Today, health insurance is recognized as one of the most important sources of financing in the health sector. In this regard, improving the level of satisfaction of the insured and increasing their access to medical services are among the primary goals of health insurance organizations. Organizations that can provide adequate services without imposing a financial burden on the insured are considered successful. To achieve this, it is crucial to maintain a balance between revenue sources and expenditure in health insurance organizations. The current study examined the budget balance across five funds of the Iran Health Insurance Organization over the period 2008–2019. It also analyzed the factors influencing the budget deficit in these funds, including premiums, coinsurance, treatment, and overhead costs, as well as the number of services purchased. Using a panel vector error correction model, the analysis evaluated these factors in terms of the funds’ mediating role in reimbursement, behavior management, and the purchasing of medical services. The goal was to propose solutions for eliminating the budget deficit. The results showed that, in the long run, coinsurance paid by the insured and the premiums received by the various funds of the Iran Health Insurance Organization had a negative effect on the budget deficit. In contrast, increases in treatment and overhead costs, as well as the number of services purchased by the five funds, worsened the budget deficit.

Introduction

Health systems around the world are under increasing financial pressure due to rising healthcare costs and limited resources. As a result, financing has become a critical function of any health system. One widely adopted strategy is funding through health insurance programs, which promote risk sharing, enhance financial protection, and improve access to services—particularly for the poor and other vulnerable populations. To fulfill their obligations and remain sustainable, insurance organizations must control costs, secure adequate funding, and maintain budgetary balance. Achieving this requires structural reforms in both expenditure and revenue streams to improve service delivery and quality. Insurance organizations play a central role in healthcare financing, and their budget deficits can have significant impact on the broader health system. On this account, the present study aimed to examine the factors contributing to budget deficits in these organizations, with a focus on their intermediary role in service reimbursement and cost management. In this context, the first key factor is the adequacy of financial resources. Health insurance organizations pool funds from various sources, including employee and employer premiums, contributions from the self-employed, government subsidies, and donations. These financial resources are used to reimburse insured individuals for eligible medical services (Hsiao & Shaw, 2007). The second factor is rising expenditures, particularly in treatment and overhead costs. These are influenced by both patient and provider behaviors, including moral hazard, adverse selection, and provider-induced demand (Ekman et al., 2008). The third contributing factor is the number of services purchased by insurance organizations. Expanding benefits packages increases costs and creates a trade-off between the range of covered services and the size of the covered population. It is thus essential to define the benefits package and manage service utilization in order to avoid budget deficits. Furthermore, the insured’s share of treatment costs (coinsurance) can influence patient behavior and overall spending, thereby impacting the organization’s budget balance. 

Materials and Methods

Many econometric challenges (e.g., analyzing the effects of economic shocks) arise from the difficulty, or even impossibility, of obtaining the long-term data required for traditional time series models. Furthermore, in some cases, the impact of economic variables spills over into other sectors, creating interdependencies across sections. These complexities can be more effectively addressed using panel vector autoregression (PVAR) models, which incorporate both cross-sectional and time-series dimensions. The PVAR model shares the same structure as a standard VAR model, but by incorporating a cross-sectional dimension, it becomes a significantly more powerful tool for analyzing key economic issues. To illustrate the mathematical form of the PVAR model, let  represent a (K×1) vector of endogenous variables for unit i, where i=1,…,N. Also,  is the (N.K×1) vector of the stacked . Therefore, the equation of the PVAR model can be expressed as follows:
                                                                                   (1)
where  is a (K×1) vector of intercepts,   for j=1,…,p and i=1,…,N is a (K×N.K) matrix of slope coefficients. Morover,  is a (K×1) vector of possibly contemporaneously correlated reduced-form disturbances (Dees & Guntner, 2014).

Results and Discussion

This section presents the estimation results of the panel vector error correction model (PVECM), highlighting the short-term effects of selected variables on the budget deficit across the five funds of the Iranian Health Insurance Organization.
The dependent variable (BD) represented the budget deficit, calculated as the difference between revenues and expenditures. The independent variables were as follows: PR (premiums paid by the insured), CO (coinsurance contributions), TE (treatment costs), OE (overhead costs), and SE (number of services purchased by the five funds of the Iranian Health Insurance Organization). The estimation results indicated a negative relationship between the budget deficit and both premium collections (PR) and coinsurance payments (CO), suggesting that increases in these revenue sources help reduce the budget deficit. In contrast, treatment costs (TE) and the number of services (SE) exhibited a positive relationship with the budget deficit, suggesting that higher spending on healthcare services and treatment places greater financial strain on the organization’s funds. Interestingly, overhead costs (OE) had a negative effect on the budget deficit. This may imply that an increase in overhead costs is associated with improved efficiency or more effective cost management practices, ultimately contributing to a reduction in the deficit. These findings underscore the importance of enhancing revenue streams while managing service-related expenditure to improve the financial sustainability of health insurance funds.
Table 1. Panel vector error correction model




Dependent variable: D(BD)




Independent variable


Coefficient


t-statistic


Probability




 


-0/002352


-2/301949


0/0216




 


1/78139


52/09841


0.0000




 


-0/880473


-26/05142


0.0000




 


-0/419725


-1/304360


0/1925




 


0/363738


1/124362


0/2612




 


-0/021947


-0/965672


0/3345




 


-0/033938


-1/480905


0/1391




 


0/127226


1/708152


0/0881




 


-0/098218


-1/283012


0/1999




 


-0/069282


-1/240130


0/2153




 


-0/064522


-1/162825


0/2453




 


41337/74


1/278667


0/2014




 


-33641/15


-1/038965


0/2992




C


7/77e+08


2/117971


0/0345




R-squared: 0/99


F-statistic: 6729/078
Prob(F-statistic): 0/0000


Durbin-Watson stat: 2/19



 
 
 
 
 
 



Source: Research findings

Conclusion

According to the findings, in the short term, the Health Insurance Organization can effectively control and reduce its budget deficit by adopting strategies such as increasing premiums, coinsurance contributions, and overhead expenditures, while simultaneously reducing treatment costs and the number of services purchased.