group with approximately equal funding for the implementation of medical guarantees.

Table 3 – Shares of insurance premiums and total taxes in mandatory/state financing schemes in countries with parity financing of medical guarantees, %

Source: compiled by the authors on the basis of the OECD.Stat ^[13]

Firstly, it should be noted that there are few countries in Group 3 (and in fact, this is partly even due to the transition of countries from the group with preferential financial support through the use of an insurance financial mechanism to a group with a parity use of budgetary and insurance financial mechanisms). Secondly, it is necessary to emphasize the fact that in these countries the share of insurance premiums also decreases in the period under review. For example, in the Czech Republic in 2015-2020, the reduction was 7.5% (from 65.7% to 58.2%), and in Luxembourg - 1.6% (from 57% to 55.4%). Thirdly, it should also be noted that according to the existing fragmentary data for 2021-2022, this trend continues to intensify: for example, in Luxembourg, the share of total taxes has increased to 46%.

Discussion of the results obtained.

The analysis of the obtained results allows us to conclude that there is a trend towards an increase in the share of total taxes and a reduction in insurance premiums in mandatory/state schemes for financing medical guarantees in OECD countries. It was also revealed that with financial support for the implementation of the program of state guarantees of free medical care, the share of developed OECD countries using a budgetary financial mechanism is growing, and the share of OECD countries with an insurance financial mechanism is falling.

In our opinion, this trend is due to several reasons. Firstly, the coronavirus pandemic, in which it became obvious that the use of an insurance financial mechanism is associated with the risk of insufficient funds in case of mass morbidity of the population, especially severe diseases. Secondly, if only income is the object of taxation for insurance premiums, then the use of a budgetary financial mechanism allows using a wider list of objects of taxation (including property). Moreover, this has a serious negative impact during periods of rising unemployment, since the number of employed is decreasing, thereby, the base subject to insurance premiums is also decreasing. Accordingly, the amount of financial resources that could be directed to the financial provision of free medical care is also decreasing. At the same time, an increase in the unemployment rate will also lead to an increase in the demand for public health institutions (due to the lack of an objective opportunity for citizens to finance these services from their savings or buy insurance products). Thirdly, there is a smaller amount of administrative costs for tax collection than for insurance premiums (it is associated with a wide list of taxation objects other than wages, which payers tend to hide, and with economies of scale). Moreover, the use of turnover taxes makes it possible to neutralize the negative aspects of salary-linked insurance premiums from economic entities.

It should also be noted that in the case of voluntary insurance contributions, a number of citizens/employers may refuse to pay them in order to maximize the amount of financial resources allocated in other areas. In the case of mandatory payments, the system avoids many of the problems typical of voluntary insurance markets.

At the same time, it is important to note that the budget financing of the implementation of state guarantees for the provision of free medical care to citizens has shortcomings and vulnerabilities. Tax-based systems can benefit from economies of scale in administration, risk management, and purchasing power. These advantages are due to the collective and political nature of the collection and distribution of tax revenues in a modern nation-State.

Nevertheless, the weaknesses of healthcare financing systems based on general taxation stem from political and economic features. For example, an important aspect of financing health services through general taxation is that management decisions on the use of these funds correlate with political processes. Hence the risk of compromise or, conversely, authoritarian decisions in choosing priorities between healthcare and, for example, roads. Therefore, unlike social insurance – whose resources are targeted, resistant to political conjuncture – tax systems are highly vulnerable to the political factor. If social insurance, as a rule, tends to equalize the population's access to medical care, then tax systems often suffer from the redistribution of resources in favor of medical systems serving privileged groups of the population, as well as problems associated with weak accountability and instability ^[9].    

Thus, in conclusion, we note that the trend in the development of medical guarantee financing systems in the OECD countries is a decrease in the role of insurance premiums, depending on the amount of wage payments, with an increase in the value of budget financing (a significant share of which is occupied by so–called general taxes). It seems that this experience can be used by public authorities when modernizing the Russian healthcare system in the context of modern socio-economic challenges in the context of ensuring the achievement of the national development goals of the Russian Federation for the period up to 2030.

Source of funding.

The article is based on the results of research carried out at the expense of budgetary funds under the state assignment of the Financial University under the Government of the Russian Federation.