The Health White Paper: Is an employment-taxed health financing scheme the right solution?

 KHAIRY Jamaluddin was health minister for barely 15 months (Aug 30, 2021–Nov 24, 2022), yet with the Health White Paper (HWP) tabled in Parliament on June 13, 2022, he has probably made his mark as the first health minister to have made headway — through a call for bipartisan support — with the long-standing agenda for healthcare reform.

Since the mid-1980s, healthcare reforms have been an aim of the Ministry of Health (MOH), with numerous consultant reports and various incarnations of plans, each of which proposed to change the country’s tax-based healthcare financing system to social health insurance. These proposals rarely made it beyond the planning stage, reflecting, observers note, their questionable political viability.

The last was the 1Care proposal, which was launched in 2010 during the Najib Razak administration’s 1Malaysia initiative, and met with an ignominious end in 2013 in the face of strong objections. With the current proposal — the HWP — it would appear that the MOH has learnt valuable lessons from this previous exercise, as it has taken care to engage in various stakeholder consultations at the preparatory stage.

To be clear, the HWP reforms, to be implemented in the next 15 years, include many progressive measures such as establishing community-based public healthcare teams, putting emphases on promotive and preventive care, and moving to electronic medical and health records. Our contention is not with the reforms proposed for healthcare delivery, but with its aim to fundamentally change our tax-based health financing system to a social health insurance system.

The social health insurance scheme in the HWP-proposed healthcare financing is denoted by a dedicated health fund that will be managed by a strategic purchaser procuring services from both private and public sectors for beneficiaries who will be entitled to a basic benefits package. The health fund will be financed primarily by government allocations in the initial period, later ‘enlarged by contributions from large donor organisations’, and finally through a ‘national contributory scheme’ that will eventually be set up.

A dedicated health fund would serve to ring-fence funds for healthcare, arguably giving the MOH some protection from the competitive demands of other ministries. The question, however, is whether and how funding for healthcare could be substantially increased. There is no doubt that public healthcare services have been severely under-funded for the last few decades, and the HWP laudably aims to increase ‘publicly managed health funding from various sources including the government, individuals and companies’ to 5% of gross domestic product (GDP).

Actually, in 2021, the MOH already estimated total health expenditures to be 5.1% of GDP (2.9% public sources, 2.1% private). If we take 2021 figures (the latest available) as indicative, the aim as set out in the HWP therefore is not so much to increase total health expenditures as to shift the bulk of private expenditures into ‘publicly managed health funding’. Nevertheless, 2021 is a year when public spending due to the Covid-19 pandemic was still high.

If we use 2019 statistics, when total health expenditure was 4.3% of GDP (2.3% public, 2.0% private), then the targeted increase would be about 0.7% of GDP, assuming that most of the private health expenditures could be shifted into publicly managed health funds. Currently, about 75% of private health expenditures are out-of-pocket spending by households, 17% from private insurance, and the balance from corporations and agencies (presumably as employers).

The HWP is therefore not only calling for a much-needed increase in public health spending, but for that health spending to come from a new collection through a ‘national contributory scheme’. Most social health insurance systems are based on payroll contributions with specified rates from employee and employer, constituting in effect, an employment-based tax. In Box 1, we set out some rough estimates as to what the quantum of this would involve.

We do not dispute the need to increase funds for healthcare, but would an employment-tax financing system be the best way to do this? The arguments against this are many. First, the new collection system would entail a whole bureaucracy for collecting and disbursing funds, and for assessing the veracity of claims from the various healthcare providers, inevitably increasing the costs of healthcare.

Second, Malaysia has a large informal and self-employed sector from whom it is extremely difficult to collect contributions, thereby limiting the tax base. Third, employment-tax financing schemes are vulnerable to changes in employment levels, with collection diminishing during times of high unemployment rates. Furthermore, when social health insurance is implemented, employers tend to hire more labour as casual labour in order to circumvent the mandatory health payment.

The HWP claims that a universally available benefit package financed by a health fund will allow for a more equitable system due to greater pooling of health and financial risk and wider cross-subsidisation. This is only true if it is compared to a situation where private health insurance dominates, because unlike social health insurance which is compulsory, private health insurance is voluntary, covering only small sections of the population.

If social health insurance is compared to taxation-based health financing, the latter has greater capacity for risk-pooling and cross-subsidisation. Furthermore, social health insurance is equitable only to the extent that the benefit package covers the medical services that are needed. How can it be equitable for patients whose disease conditions are not covered by the benefit package?

These issues notwithstanding, the HWP argues that the proposed financing system will integrate the public and private health sectors through a common payment scheme controlled by a strategic purchaser. It is true that Malaysian healthcare has been polarising into a two-tier system, with the gap in workload and personnel remuneration widening between the public and private sectors.

The strategic purchaser, it is hoped, will rationalise the utilisation of health services in both public and private sectors through a gatekeeper system, and by paying similar rates for both sectors, lead to a narrowing of the gap. But this effect will be limited by the extent to which patients are willing to pay additional co-payments or buy private insurance to cover the higher prices in the private sector.

There are fundamental differences between public and private healthcare as they now exist in the country. First, they have different aims — for example, the private hospital's main aim and responsibility (to its shareholders) is to return a profit, whereas the public hospital's main aim is public service and to keep the population healthy.

Second, in the currently existing system, private specialists essentially function as owner-operators of businesses (businessmen-entrepreneurs), while public sector doctors are employees (of the government). Objectively, these two categories of people are incentivised in very different ways.

With a new financing scheme, a new incentive system is put in place, and things could change in unanticipated directions. Although the plan is for greater integration of private and public healthcare, the opposite may occur. With publicly collected and administered funding available for utilising private healthcare, this could lead to increased demand for, and further expansion of, the private hospital sector, thereby continuing the leaching of expertise from public sector hospitals.

The Malaysian public healthcare system is relatively equitable and accessible. The HWP-proposed financing system, in providing a channel for publicly collected and administered funds to be utilised for private healthcare, risks this equitability. We propose instead an alternative scenario, which is to use the dedicated health fund to strengthen our public healthcare system.

Rather than a strategic purchaser paying both private and public sectors for services, the dedicated health fund should be used to improve the remuneration and service conditions of public healthcare personnel, expand public health facilities, re-vamp and re-orientate towards primary healthcare, and re-invigorate the public health sector in all the ways that have been proposed, and more.

 

BOX 1

Estimate of individual contribution and challenges to the collection of the health fund

The Health White Paper states on page 46 that "Publicly managed health funding from various sources including the government, individuals and companies needs to be gradually increased to 5% of GDP." If this target were to be achieved in 2021, publicly managed health funding would be in the order of RM78 billion, leaving a shortfall of RM32 billion that would have to be pooled from somewhere.

In 2021, 75% of the public health expenditure, amounting to RM33.8 billion, was actually spent on healthcare services. Imagine if we have the new target of increased public health funding, 75% of the RM78 billion would be RM58.5 billion. Assuming that this is the amount that would be needed in the dedicated health fund for the strategic purchaser to buy health services from both public and private sectors on behalf of the beneficiaries, there would still be a shortfall of RM25 billion to be raised from "individuals and large donors". RM25 billion is equivalent to 74% of the revenue collected from personal income tax in 2022, not a small amount.

Let's assume that the government would pay for all B40 household members and automatically enrol them. Then it's most likely that the 9.3 million non-B40 workers will have to fill the RM25 billion funding gap. If the 'large donors' don't meet expectations to contribute financially, then each non-B40 worker would have to pay RM224 per month or RM2,688 per year towards the health fund!

The number of tax payers in 2022 is only 4.2 million, which means that about 5.1 million employees are not taxpayers.

In many social health insurance countries, health payroll taxes are the most effective way of collecting contributions. In Malaysia, given the sheer number of employees who are not regular taxpayers, it will be a challenge to collect the social health insurance premium.

The question remains as to how the strategic purchaser can effectively fill the funding gap by collecting individual contributions. Will the non-B40 families be happy to make such hefty monthly payments for healthcare services?

 

Dr Lim Chee Han is a health policy researcher working on access to medicines, with a particular interest in health financing and public health issues. He is currently a senior researcher at Third World Network and co-founder of Agora Society Malaysia.

Dr Chee Heng Leng was one of the founding members of the Citizens' Health Initiative in 1997. She has been advocating for an equitable healthcare system since then. She works with other healthcare advocates in the People's Health Forum.

Original article was published at The Edge Malaysia, on 1st Dec 2023: https://theedgemalaysia.com/node/692322