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a blog from young economists at Nova SBE


The Financial Crisis effects on Health Systems (The Baltic Case)

The financial crisis repercussions affected many sectors across the globe. The health system, as an important segment of this global conjuncture, did not escape from the economic cataclysm.

To properly study this sub-prime crisis effect on the recent trend of pharmaceutical expenditure, we will focus on the Baltic situation, particularly, in countries as Estonia and Latvia.

In a first naked-eye analysis, it will be a surprise for me if the financial crisis, as a negative shock to the economy, does not provokes a subsequent bad effect on the health system status. The WHO data, that will be presented later, confirms the correlation between the two previous indicators: in Estonia, Latvia and other Baltic countries, the trend of rising pharmaceutical expenditure has been curtailed by governments in the last years, using an arsenal of policy tactics to fight the crisis “contagion” on the heath sector.

Particularizing, we see that the health conjuncture in Estonia is very particular. In this country, in the long term, the financial sustainability of the health system is mostly related to the level of wages and the rate of employment, as the majority of revenue comes from the earmarked part of the social tax on wages (13%). In the end, households with higher gross incomes pay relatively more towards health care financing, denoting the progressivity of the system. Therefore, I will say that for those services more dependent on out-of-pockets, such as outpatient pharmaceuticals, there is a more probability of impoverishment risk.

It is important to note that with the crisis and the subsequent economic downturn of the country, the health expenditure decreased in the same proportion of the GDP, being stable at around 5%–6% of that indicator. Among the readjustments that conducted to this balance, it was introduced a 15% coinsurance for inpatient nursing care, paired with an increase in the patient co-payment rates for prescription-only and reimbursed pharmaceuticals, in the order of 43% and 39% respectively. Furthermore, as the EHIF’s (the core purchaser of health care services for the insured) pharmaceutical expenditure gradually decreased to 15.6% of total health care expenditure, no further reductions relating to pharmaceuticals were planned. As a consequence, the rejection rate of outpatient pharmacotherapy increased, raising the need for future emergency care and hospitalisation, while many cheaper pharmaceuticals were withdrawn from the Estonian market.

Other Baltic countries, namely Latvia and Lithuania, faced similar problems. In Latvia, the government decided that the most prudent remedy was to reduce public expenditure together with the implementation of structural reforms. This binomial policy, in my opinion, makes senses, since the control over the expenditure should be accompanied with a structural improvement in the supply side.

Since the Latvian health sector is funded by the State budget, the government indirectly reduced the health care budget in the same proportion of the public expenditure cut, which appeared as ineffective to turn over the reduction in both the value of the total pharmaceutical and the reimbursement budget.  To jink the crisis, the market has had to reduce the costs of the health care system, which has also affected the financing for reimbursed medicines. Here, to fight this last negative effect, I think it would be very important the supply of reimbursed medicines for as many people as possible.

Resuming, today we assist an attempt to invert the co-payment scenario in Estonia, with the implementation of measures towards the decreasing of patient co-payment rate, while in Latvia, the economic situation asks for a reduction in the costs of the health system. In my opinion, the perspectives are good, but due to the germinal state of these policies, it is too early to draw any conclusions or expect considerable progress.

 

Guilherme GG

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