Financing model problems involve addressing the following questions: i) how much should be spent on the health system? ii) where should the resources come from? iii) how are resources assigned?

2.2.1. THE EXPENSE OF HEALTH INSURANCE

Offering medical coverage to people may require levels of resources related to: a) the scale of the demand,³⁰ b) the coverage plan (menu of services), c) the price of services, and d) the offer of services.³¹ But, beyond the manner in which these four factors behave in particular cases, is the worldwide tendency of health expenses to increase and the fact that all health systems attempt, if not always to contain this, to at least obtain greater control over the tendency. The characteristics of the modality of producing health services are such that incorporating higher levels of technology does not reduce health personnel expenses, so that technological innovation tends to increase expenditures.

^30. As Savedoff (1998) shows, to achieve economy of scale, health insurance requires 200,000 beneficiaries, although the figure is also dependent on the geographic distribution of the population.

^31. One of the characteristic failures of the health market is the fact that the offer induces its own demand.

This motivates the debate in health insurance. Different moments may be identified in the debate with regard to adequate amounts of expenditures. In the first place is the fact that the traditional professional public health view-supported by the precept that health has no price-is that sufficient resources must be assigned until the health situation of the population reaches a level determined by criteria of necessity. In the second place, it has been shown that at a specific level of investment, increasing health expenditures show decreasing rates of return³² (when measured in terms of life expectancy). From that is derived the premise that an adequate level of spending can be found at the point of its optimal result. A third thesis is that the payback from the investment in health care is a function of the design of the system. Apparently those systems in which the coverage comes closest to being universal, i.e., where the State acquires a more active role, achieve better results with less investment.³³ A variant of this position states that the efficiency of expenses is also a function of the level of income of the population.³⁴ Nevertheless, more recent studies (Contandriopulos, 1999, Evans et al., 1994) show that neither the wealth nor the participation of the State in health expenditures can explain differences in the evolution of life expectancy.³⁵

^32. One of the studies of this type found that the relationship between health expenditures and results obtained follows the form of an exponential function. As of a certain level of expenditure per capita, a point of inflection is found after which the cost will show a decreasing rate of return (Médici, 1994, Musgrove, 1996, Fuch, 1986; Jeffrey, 1996, Starfield, 1995; Elola et al., 1995).

^33. These studies show that a level of health expenditures in countries is proportional to the role of the State in the sector. For the same level of health results countries where the weight of public expenditures with regard to total expenditures is greater attain a lower total expenditure in health (Scheffler, 1993; Scheils, et al., 1992).

^34. Studies that take the size of the economy as an independent variable concluded that a country's levels of expenditure on health must be maintained in relation to its wealth. Some of these comparative studies cover Latin American countries (Musgrove, 1996; Suarez, 1995; Médici, 1994).

^35. This observation is valid for comparisons between groups of countries that have similar development levels.

In synthesis, although health economists have accumulated a valuable set of research on the subject, the debate cannot be considered closed. For this reason the argument for the need to ration services has acquired weight within insurance companies.

2.2.2. SOURCES FOR FINANCING HEALTH INSURANCE

Broadly speaking, financial sources may be public or private. The former correspond to systems whose resources are guaranteed by the State through laws, decrees or standards. In most cases these are resources obtained through contributions based on the payroll of employees in the formal sector of the economy. They may originate with employers (management) as well as with employees themselves. In some cases there is a tripartite scheme in which the government complements contributions with State resources collected through taxes.

The specifics that distinguish public financing from private are that public financing is compulsory and the contributor is obliged to contribute to the insurance, while in the case of private financing the contribution is voluntary and the beneficiary may withdraw from the system if he so desires. Privately-financed insurance plans are generally associated with the risks of sickness and injury that affect the insured. Such risk is calculable on an actuarial bases.

In some cases and particularly since the wave of health system reforms that began in the 1980s, financing is mixed and insurance plans obtain their resources in both ways.

Changes in the economy, especially in countries' tax bases, have led to ongoing redefinition of the sources of finance for health activities. Until a few years ago, the main tendency in defining countries' health systems financing sources related to the incorporation of social contributions based on work. Today the tendency is to abandon the link between the financing of health expenses and work, replacing it with other sources. Nevertheless, tensions may arise in redefining the sources of health insurance financing. On the one hand there are pressures to increase the ability of companies to compete by reducing the salary costs through lowering their contributions. On the other, universal coverage systems seek a more "cycle-proof" source, i.e., a source less sensitive to the phases of economic recession.

2.2.3. THE PURCHASE OF MEDICAL SERVICES WITH HEALTH INSURANCE

Resource assignment problems are also widespread and specific to each insurance plan. They may be summarized through the following question: What payment instruments or models should be employed to purchase services?

The progressive substitution of models that subsidize demand to replace the model that finances sources has been gathering momentum in recent years.

The more traditional manner of financing health care has been called subsidy of demand. In Latin America this has been termed global budgeting. The concept differs a good deal from European usage. In Latin America it refers to a very rigid model where each establishment is provided with a fixed amount per budget item, line or category. In general that is not linked to any type of production goal. Authorities in the establishment are not allowed to reassign budget items. In contrast the term global budget is usually used to refer to a model in which strict criteria are used to program the overall expenditures of the establishment in relation to the production goals but the administration of the service may reassign resources between items.

The advantage of financing the supply is rooted in the fact that it facilitates vertical planning and grants central health authorities maximum control over the supply of resources. That makes it possible to assign resources to related health priorities. Its disadvantages are connected to the limitations of administrative centralization.