The Challenges for the Russian Health Care Reform

Annotation
The transformation of the Russian health care has been realized since 1988. The main reasons for the start of reform were the wiliness to overcome the underfinancing of health care fr om the state budget, to weaken inefficient overcentralized state regulation of medical organizations, and to create the incentives to improve the medical service quality and to use resources more efficient. At first the attempts were made to set the stable per capita standarts of budget expenditures on health care and to turn the out-patient clinics into fundholders in relationships with in-patient clinics. But the attempt to improve the budget financing has failed because of crisis of the soviet state that ended in the dissolution of the USSR. In the middle of 1991 the new direction for health care reform was chosen. There was the replacement of the budget system of health financing by the health insurance system.

Hopes and reform proposals

The introduction of health insurance was supposed first of all to solve the problem of increasing sources and volumes of health care financing. The elaboration of the design of CHI system was strongly affected by the ideas of positive role of competition among insurers and among providers of medical services as a driving force of medical services quality improvement and increasing of efficiency of health care.

According the design of the CHI system, new entities - private insurance carriers play the role of purchaser of medical services. The employers and local authorities contract with insurance carriers for CHI of the employees and non-active population respectively. Regional insurance funds collect CHI premiums from employers and contributions from local authorities and transfer funds to insurance carriers according the number of insured, their age and male.

There were the idea that the abolition of previous command regulation of health care financing and governance, the changes of financial flows in and into the health care system, and the appearance of new actors in the health care finance system will change the medical services provision.

Implementation

The replacement of the old finance system by the new one has started since second half of 1993. The regional CHI funds were established in each from 89 regions, which are the subjects of the Russian Federation, with exclusion of Chechnja. But the insurance carriers were included in CHI not everywhere. In 1996, 538 insurance carriers acted in the CHI system in only 59 regions, in 48 regions from these 59, the CHI funds acted not only as collectors of premiums, but also as insurers, the CHI funds acted as only insurers in 20 regions, and in 9 regions the regional health care bodies remained the only distributors of heath care public funds.

The main mistake on the start of the reform was the establishment of the rate of premiums for CHI of employees on the level, not sufficient to cover the cost of medical services included into the national CHI program. The payroll tax for CHI was established in 1993 as 3.6 percent of salary funds, meanwhile the need rate was about 7-8 percent. The engagements of local and regional authorities to pay contribution in CHI system were not specified in financial standarts.

The decentralization of state administration caused by the crash of soviet state system had a great influence on the health care reform implementation. The federal Health Ministry doesn't have anymore administrative power over regions' health bodies, the latter can't administrate the local health bodies. The rights and the responsibilities of federal, regional, and local authorities for the implementation of the reform were not clearly defined in legislation. As a result, the reform was decentralized. The pace and deepness of replacement of budget finance system by the CHI one became dependent to a great extent on the position of regional and local authorities.

Since 1995 the reform was practically stopped in most regions. In 1995, and in 1996 there were the attempts to revise health insurance law and to reestablish the state system of health care finance The reform has turned out fragmentary and partial one. In 1997, the CHI funds accumulated 27 percent of public funds for health care. The medical facilities have financed as by regional CHI funds as by regional health authorities. The regional CHI funds had to finance from the premiums accumulated by them only a part of medical facilities or to reimburse only a part of expenditures. The only positive result of the reform were

The existing state of the Russian health care and the external political and economic factors has created the new challenges for the health finance system reform.

Imbalance between the public guarantees of free health care provision and public health spending

According the Constitution of the Russian Federation, all citizens have the right for free medical services delivered by public medical facilities. Because of economic recession and budget crisis, the real public expenditures for health care in 1997 were 81% in comparison with 1991 figures. It should be noted, that the corresponding figures have been equal 36 percent for education and 40 percent for culture, so the introduction of compulsory health insurance has had positive stabilizing influence on financing of health care. But the annual public funding of health care is insufficient to cover the necessary expenses of the public medical facilities providing free medical services.

The patients are to pay for formally free medical facilities. In 1997 out-of pocket expenditures of population on medical services and drugs were no less then 44 percent of total expenses on health care. The total capacity of the shadow health care market, that includes under-the-table payments for health services and the payments to the medical facilities via cash register may be estimated as equal about 27 percent from public health expenditure.

Table 1. Public expenditure on health care

	1991	1992	1993	1994	1995	1996	1997
Public expenditures/GDP	2.9	2.5	3.7	3.9	2.9	3.1	3.5
Real health expenditures	100	80	108	98	72	71	81
- state budget	100	80	91	81	59	57	65
-compulsory insurance premiums from employers	-	-	17	17	13	14	16

Source: calculations are based on Goskomstat of the Russian Federation data.

The government hasn't dared to revise the state guarantees for fear to be accused in implementation of economic reforms at the expense of poor population incapable to pay for needed medical services. In fact, the preservation of the gap between the formal guarantees and economic possibilities to finance them from public funds has a greater impact on the poorest groups of population. The 20 percent households with lowest incomes spent for drugs and medical facilities in 1997 in average 27 percent of theirs incomes, meanwhile the 20 percent with highest incomes paid only 9 percent.

The imbalance influences destructive on health care system. The public funds are spreded on existing medical facilities. The latter as the insurers and health administrative bodies haven't any intentions to use public funds more efficient.

To bring the economic situation back to normal, the public guarantees of free medical services should be revised. It is necessary to cut down the amount of the latter, to introduce copayements of population for at least a part of existing free medical services. The copayements should be differentiated according the households incomes, age, health status.

Disintegration the system of health care finance and governance

The policy of various bodies financing and governing the health care system (federal, regional, and local health authorities, federal and regional CHI funds) are badly coordinated. The first task is to make sure that the introduction of compulsory health insurance ceases to be so inconsistent and fragmentary: the budget must unfailingly transfer to the health insurance funds for non-active population. Then the insurance funds should become the main fundholders in all regions. The second task is to introduce organizational and legal mechanisms of interaction among different actors to plan health care funds allocation and structural changes in medical services delivery.

Failure of competitive health insurance model

Even in the region, wh ere the only private carriers act as insurers, there is division of the spheres of influence between them rather then competition. The regional authorities tends to reduce the amount of carriers operating in CHI system and to deal with a small number of them. In the situation of imbalance between CHI programs and their funding, the carriers haven't intentions to act as active purchaser, allocating funds efficiently and managing medical services provision. If the role of carriers as a passive translators of funds from CHI funds to medical facilities isn't changed, they will be inevitably excluded from CHI. The private insurers may act as purchaser in the theory more efficient then public ones. But to realize this on practice, the consistent public policy of encouragement competition, providing transparency of financial flows, strenghening public pressure on all actors of the CHI system to use resources more efficient is needed.