A public service without sound economic foundations is inefficient

Theodor Stolojan
English Section / 22 ianuarie

A public service without sound economic foundations is inefficient

Versiunea în limba română

Theodor Stolojan

Once again, Romania is facing protests from employees in the public health system. Economists have a rich experience with underperforming public systems: more money does not bring an increase in quality, especially in the absence of placing these systems on healthy economic foundations.

From the perspective of the economic foundations on which it operates, Romania's public health system is completely outdated.

Firstly, similar to the period before 1990, public health services are perceived as "budgetary" rather than essential services in society, creating added value, but with a unique feature: they include the principle of solidarity through the mechanism of social health insurance.

Secondly, public institutions that generate health services do not reflect the real costs of these services. These "budgetary" public institutions make investments from funds provided by the state budget, local budgets, and European funds, but do not amortize them, and therefore do not have depreciation costs. As modern medicine uses increasingly sophisticated tools requiring significant investments, there are often cases in the public health system where expensive medical equipment is purchased but remains unused or underused, lacking the necessary maintenance. These institutions are not obligated to pay local taxes on buildings and land. The funding model from multiple public budgets induces a certain lack of responsibility for the efficient use of resources made available to these public institutions.

Starting from this reality, with costs significantly below the actual value of medical acts, the National Health Insurance House establishes tariffs for reimbursing medical services performed by public institutions, which also do not reflect the real cost of these services. These tariffs are used in settlements with private companies providing medical services, placing them at a clear disadvantage, as these companies bear the full expenses generated by a medical act, including the cost of investments.

Thirdly, the social health insurance system is outdated and dysfunctional; it has practically remained on the same principles as before 1990, albeit distorted.

Thus, there is absolutely no correlation between the 10% rate - the health insurance contribution (calculated on salary income) - and the actual cost of medical services. In a context where Romania has only 5.7 million employees, contributors to health insurance, but 18 million people insured by the health insurance system, it is evident that such a system is dysfunctional and does not provide the financial resources necessary for the public health system. Solutions devised by various governments to increase these resources have given rise to economic aberrations, such as the obligation to pay health insurance contributions on investment income earned by individuals.

Fourthly, the economy of any sector, including the public health sector, can be summarized in three words: people respond to incentives. And the most powerful incentive in a market economy is price. Romanians have witnessed the impact of energy prices, which has led to a significant increase in households investing in photovoltaic panels, as well as the effect of increasing the allowance for blood donors, where, from a shortage of donors, restrictions on their number and scheduling have been implemented.

Certainly, the central idea of any social health insurance system is that many individuals decide to contribute relatively small amounts to cover the cost of medical services for those unfortunate enough to fall ill at some point. In this way, society avoids having the sick fall into poverty by fully covering the cost of medical procedures or being denied access to the necessary medical services. How is the situation in Romania? Quite the opposite: many are insured, but few pay social health insurance contributions.

Fifthly, the current public health insurance system cannot incentivize insured individuals to adopt a healthy lifestyle that prevents illnesses and, consequently, reduces medical care expenses as much as possible. Social health insurance contributions cannot be differentiated between healthy and sick individuals. It would be a direct contradiction to the solidarity principle upon which the health insurance system is built. However, the Romanian system cannot stimulate individuals adopting a healthy lifestyle because it lacks the capacity to monitor and evaluate the behavior of approximately 18 million insured individuals, focusing only on those who require medical care.

This is why, as in the past, the ongoing negotiations between public health sector employees and the government, addressing budgetary demands, will not lead to an improvement in the sector's performance without deep reform. Periodic reform attempts have failed due to two main reasons: the incredible resistance of the public health sector to genuine reform (every family sooner or later has an ill member); the lack of political will to place the public health system on sound economic foundations. These foundations should precisely rely on incentives that encourage the insured to adopt a healthy lifestyle, and medical staff to efficiently use the human, material, and financial resources at their disposal.

A mandatory first step in this direction is transitioning to reflecting the real costs of each medical procedure and replacing the social health insurance contribution in the form of a percentage with a health insurance premium, established in absolute terms and periodically updated based on the evolution of medical service costs, disease structure, and frequency. If the state wishes for certain age or social categories of the population to benefit from free health insurance, then the state must ensure the payment of health insurance premiums for these categories from public budgets. Currently, in Romania, several medical services operate efficiently through public-private partnerships: dialysis services, imaging services, and laboratory services. Let's learn from their experience. In the 21st century, more than ever, sound economic foundations for the public health sector have become essential for the health of the economy.

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