Executive summary
Although many emerging economies would like to expand investment in their national health care systems, growing evidence suggests that fundamental restructuring will also be necessary to improve system performance. Rather than seeking state-of-the-art care for everybody or only the most basic care for the poor, there has recently been a shift to the delivery of high-quality essential care to all, based on the criteria of effectiveness, cost and social acceptability. Developing the best strategies to establish such a national health care system requires focusing on three major criteria for evaluating system performance: 1) Equitable access to quality care; 2) Individual affordability; and, 3) Financial sustainability.

These concepts are illustrated by examining the health care systems of Mexico, India and China. A social insurance system that incorporates private market forces to promote efficiency and innovation can serve as the solid foundation for a balanced health care system of the future for these three and other emerging economies.

At the same time, greater attention to efficiency will be needed to reconcile rising demands for health care services with public and private financing constraints. Combining social insurance with relevant aspects of managed care, as developed in the United States, could improve the prospects of creating a financially sustainable national health care program.

Introduction
Good health promotes economic growth and social stability, while reducing poverty and income inquality. It has been suggested that much of the burden of poor health in countries and between countries rests with overall health system inefficiency, inadequate funding  and inequitable access to health care services. Although many emerging economies would like to expand investment in their national health care systems to take full advantage of the relationship between health and productivity, growing evidence indicates that a fundamental restructuring will also be necessary to improve their systems' performance in order for these economic and social benefits to be realized.

This paper addresses one fundamental concern about national health care system re-design for emerging economies: the relationship between overall system performance and resource allocation decisions as they relate to investment in education and other preventive measures versus expenditures for high-tech and high-cost services. It focuses on the current and near-term evolution of health care systems in three nations — Mexico, India and China — and also draws lessons based on the recent experience of the United States.

Basic criteria for evaluating health system performance
It is first essential to understand what general factors underlie our ultimate objective, a well-performing health care system. Despite the well recognized contribution of health to economic prosperity and social stability, many countries have health care financing and delivery systems that function far from optimally. Developing the best strategies to deal with their underlying problems depends on recognizing three major criteria for evaluating health care system performance. These are:

• Equitable access to quality care.  Access to both preventive and curative services varies considerably within countries, based primarily on socioeconomic status and geography.  While access to quality health care services is typically more restricted in rural and remote regions, ongoing industrialization and the recent influx of population into cities have exacerbated variations in access among urban residents.
• Affordability.  Even if physically accessible, health care services may not be affordable for many due to low levels of family income and lack of insurance coverage to guard against high out-of-pocket payments at point-of-care.
• Sustainability.  Even the most promising health care system will not ultimately be successful if it cannot be sustained–both financially and politically. Rising costs are straining health care budgets in developed and emerging countries alike at the same time that many other priorities are competing for available funds.

Health care systems of Mexico, India and China
As major emerging economies, Mexico, India and China face many common challenges stemming from rapid industrialization and integration into a global marketplace. While similar in their recent economic trajectories, specific issues faced vary due to their unique cultural, geographic and political histories. But improving health system performance and the health status of their populations will remain major national goals in the years to come. How well do these countries' current health systems perform, based on the criteria proposed above? In particular, where are the most obvious opportunities for improvement?

Equitable access to quality care.  For all three countries, improving access to both preventive and curative services is seen as a major priority by national health officials. Mexico has been the most successful in providing some basic public health services and preventive services across various population groups, including vaccinations (95% of the population).¹ India generally expends less on rural public health resources than the other two countries, resulting in a lower level of immunization (67% of the population) and greater variability in basic sanitation infrastructure in rural areas.² China had historically been stronger in providing access to preventive and primary care in rural areas, but there are now concerns that the standard of rural health care may actually be slipping as the share of health spending picked up by the central government has decreased by half over the last 20 years.³

Affordability.  This is a growing concern at a time when new medical treatments and drugs, while effective, are becoming more expensive. Due to lack of health insurance coverage, the majority of health care expenses are still paid out-of-pocket by patients and their families at the time of care. Specific percentages of the population without health insurance range from 53% in Mexico to 60-75% in China and 82-85% in India.⁴ Unaffordable health care has two serious consequences: 1) many patients are not getting beneficial services; and 2) when patients do get care, its costs create long-term personal financial hardships. For example, in China 60% of the rural population now say they avoid hospitals due to the expense; spending for health care is now considered a major cause of rural poverty.⁵

Sustainability.  Sustainability of national health care programs will be an ongoing goal for all emerging economies as access to and demands for more costly services increase. Currently, Mexico spends 5.6% of GDP on health care; India, 5.2%; and China, 2.7%.⁶ All three countries would like to increase national (public and private) investments in health care as their growing affluence allows. But they must take care not to let health care demands drain resources that, from a health status outcome perspective, could more effectively be allocated to education, public safety, infrastructure or other private investments. Ensuring system efficiency will be particularly important in the years to come as demographic trends put pressure on the financing of all public services, including health care. Partially as a consequence of growing affluence, the population of each country is aging, implying greater future needs together with a shrinking tax base. As a result of its one-child policy, China may face the most serious problem. By 2040, there are expected to be only 2 working people for each person over 60 years old, compared to 6.4 in 2000.⁷

Striking the right balance: Ensuring equitable access and affordability
The first step in discussing how emerging economies might consider relative investments in education/preventive services versus high-tech and high-cost care involves recognizing the most basic problem facing all three countries: the serious underutilization of health care services that could be beneficial to all. Unlike in developed countries (currently concerned about over-utilization), the major issue for emerging economies is how to best increase access to health care services for large segments of the population and how to stimulate demand for these services in the most appropriate way.

The public sector can play an important role in making both preventive and curative services more accessible and available to isolated regions and to lower income populations wherever they live. The need for preventive measures also becomes more urgent as the risks of newer diseases–such as AIDS, SARS and the avian flu–cut across geographic, demographic and socioeconomic boundaries. In addition, health risks associated with ramped-up industrialization, including work-related and traffic accidents, pollution, obesity and smoking, are also addressed most efficiently through preventive measures and education.⁸

One effective way to increase demand for beneficial services is to improve affordability, i.e., reduce the out-of-pocket cost of care that low income patients face. Direct public sector provision of subsidized and free services could play a role, but there are other alternatives. What might be the most effective way to stimulate demand in the most rational manner? According to a recent assessment of China's health care system in The Economist magazine, "What China needs most is a health-insurance system that works."⁹ The same prescription could be applied equally well to Mexico and India. A well-designed national insurance program spreads the financial risk of health care across an entire population, vastly reducing the likelihood of catastrophic loss for families with serious health problems.

One potential strategy for improving affordability would be to establish a social insurance program that is "sponsored" by the government but incorporates contributions from the private sector and from individual beneficiaries. Coverage would need to be universal in order to prevent the problem of adverse selection, but premiums could be set on a sliding scale that reflects ability to pay. This public-private support would not only protect patients from potentially catastrophic expenses related to high-tech/high-cost care but also help free up government resources to fund prevention initiatives and public health and safety measures that benefit all citizens. Even if this program were partially publicly funded and nationally organized, there would be an important role for the private sector, since competitive market forces would be expected to promote efficiency and innovation.

Striking the right balance: Ensuring sustainability
A well-designed social insurance program combined with judicious public sector expenditures can serve as a solid foundation for a health care system of the future. But these efforts will not be sufficient to guarantee a sustainable national system unless there are well-defined and broadly accepted techniques for efficiently allocating resources to meet health outcome and social equity objectives. Advanced industrialized nations are now wrestling with cost escalation that threatens the sustainability of their systems. As a recent OECD report concludes: "Ultimately, increasing efficiency may be the only way of reconciling rising demands for health care with public financing constraints. Cross-country data suggest that there is scope for improvement in the cost-effectiveness of healthcare systems."¹⁰

As a point of comparison, we now look to the experience of the United States for related lessons that might prove applicable to these three, and other, emerging economies. Currently, U.S. health care expenditures represent over 15% of GDP, and about 85% of the population is covered by health insurance (public or private).¹¹  In the past, access to health care services for those with insurance was relatively unconstrained, contributing to excess demand and escalating rates of health care cost inflation. This rate of cost growth became untenable by the late 1980s, when private and some public sector purchasers of health benefits and services finally turned to managed care. A basic premise behind managed care is to promote more cost-effective use of services, with an emphasis on coordination, prevention and provision of "appropriate" care (for example, using lower cost preventive and outpatient services instead of hospitals when appropriate). Moreover, market forces related to provider and health plan competition were expected to promote overall efficiency.

Today, the majority of the U.S. population is covered by some form of managed health care. While many would argue that managed care has not delivered on all of its promises, it has an impact on the health care system. Managed care exerted a brake on the growth of U.S. health care costs in the early and mid-1990s, without having a detrimental effect on the quality of care.¹² In recent years, health care costs have again begun to creep up, but new approaches are being developed that may partially address this problem. One important supporting technology will be clinical information systems that can promote overall population health by making clear the system-wide outcome trade-offs of alternative treatments.¹³ And as health care consumerism grows, information about cost and quality of providers and institutions will also be vital for empowering consumer choice and driving further system efficiency.¹⁴

How transferable is managed care to emerging economies? It should be clear that wholesale importation of U.S.-style managed care may not be appropriate or possible, but many features described above could contribute to an efficiency-enhancing framework for redesigned national health insurance systems.¹⁵ In order to assess the applicability of a managed care solution for emerging economies, below are four criteria that raise a number of key questions to determine whether managed care is:

• Economically feasible.  Managed care in the United States relies on market competition among plans and providers, but emerging economies may not be able to attract the requisite number of competitors for market forces to yield measurable efficiencies.
• Practically implementable.  Even if the creation of a competitive market is unlikely, the health system can adopt some of the managed care principles to promote efficient and equitable use of preventive and high-tech resources, promoting better population health outcomes than are currently possible.
• Politically acceptable.  Because managed care in the United States historically placed restrictions on preexisting access to care and payment, it produced a backlash from some providers and patients. In emerging economies, access will likely be more generous than in the current system for most of the population, increasing the likelihood of political acceptance.
• Financially viable.  The adoption of a new system that expands access can be expected to entail an increase in both public and private expenditures, at least in the short term. While costly, this could be considered an investment in the development of a more rational system, a system that can meet the challenges of health care resource allocation under conditions of rapid economic growth and which has a greater probability of sustainability over the long-run.

The greater the number of "yes" responses, the more likely it is that a managed care solution will prove successful. But it is also probable that careful, partial adoption of a managed care approach can have a long term impact on promoting national health system sustainability.

This white paper was written by Deloitte's Robert Go, global managing director of the global Life Sciences & Health Care practice, and Ruth Given, director of Health Care within Deloitte Research.

FOOTNOTES:
¹ M. Barraza-Llorens, S. Bertozzi, E. Gonzalez-Pier and J. Gutierrez, "Addressing Inequity in Health and Health Care in Mexico," Health Affairs, 2002, 21 (3): 47-56.
² World Bank Country Data Profile: http://devdata.worldbank.org/query/default.htm. The figures cited represent the percentage of children aged 12 and 24 months who had been immunized against measles. 
³ M. Lim, H. Yang, T. Zhang, W. Feng and Z. Zhou, "Public Perceptions of Private Health Care in China," Health Affairs, 2004, 23 (6): 222-234; "Where are the Patients? China’s Health Care," The Economist, August 21, 2004; "China's Growing Pains," The Economist, August 21, 2004.
⁴ World Health Organization, The World Health Report 2000 — Health Systems: Improving Performance (Geneva: WHO, 2000).
⁵ G. Leather, "China — Government Unveils Rural Healthcare Plan," WMRC Daily Analysis, October 30, 2002.
⁶ World Health Organization, The World Health Report 2000 — Health Systems: Improving Performance, (Geneva: WHO, 2000).
⁷ "Where are the Patients? China's Health Care," The Economist, August 21, 2004.
⁸ S. Leeder, S. Raymond, H. Greenberg, H. Lui and K Esson, "A Race Against Time: The Challenge of Cardiovascular Disease in Developing Countries" (New York: Columbia University, 2004).
⁹ "Where are the Patients? China's Health Care," The Economist, August 21, 2004.
¹⁰ Organisation for Economic Co-operation and Development, The OECD Health Project: Towards High-Performing Health System (Paris: OECD, 2004).
¹¹  C. Smith, C. Cowan, A. Sensenig, and A. Catlin, "Trends: Health Care Spending Growth Slows in 2003," Health Affairs, January 11,2005, http://content.healthaffairs.org/cgi/content/abstract/hlthaff.24.1.185v1
¹² N. Sekhri, "Managed Care: The U.S. Experience," Bulletin of the World Health Organization, 2000, 78 (6); D. Cutler, Your Money or Your Life: Strong Medicine for America's Health Care System (Oxford: Oxford University Press, 2004).
¹³ L. Zendle, "An Innovative Approach to Population Health: Kaiser Permanente Southern California," in Consumer-Driven Health Care: Implications for Providers, Payers and Policymakers (R. Herzlinger, editor) (San Francisco: Jossey-Bass, 2004).
¹⁴ Deloitte Research, "Clinical Transformation: Cross Industry Lessons for Health Care" (New York: Deloitte Consulting, 2002).
¹⁵ J. Wilkerson, K. Devers and R. Given, "The Potential and Limits of Competitive Managed Care," in Competitive Managed Care: The Emerging Health Care System (J. Wilkerson, K. Devers and R. Given, editors) (San Francisco: Jossey-Bass, 1997).