11.6.2. Description and assessment of health financing systems

 

Health financing consists of three main functions: collection of funds, pooling funds across time and across the population, and purchasing services (Kutzin 2001). The methods of collecting, pooling and purchasing health services vary across Europe and have different impacts on the performance of the health system in terms of equity, efficiency, responsiveness and quality of care. This section introduces the key trends and reforms affecting the three main financing functions – such as changes in contribution mechanisms, changes in pooling, purchasing, defining benefits, cost sharing. The implications of these trends can be evaluated on the basis of the health financing goals outlined by the WHO: financial protection, equity in financing, equity of access, transparency and accountability, rewarding good quality care, providing incentives for efficiency (WHO 2006).

 

Among some of the older member states there have been efforts to increase revenue by broadening revenue bases linked to the employed. This contrasts the experience in the countries of central and Eastern Europe in the 1990s where there was a shift away from tax financing to employment related insurance contributions. There is also a trend visible across Europe for creating a national pool of public funds which has positive implications both on equity and on efficiency. The increase in strategic resource allocation based on risk-adjusted capitation is another widespread trend that can address inequalities that arise from local taxation or collection of resources by individual insurance funds. Some countries have introduced competition between health insurance funds to improve purchasing, though the potential benefits may not outweigh the strong incentives to select favourable risks.

 

Most countries now provide universal coverage, though the scope (what is covered) and depth (level of cost sharing) of coverage varies across Europe, with a trend to lower both scope and depth in many countries. This undermines financial protection. In some countries cost sharing has been introduced and expanded, while in others there have been reductions. Careful design of cost sharing policies is needed to protect vulnerable groups. This can be done using exemption mechanisms. The role of private health insurance remains quite small although it is increasing in some countries. Since private insurance generally services richer and better educated groups and is associated with higher transactions costs and weaker purchasing power, an increasing private market is unlikely to help systems achieve the goals of health financing. Finally, the definition of benefits packages is increasingly being guided by formal health technology assessment, with the potential to ensure value for money, though in many member states its application remains limited by financial, political and technical constraints.

 

Collecting funds

 

The sources of financing include individuals or households and businesses, with the contribution mechanisms falling into two categories: public and private. The public contribution mechanisms include central or local taxes and social insurance contributions, with private contribution mechanisms consisting of private health insurance, medical saving accounts (MSAs) (though these do not currently play a role in European health systems), cost sharing for services in the public benefits package (also called user charges), and direct out-of-pocket payments (though calculations of out-of-pocket payment include both cost sharing and direct payments) (see below).

 

European health systems are characterized by a high degree of public expenditure. Table 11.11 shows that the public share (%) of health expenditure is in most countries higher than 50% and there is no unique trend in time for all European countries.

 

While in Western Europe, few countries show a decline in the public contribution to health spending (e.g. Belgium), the central and Eastern European region shows a more consistent decreasing trend. The UK has embarked on a system-wide reform predicated on substantial public investment; the rise in spending from 7.3% to 8.3% GDP in a four-year period (2000-2004) corresponds to the increase in the public component of total spending from about 81% to 86%. While in some countries, in particular in the CEE countries, the role of private financing has increased over the last ten years, in most countries the public sector has shown some resilience, thus remaining relatively constant or even increasing in the last decade. The increase in private funding in CEE countries is almost wholly driven by an increase in out-of-pocket payment, as the role of PHI remains limited in most countries. In 2004, the countries that joined the EU after 2005 averaged 90% of private expenditure from out-of-pocket payments, compared to 66% in EU Member States prior to 2005 (WHO HFA 2007).

 

The role of private funding can be examined more closely by disaggregating the two predominant sources: out-of-pocket payments and private insurance. Out-of-pocket payments constitute the large share of private health expenditure in all countries. Private health insurance (PHI) plays a relatively minor role in healthcare financing in Europe, although it appears to have increased as a proportion of total expenditure and a proportion of private expenditure in some countries, for example in some of the CEE countries where private health insurance was not available prior to the 1990s, and also in Finland, France, Germany and Portugal (OECD Health data 2006).

 

Table 11.11. Public expenditure as a percentage (%) of total health expenditure, 1990-2005

 

European healthcare systems rely on a mix of contribution mechanisms to finance healthcare with the majority providing universal (or near universal) statutory health coverage. The most common contribution mechanisms are public – general taxation and social insurance contributions (usually payroll taxes) - although out-of-pocket payments represent an important financing source in many countries (notably, Bulgaria, Cyprus, Greece and Latvia). As shown in Table 11.12, the countries with predominantly tax-funded systems include Sweden, Finland, Portugal, Italy, Ireland, Latvia, Norway, Malta, Spain, UK and Denmark. Countries with predominantly social insurance funding include Austria, Belgium, the Czech Republic, Germany, Hungary, Luxembourg, the Netherlands, Macedonia, Poland, Romania, Slovakia, Slovenia and Switzerland. Finally there are some countries which draw heavily on both contribution mechanisms, such as Bulgaria, Greece, Iceland and Turkey.

 

Key reforms to the overall financing systems in Europe have been seen in three main areas: 1) the shift from taxation to social health insurance contribution mechanisms in the CEE countries following the economic transition, 2) an increasing reliance on taxation among countries with systems predominantly financed through social health insurance (e.g. France, Germany, the Netherlands) and also taxation (e.g. Latvia shifting from earmarked tax to general tax, and Demark from local to central taxation), and 3) an increased reliance on local taxation in countries with predominantly tax-funded systems (e.g. Sweden, Finland, Italy and Spain). A significant reform to the system of health financing was also seen in the Netherlands, which moved from a dual system of statutory social insurance and private (substitutive) health insurance to a heavily regulated system of statutory health insurance with competing private insurance funds.

 

Table 11.12. Financing mix separated by public and private sources, 2004 or latest available year4

 

Taxation

 

Taxation has different sources (direct or indirect), different levels (national or local) and different types (general or hypothecated). Direct taxes are taxes levied on individuals, households or firms. Direct taxes have the potential to redistribute income between rich and poor people. Moreover, personal income taxes, a form of direct tax, are progressive if tax rates are higher for those with higher incomes and are proportional if they remain at the same rate across the income spectrum (a ‘flat’ tax). While on the whole direct taxation is equitable, inequities can occur in situations where income tax rates vary geographically, some forms of income are exempt from income tax (e.g. savings), or some forms of expenditure are tax-deductible (Van Doorslaer et al, 1999). In contrast, indirect taxes, which are taxes on transactions and commodities, are regressive since they relate to consumption and not income, therefore placing a relatively heavier financial burden on lower income groups (Hills, 2000). The relative importance of indirect taxes in the financing system thus has a significant impact on the level of fairness (progressivism) and income redistribution.

 

Taxes may be collected locally, as seen in Finland, Norway, Spain, Sweden and Italy, or nationally, as in Greece, Latvia, Malta, Portugal, Denmark, Spain and the UK. Local taxation may be associated to: increased transparency because there is a closer link between the revenue generated and the amount spent on health care; increased accountability because local politicians are closer to the electorate and allocation decisions may be more apparent; and greater responsiveness to local performance (though in practice local politicians may be unwilling to make necessary but unpopular changes; Thomson, Foubister and Mossialos 2008). In addition, local taxation has the advantage of separating the health budget from competing national priorities. However, inequities can arise if tax rates vary across regions, or if the same tax rate yields differing revenue according to the wealth of different regions. On the other hand, national taxation has the potential to redistribute across the whole of the income distribution in a country rather than within specific regions. Moreover, it allows trade-offs to be made between health and other sectors at a macro level according to national priorities. In addition, collecting taxes at national levels benefits from administrative economies of scale (Mossialos and Dixon, 2002). However, there may be trade-offs with other spending or transfer programs, tax or debt reduction.

 

Additionally, taxation may be general, as in Italy, or earmarked for healthcare, as in France. General taxation draws on a broad revenue base and allows trade-offs between healthcare and other sectors, but allocation to healthcare is subject to public spending negotiations which may or may not be favourable. On the other hand, earmarked taxes may reduce public resistance to taxation because it is more visible (Commission on Taxation and Citizenship, 2000), it increases transparency and responsiveness (Jones and Duncan 1995) and may be less susceptible to political manipulation. Earmarked taxation may, however, cause increased rigidity in the budgetary process and prevent integrated public health policies (Mossialos et al, 2000).

 

Countries that rely heavily on taxation to fund their health systems vary significantly, depending on the level of indirect versus direct, local versus national and earmarked versus general taxation. Overall, the potential revenue raised by taxation is significant, being levied on all elements of individual and corporate income, unlike social insurance contributions which are often levied solely on earnings.

 

There are some trends across Europe followed to increase reliance on central tax. For example France and Germany increased their reliance on non-earnings-related income through tax allocations (see section on Social Health Insurance below), which arguably will be more sustainable given the trend towards rising unemployment, informal economies, and self employment, in addition to concerns about international competitiveness and ageing populations. Among social health insurance systems, the trend towards greater reliance on central taxation may also increase financial protection and equity of access, because taxes can be used to reduce cost sharing or finance care for population groups who cannot contribute such as the economically inactive. However, if the shift is to ‘flat’ taxes and indirect (consumption) taxes as opposed to the more progressive direct taxes the equity gains will be limited (Thomson, Foubister and Mossialos, 2008) (see Section 11.8.3 on Progressivity).

 

Social health insurance

 

Social health insurance provides the organizing principle and much of the funding in seven Western European countries: Austria, Belgium, France, Germany, Luxembourg, the Netherlands, and Switzerland (Saltman 2004). During the 1990s all of the newer Member States introduced earmarked social insurance contributions levied on earnings, starting with Hungary in 1990, and the latest in Bulgaria, Poland and Romania in 1999, for a mixture of political and economic reasons (Preker et al. 2002). In many of these countries, taxation remains an important funding source because the social health insurance contributions have been unable to raise sufficient revenue (Thomson, Foubister and Mossialos 2008). However, the tax component of public expenditure is not always evident due to the way in which OECD data are collected (see footnote 4).

 

Social insurance contributions are usually a form of earmarked payroll tax that is often shared between the employer and the employee. The advantages of social insurance contributions are common to those associated with earmarked taxation. For instance, it is more transparent than general taxation, hence tends to be more accepted by the public. Also, social health insurance revenue may be better protected from political interference than revenue from taxation since an independent system of revenue collection is at arm’s length from government (Mossialos and Dixon, 2002). However, there are labour market implications from tying contributions directly to employment income. For instance, since employers are often required to pay large contributions, labour costs may rise resulting in negative economic implications. This was in fact a large driver for the financing reforms in France in the 1990s (see above). Furthermore, if eligibility for health insurance is dependent on income or employment, there may be limited access to healthcare for the non-employed population.

 

Collection agents vary across social insurance systems. Contributions can either be collected by a central governmental agency such as in Belgium, Bulgaria, Estonia, France, Latvia, the Netherlands, Poland and Romania, or by the individual health insurance funds, as in Austria, the Czech Republic, Germany, Greece, Lithuania, Slovakia and Slovenia. The contributions are collected and retained in Austria, the Czech Republic, Germany, Greece and Slovakia, though only in Greece there are no pooling mechanisms in place aimed at equalizing revenues across funds (Thomson, Foubister and Mossialos 2008) (see below for more information on pooling resources). The different organizational arrangements have their advantages and disadvantages. For instance, multiple funds that can compete may improve efficiency. At the same time, a single fund may have lower administrative costs because of the monopsony purchaser and a universal risk pool, which is more desirable from an equity perspective. Where there are multiple competing funds, as in the Czech Republic, Belgium, Germany, the Netherlands, and Slovakia risk adjustment mechanisms are used to limit the incentives for funds to cream skim healthier patients and to shift the financial risk to the providers in order to improve efficiency. All countries except Germany and Greece set contribution rates centrally, though from 2009 Germany will also have a centrally determined contribution rate, and from 2011 a national fund will be in place to collect funds centrally (Thomson, Foubister and Mossialos 2008).

 

Relying on health insurance funds to collect resources may be challenging if there is weak enforcement of collections, a problem that has been seen in some CEE countries. For example, in Hungary, Estonia and Romania difficulties enforcing collections led to a shift in responsibility for collecting revenue from the insurance funds (in Romania for the employed but not self-employed people) to the central government tax agency in 1998, 1999 and 2002, respectively. In Hungary, an online system was also introduced to verify the users of health services had paid their contributions (Thomson, Foubister and Mossialos 2008).

 

In France, “general social contributions” (CSG) were introduced in 1998 to extend social insurance contributions to a tax on total income rather than salary alone to relieve the financial burden on the labour market (Sandier et al 2004). Since then, employees’ contributions (other than the CSG) have fallen from 11.8% to 0.75% of gross earnings.This change represented a shift from a social insurance model based on wage to a more tax-financed model based on total income, making health insurance funds’ revenue less vulnerable to wage and employment fluctuations (though the actual amount of revenue collected did not increase). In Germany it has similarly been argued that the payroll taxes should draw from a wider tax base than solely gross salary. In 2006 tax transfers to insurance funds were introduced to cover the contributions of children (Lisac 2006, cited in Thomson, Foubister and Mossialos 2008).

 

The 2006 Health Insurance Law of the Netherlands also introduced significant changes to the Dutch financing system. This Law replaces the separate (public and private) insurance schemes with one national scheme comprising a common basic benefits package (which remains unchanged) and eligibility based on citizenship. Former sickness funds have been given private status and now compete on an equal footing with private insurers. The new system is characterised by market competition, with health insurers competing on community-rated premiums, type of health plan (reimbursement or benefits in kind) and service levels (Bartholomee and Maarse, 2006). The system is operated by private insurers and governed under private law. However, in all other respects it is a statutory health insurance scheme characterized by heavy government regulation to ensure open enrolment, a fixed income-related contribution rate (in addition to a community-rated premium set by each insurer), tax-financed subsidies to help low-income people pay the community-rated premium and a defined package of minimum benefits. The policy goals of the new legislation are improved efficiency, increased innovation and more consumer-driven healthcare. In the first year of the new legislation, about 18% of the insured have switched from one insurer to another. And while the aim of competing funds and choice of insurer relies heavily on the presence of multiple funds, the insurance market is apparently consolidating with increasing number of mergers among funds. Twenty years ago there were 100 funds, while currently there are 19 private insurance funds, but only 5 when one considers that some belong to the same insurance conglomerate (Klazinga, 2007).

 

Private health insurance

 

The majority of healthcare spending in the EU derives from public sources. The last twenty years have, however, seen a shift from public to private expenditure in many countries (as noted above). The main private contribution mechanisms include private health insurance (PHI) and out-of-pocket payments, though in all countries but France and Slovenia, the majority of private expenditure is from out-of-pocket payments (see below). The agents collecting PHI premiums can be independent, private-for-profit insurance companies (in countries that have a PHI market) or private not-for-profit insurance companies and funds (in Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Spain and the UK) (Mossialos and Dixon, 2002).

 

PHI can be classified as substitutive, supplementary or complementary (Mossialos and Thomson, 2004). Substitutive insurance substitutes for cover that would otherwise be available from the state, and is available in Germany and the Netherlands (until 2006) for individuals with high incomes who wish to opt out of (or, as in the case of the Netherlands, are excluded from) the statutory insurance scheme. In Portugal and Italy meanwhile, proposals to permit people to opt out of the public system were withdrawn in response to considerable resistance. Supplementary insurance provides cover for faster access and increased consumer choice. As supplementary insurance allows individuals additional or higher quality services than offered through the public system, there might be differential access between those with and without this insurance (van Doorslaer et al, 2004; Mossialos and Thomson, 2004). Complementary insurance provides cover for services excluded or not fully covered by the state, including cover for co-payments for public services.

 

Since 2000, PHI has grown as a proportion of total health expenditure in almost all EU Member States, although in most countries it remains well below 5% of total expenditure. Spending on PHI as a proportion of private expenditure is also relatively low, accounting for less than 5% in Greece, Italy and Portugal, and around 25% in Austria, Spain and the UK. PHI constitutes a much higher proportion of private expenditure in Germany (40%) and the Netherlands (50%), mostly in the form of substitutive insurance (prior to the 2006 reforms in the Netherlands), and France (57%) and Slovenia (60%), where there is extensive coverage of co-payments (complementary insurance) (Mossialos and Thomson, 2004) (Thomson et al 2008). Indeed, complementary insurance covers over 90% of the French population and 74% in Slovenia (though 98% of those eligible for cost sharing) (Thomson, Foubister and Mossialos 2008).

 

Following legislative reforms in 1999 in all CEE Member States permitting PHI markets, PHI remains relatively undeveloped in most countries and does not contribute significantly to healthcare expenditure despite some hopes that such coverage would develop as a supplementary source of revenue. This may in part be due to the widespread use of informal payments and the reluctance to pay a third party instead of the provider. One exception is Slovenia, where a sizeable proportion of funding derives from PHI; here PHI is complementary in covering user charges and is purchased by about three quarters of the population. In many countries - Romania, Poland, Latvia, Hungary, Croatia, Bulgaria, and Slovenia - tax incentives to purchase PHI are in place, though this has had little effect on the development of a private market (Thomson et al 2008).

 

There are tax incentives to purchase PHI in some European countries, usually in the form of tax relief on the cost of premiums (Colombo and Tapay, 2004). Recently there have been efforts to reduce or remove tax incentives in some countries as they are argued to be expensive, regressive (i.e. benefits higher income earners disproportionately), and largely unsuccessful in stimulating demand for PHI. There are no tax incentives for individuals to purchase any kind of PHI in Denmark, Finland, Spain or England (since 1997), and there are no tax benefits for employers purchasing PHI for their employees in Finland, France, Germany, Greece, Italy, Luxembourg, the Netherlands, Sweden or the UK. In Austria, Ireland and Portugal, private health insurance is partly subsidised by the state using tax credits or tax relief. On the other hand, tax disincentives for PHI can be seen in some countries such as in England where all private medical insurance policies are subject to Insurance Premium Tax (Foubister et al 2006). The distributional impact of a tax subsidy on PHI contributions should be highlighted. Higher income earners are benefiting disproportionately more; as the tax bracket increases, the financial benefit also increases.

 

 

Out-of-pocket payments

 

Out-of-pocket payments can come in broadly three forms: direct payments (‘pure private’ payments), cost sharing (individuals who are covered pay part of the costs of care received) and informal payments (unofficial payments for services that should be fully funded by the public system). Cost sharing exists to some extent in all European health systems. The three forms of direct cost sharing consist of: co-payment, where the user pays a fixed (flat) fee per item or service; co-insurance, which refers to the user paying a fixed proportion of the total cost; and deductible, wherein the user bears a fixed amount of the total costs.

 

On the basis of traditional economic theory, it is argued that user charges discourage excess utilization of health services by creating price signals that deter individuals from consuming care (Pauly, 1968). It is assumed that rational consumers will first forego the use of services that are either harmful or of least benefit to them. Hence, cost sharing is expected to improve efficiency at a micro level while containing costs at macro level. In countries where public budgets are under pressure, cost sharing has also been argued to be one of the mechanisms for generating revenues. However, many argue against user charges because information asymmetries in healthcare present a major obstacle to achieving any gains in efficiency, since individuals are not always able to differentiate necessary from unnecessary services (Abel-Smith, 1994; Kutzin, 1998). Furthermore, as healthcare spending is primarily driven by supply side factors, cost containment in the long-term is unlikely to result from a cost sharing arrangement. Finally, it is widely agreed that user charges have undesirable effects on equity in two ways: by shifting the financial burden onto the individual, and introducing barriers to access for individuals on low income. Moreover, the negative impact of user charges on health status lowers allocatable efficiency (Thomson et al, 2003). A review of the literature shows cost sharing for prescription drugs leads to worse health outcomes, therefore undermining any potential efficiency gains (Gemmill et al 2008).

 

Out-of-pocket payments comprise a substantial proportion of total healthcare expenditure in many European countries and are the second most important source of finance in 18 Member States, exceeding 40% of total spending in Bulgaria, Cyprus, Greece and Latvia (Figure 11.19). Unfortunately, available data sources do not allow the disaggregation of out-of-pocket payments into cost sharing, direct payments and, if recorded, informal payments. Since 1996 out-of-pocket payments have become an increasing share of total expenditure in 15 countries, with a rise of more than 5 percentage points in Belgium, Bulgaria, Estonia, Greece, Hungary, Latvia, Lithuania and Slovakia (WHO 2007, cited in Thomson, Foubister and Mossialos 2008). This widespread increase in out-of-pocket payments may be due to an increase in cost sharing but may also reflect increases in direct and/or informal payments. On the contrary, Cyprus, Malta and Romania actually recorded a fall of over 5 percentage points in the share of out-of-pocket payments (WHO 2007, cited in Thomson, Foubister and Mossialos 2008).

 

All EU Member States have in place some cost sharing for services covered by the benefits package. In all countries, cost sharing is applied to pharmaceuticals and in all countries but Romania to dental care. About half of EU countries also require cost sharing for ambulatory physician services and inpatient care. Among the original 15 EU Member States, cost-sharing is applied to GP, specialist and hospital care only Austria, Belgium, Finland, France, Ireland (higher income or Category II patients), Luxembourg and Sweden. In Portugal, physician services are free at the point of use but cost sharing is applied to inpatient care (Thomson et al, 2003), and in Germany a co-payment was introduced for physician visits in 2004. Protection mechanisms for inpatient care user charges tend to be annual out-of-pocket maximums, ranging from about €100 in Sweden to about €600 in Finland (Jemiai et al, 2004). Exemptions can also be granted for very long hospital stays, for example inpatient stays longer than 14 days in Germany or 28 days in Austria. For inpatient care, cost sharing tends to be in the form of a co-payment per day ranging from about €5-10 in Austria, France, Germany and Luxembourg, to €26-65 in Finland, Ireland (Category II patients) and Belgium (Thomson et al, 2003). Prescription drugs may have cost sharing in the form of a fixed co-payment as in Austria (€4.25) and the UK (€8.80), whereas a fixed deductible is combined with co-insurance in the remaining countries. In Sweden individuals must pay the full cost of prescription drugs up to an out-of-pocket maximum. Among the newer Member States, cost sharing for ambulatory physicians and inpatient care is in place in Bulgaria, Cyprus, Estonia, Hungary, Latvia, Malta, and Slovakia. Some reforms have been introduced to limit cost sharing, e.g. in Estonia cost sharing for primary care was abolished in 2004 followed by Slovakia in 2006 (Thomson, Foubister and Mossialos 2008).

 

Although all European countries require cost sharing for at least some services, as noted above, certain population groups – e.g. those considered more vulnerable - are often exempt from user fees or face reduced rates for certain services or for all covered medical services. These special rates typically relate to one or more categories of individuals and are summarized in Table 11.13. Also in some countries, cost sharing arrangements were changed in order to encourage more cost-effective patterns of utilization, e.g. in Germany and France where co-payments are lower if a GP referral for specialist care is received than for those who visit a specialist directly with no referral (Thomson, Foubister and Mossialos 2008).

 

Table 11.13. Examples for cost sharing exemptions

 

 

Clinical condition	Level of income	Age	Type of drug
Pregnancy services: -          Estonia -          Finland -          Italy -          Latvia -          Malta -          Portugal -          Slovenia -          Switzerland   Certain chronic conditions: -          France -          Germany -          Ireland -          Italy -          Latvia -          Norway -          Slovenia -          Spain -          UK	Certain low income persons: -          Austria -          Belgium -          Cyprus -          France -          Germany -          Greece -          Hungary -          Ireland -          Italy -          Latvia -          Malta -          Norway -          Portugal -          Slovenia -          Spain -          Sweden -          Switzerland -          UK	Elderly: -          Belgium -          Cyprus -          Estonia -          Ireland -          Latvia -          Lithuania -          Slovenia -          Spain -          UK   Certain children: -          Belgium -          Estonia -          Finland -          France -          Germany -          Italy -          Latvia -          Lithuania -          Norway -          Portugal -          Slovenia -          Sweden -          UK	Certain infectious diseases: -          Austria   Certain chronic conditions and serious diseases: -          Belgium -          Finland -          Greece -          Malta -          Portugal -          UK   Cheapest effective drug: -          Czech Republic   Related to specific diseases (e.g. diabetes, epilepsy, transplantation, leprosy, syphilis, cancerous diseases): -          Estonia   Considered essential: -          Italy -          Latvia -          Lithuania -          Norway -          Poland

 

 

 

Figure 11.19. Out-of-pocket payments (households) as a proportion of total health expenditure, 2004

 

Informal payments

 

In central and Eastern European countries there has been a shift away from guaranteeing healthcare free at the point of use for the entire population as provided during the socialist era. At the same time, informal charges increased throughout the 1980s, with a significant increase in out-of-pocket payments in the 1990s (Preker et al, 2002). Data on out-of-pocket spending are likely underestimated in many countries due to the difficulty in collecting information on informal charges (e.g. Slovakia and Romania). By definition, informal payments are made without any record of the transaction and are often illegal, making both patients and providers reluctant to discuss them. Furthermore, interpretation of what constitutes an informal payment differs across regions and countries, making generalizations and cross-country comparisons inappropriate.

 

Despite difficulties in estimating their scale, recent surveys and qualitative studies indicate that informal payments have come to represent a large proportion of total health expenditure in CEE and CIS countries. Informal payments constitute about 30% of total health expenditure in Poland (Lewis, 2002). Survey data of the prevalence of informal payments among service users highlight the severity of the problem and identify substantial diversity across countries. Informal payments are mainly associated with in-patient care settings - especially for surgery - and several surveys have found that they tend to be more common in large towns and cities.

 

A 1999 World Bank/USAID survey observed that 71% of GP visits and 59% of specialist visits involved payments in Slovakia (Vagac and Haulikova, 2003). In Latvia, the Transparency International Annual Report 2000 estimated that approximately 25% of patients made informal payments sometimes, while 5.7% made payments on almost every visit (Vagac and Haulikova, 2003). In Bulgaria, informal payments are more common in Sofia, with 51% of survey respondents reporting paying without a receipt for a doctor or dentist (Balabanova 2002). In Romania, informal payments are prevalent and may account for 41% of total out-of-pocket expenditure (Belli 2003). A recent survey of public perceptions conducted by the Centre for Policies and Health Services revealed that 39% of people with high incomes paid unofficial fees or gifts for medical services in 2001, while 33% of people with below average income paid unofficial fees or gifts (Mihai, 2003).

 

It appears that throughout the 1990s there was an increasing trend in some countries with respect to the proportion of health service visits incurring charges. Between 1993 and 1998, the number of patients in Slovakia who paid for hospital admissions grew by approximately 10% (Vagac and Haulikova, 2003). In Bulgaria, out-of-pocket payments (including both formal and informal payments) increased from 9% of total expenditure in 1992 to 21% in 1997 (Balabanova, 2002). And while there is little evidence on how informal payments affect utilization, patients who cannot afford the extra cost are unable to obtain treatment, cannot access the same quality of services, or have to wait longer for care. Moreover, one of the most important implications of informal payments is that they undermine governments’ efforts to improve accountability and contribute to the growth in corruption in many CEE and CIS countries.