Reforming Health Insurance
rates to a uniform rate of 65 percent. If this were done, however, the effect on tax revenues would be relatively modest, amounting to an extra D 1.2 trillion, an increase of just 11 percent (Van Kinh et al. 2006). The relatively small impact reflects the high price elasticity of demand for cigarettes in Vietnam, with people switching in response to price increases to other (largely untaxed) forms of tobacco, including chewing tobacco (Ramanan Laxminarayan 2004). Raising cigarette taxes would therefore not do much to help raise extra revenues for government health spending.
Deepening Coverage to Further Reduce Out-of-Pocket Payments All of the measures outlined above are geared to expanding coverage to a larger fraction of the population. They do not deepen coverage, however. With the current coverage arrangements, health insurance reduces a person’s expected out-of-pocket payments by about 18 percent, with larger percentage reductions for outpatient and inpatient expenditures (30 percent to 35 percent) and smaller reductions on drug and medical equipment expenditures. Even under the universal coverage scenario above, out-of-pocket payments would remain the dominant source of health care financing in Vietnam, accounting for 56 percent of total health spending. The second element to a successful reform of health insurance must therefore be to deepen coverage. Why do the insured pay anything for health care? In part, the spending is on drugs bought from drug vendors, and on medical equipment. Some spending is on privately provided care as well. But out-of-pocket payments are also paid to public facilities. Sometimes they are formal copayments. But sometimes they are simply payments to providers to make up the shortfall between the cost of the service and the revenues the provider gets from VSS and the Health Ministry in the form of budget support. Payments by VSS are for both drugs and fees, the latter being determined by a government-set fee schedule. This schedule was established in 1995, and only the items added since then have prices that reflect
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