UNIT 19

ECONOMIC DIMENSIONS OF
FINANCING HEALTHCARE

Structure
19.0

Objectives

19.1

Introduction

19.2

Financing of Healthcare: Principles and Constraints

19.3

Magnitude of Healthcare Needs/Expenditure: Implications for Resource

Mobilisation

19.4

Production of Healthcare

19.5

Healthcare Delivery: Risk Pooling

19.6

Resource Allocation and Purchasing

19.7

User Charges

19.8

Development Assistance for Healthcare

19.9

Let Us Sum Up

19.10

Key Words

19.11

References

19.12

Answers/Hints to Check Your Progress Exercises

19.0

OBJECTIVES

After going through the unit, you will be able to:

relate the principles of financing healthcare with the problems of resource

constraints, its effective allocation and utilisation;

explain the magnitude of healthcare financial needs in relation to the state of

economic development;

explain the theoretical frameworks governing the production of healthcare;

appreciate the institutional issues underlying the successful delivery of healthcare

services;

discuss the conceptual framework of resource allocation with a focus on issues

relating to the purchasing of medical care services;

assess the major systems of healthcare financing; and

develop a perspective on the external assistance for healthcare.

19.1

INTRODUCTION

Establishment of adequate healthcare services, accessible/affordable to all sections

of the society, is an important function of the state. The magnitude of its need,
characterised in terms of population size and the budgetary requirements, is
determined by the state of development of an economy. Low income countries are
typically characterised by large population size, majority of them living in rural areas
and dependent on low productive agricultural activities. Such economies experience
greater fiscal stress to find the resources required for the establishment of suitable
healthcare services. With economic development, the growth rate of the population
would decline and transfer of labour from low productive agriculture to more
productive industry and service sectors would take place. This will result in a rise
in the per capita income of the people. Higher levels of educational attainment,
accompanying higher levels of economic growth, would result in increasing labour
force participation rate. Health coverage linked to employment contracts, or by
contributions to community/voluntary health service schemes/programmes, would

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Health Economics

become feasible with development. In other words, associated with the state of
development of an economy, the methods that can be adopted to raise the required
resources would become diverse and flexible. Higher public spending required in
conditions of lower economic development paves way to services which can be
established by pooling resources in ways suitable to the socio-economic level of
different sections in the country. The suitability of a method to a given context
bears an important relation to the institutional structures in place in an economy.
What are the principles that govern the economic considerations of creating an
efficient healthcare system in a given context? How does the state of development
attained by a country determine the model that it can adopt in respect of healthcare
financing? What are the commonly adopted methods for raising the resources?
What theoretical frameworks are available for contracting an effective publicprivate co-existing role in this respect? What is the significance of external
developmental assistance in contributing to the attainment of millennium development
goals in the health sector? What are the issues that arise in the context of aid
effectiveness and absorption in view of the socio-political considerations that
normally underlie the providing of developmental assistance to healthcare? These
are some of the important issues which the present unit deals with.

19.2

FINANCING OF HEALTHCARE: PRINCIPLES

AND CONSTRAINTS

The scope for the application of health financing policies needs to be looked at from
the perspective of three basic public finance functions viz. collecting revenues,
pooling resources, and supplying services. These functions need to be evaluated for
the capacity of the economy to improve health outcomes. The outcomes have to
be achieved in such a way as to realise the principles of equity, efficiency and
financial sustainability. There are four broad sources of funding for meeting the
healthcare servicing needs of a country. These are: (i) state funded systems
implemented through the budgetary allocations of the government; (ii) social health
insurance schemes; (iii) voluntary or private health insurance schemes; and (iv)
community-based health insurance. The specific details of these methods will be
discussed later in the section on healthcare delivery. At this stage, it is important
to note that the revenue raising capacity of a country increases as its income
increases. This process depends and is promoted by factors like: (i) greater
formalisation of the economy; (ii) greater ability of the individuals and businesses
to pay taxes; and (iii) better tax administration. It is said that revenue collection in
developing countries is the art of the possible, not the optimal, as the institutional
realities of developing countries often preclude the use of most equitable and
efficient revenue raising mechanisms. The efficiency of a system has important
financial implications for long term fiscal sustainability. It is necessary to expand the
available fiscal space in order to have large increases in public spending. Health
financing policies need to be developed in the context of a governments available
fiscal capacity. In principle, a government can create fiscal space in the following
ways: (i) by widening the scope of tax collection and by strengthening the tax
administrative machinery; (ii) cutting lower priority expenditures to make room for
more desirable ones; (iii) borrowing resources, either from domestic or from external
sources; (iv) by resorting to deficit financing i.e. asking the central bank to print
money and lend to the government; and (v) receiving grants from outside sources.
Enhancing the fiscal capacity, therefore, requires a judgement that the higher shortterm expenditure, and any associated future expenditures, can be financed from
current and future revenues. When financed by debt, the expenditure should be
assessed for its impact on the underlying growth rate or its impact on a countrys
capacity to generate the revenue for servicing the debt.
As the countries operate within highly different economic, cultural, demographic,
and epidemiological settings/contexts, the development of a suitable healthcare
42

financing system would also be heavily influenced by the contextual and other
historical factors. They are also influenced by factors dominating the political economy
in the country. In this context, the three basic principles of public finance which any
method or approach should strive to ensure are:

raise enough revenues to provide individuals with a basic package of essential

services and financial protection against catastrophic medical expenses caused
by illness and injury in an equitable, efficient, and sustainable manner;

manage the revenues to pool health risks equitably and efficiently;

ensure the production/purchasing of health services in ways that are allocatively

and technically efficient.

Economic Dimensions of
Financing Healthcare

One of the major constraints to improve the healthcare delivery system in developing
countries is weak public sector management. These economies are characterised
by the presence of large rural areas and high informalised labour markets which
pose particular difficulties/challenges in the administration of effective taxation
procedures. In view of this situation, it is necessary to improve/strengthen the
delivery systems at the district and municipal levels where the systems are particularly
weak. In the absence of efficient and adequate public sector health services, the
out-of-pocket health expenditures are very high in these countries (estimated at 60
per cent of total health expenditure in low income countries and 40 per cent in
middle income countries). The challenge for low and middle income countries is
therefore to channelise the high levels of out-of-pocket spending into either public
or private resource pooling arrangements. The features of such financing
mechanisms differ significantly with no one method being inherently better than
another. Policy planning in such situations needs to duly take into account the
context to determine which method constitutes the best means for developing a
strong health financing system ensuring the three principles of equity, efficiency and
sustainability. The mechanisms chosen to govern the system must be aligned with
country-specific economic, institutional and cultural characteristics.

19.3

MAGNITUDE OF HEALTHCARE NEEDS/

EXPENDITURE: IMPLICATIONS FOR
RESOURCE MOBILISATION

Globally there exists an enormous mismatch in the health financing needs of different
countries and their actual health expenditure. Developing countries account for 84
per cent of global population, 90 per cent of global disease burden, but only 12 per
cent of global health spending. The underlying population and epidemiological
dynamics are estimated to exert profound influence on the future health needs of
these countries. The worlds population is projected to grow to 7.5 billion by 2020
and 9 billion by 2050. Most of this growth is expected to take place in the developing
countries with the population of 50 poorest countries expected to double by 2050.
There is also an expected shift in demographics characterised by declining but still
high population growth. This factor coupled with increasing life expectancy implies
that developing countries will face significant increases in population of all age
groups. As a result of this population momentum, large numbers of youth will enter
the labour force with the numbers of elderly persons also increasing. The situation
calls for concerted government initiatives to foster policies of economic growth with
that of its human resource development programmes, the latter requiring to focus
on implementing suitable training and education policies. To effectively aid such a
growth/developmental path, new structures of resource mobilisation and health/
educational financing efforts need to be evolved.
Global health spending in 2002 was $3.2 trillion amounting to about 10 per cent of
global GDP. Only about 12 per cent of that (0.35 trillion) was spent in low and
middle-income countries. In terms of per capita expenditure on health (population

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Health Economics

weighted), high income countries spend nearly 100 times more than low income
countries. Adjusted for cost of living differences, the per capita health expenditure
of high income countries works out to 30 times that of the amount spent in low
income countries. The public share of total health expenditure is disproportionately
balanced against the low income countries: it is as low as 29 per cent in low income
countries, 42 per cent in lower-middle-income countries, 56 per cent in upper-middleincome countries, and 65 per cent in high income countries. This has kept the outof-pocket spending on health needs in low income countries the highest as compared
to the middle-income and the high-income countries. The low income countries thus
suffer from the most inequitable distribution of health financing/spending.
Increasing the share of public spending in health depends to a significant extent on
the revenue generating capacity of the state. Although the revenue raising ability
varies from one country to the other, in general, low-income countries face onerous
constraints. This is due to factors like: low level of income, poorly developed
administrative structures, large informal sectors, and limited overall resources.
Estimates reveal that in the early 2000s, central governments in low-income countries
collected 18 per cent of their GDP as revenues, while the corresponding percentages
were 21, 27 & 32 for the lower-middle-income, upper-middle-income, and highincome countries respectively. Although tax revenues constitute the bulk of
government revenues in all regions and income class groups, in some countries and
regions (e.g. Middle East, North Africa) sales of natural resources also constitute
an important source of revenue. An important feature of revenue generation is the
social security tax. This, however, constitutes a small proportion of the overall tax
revenues particularly in low income countries. While the proportion of this tax is
highest at about 7.2 per cent of GDP for high-income countries (in the early 2000s),
for the low-income countries it was lowest at about 0.7 per cent of GDP. Since
large proportion of workforce in low-income countries are in the informal sector,
not enjoying any form of income/social security guarantees, the potential to generate
taxes from social security contributions is limited. This is inhibiting the expansion
of health coverage to large number of such workers and their family by an
economically viable system. This underscores the importance of increasing the
efforts for the formalisation of employment structures and/or evolving appropriate
government sponsored programmes in the low-income countries.

44

Forced by the economic and institutional constraints, the developing countries adopt
indirect taxation methods for generating the revenues. Sources of such taxation
include consumption taxes on sales (e.g. general sales, value added, excise) and
taxes on factors of production (e.g. payroll, land, real estate). High income countries,
on the other hand, adopt direct tax measures like income and property taxes,
corporate tax, capital gains tax, inheritance/death/wealth tax, etc., to generate their
revenues. Resorting to indirect tax methods in the low-income countries is consistent
with the situation obtaining in such economies where large sections of the poor
spend their income mostly on consumption. An important question that arises in this
context (which carries an important bearing on increasing the revenue for public
spending on health services) relates to that of economic incidence of tax systems.
This is important as the type of taxation adopted carry significant implications both
for the revenue raising potential of the country as also on the equity considerations
of the system. Direct evidence from studies focusing especially on poor income
countries on this feature of taxation is sparse. However, a survey of 13 Asian
countries spanning high/middle/low income countries (ODonnell, et. al., 2005a and
2005b) brings out that only the richest households qualify to pay personal income
tax and taxes on capital. In other words, the informal workforce, skewed toward
the lower end of income distribution, fall out of the direct tax burden. This makes
the direct tax policies progressive (i.e. its burden remains confined to the rich).
Further, due to the relative small share of direct taxes generated, the net impact
on the overall distribution effect of health and other services established out of such
funds remain modest. The distributional impact of services established out of indirect

taxes generated, is mixed as it depends on factors like tax base, rates, exemptions,
and exclusions. The tax base in low income countries is usually less comprehensive
than in richer countries as taxes like VAT are collected from businesses meeting
a minimum turnover threshold. To the extent that the poor buy from businesses that
do not meet this criterion (e.g. stalls, bazaars, etc.), they remain exempt from the
burden of indirect taxes. This alleviates the regressive character of indirect taxes
(i.e. burden of taxes being concentrated on poor people in low income groups). It
thus follows that generating the revenue by resorting to well-designed indirect taxes
does not necessarily result in adverse equity implications as they can be structured
to be progressive. Generating revenue through indirect taxation to finance increased
health expenditure in low income countries can therefore be made efficient as taxes
like value added and excise are implicit with preferred characteristics like broader
base, lower price elasticities, etc. However, such features are dependent on the
exact details concerning the tax base, rates, exclusions, exemptions, demand
elasticities, and tax administration capabilities which are country specific. The
suitability of the type of taxes levied therefore needs to be assessed by keeping the
specific local conditions in view.

19.4

Economic Dimensions of
Financing Healthcare

PRODUCTION OF HEALTHCARE

The issue of production of healthcare services basically concerns the policy

framework which allows both the public and the private sector players in the
market. This has become necessary because there are a range of problems besetting
the sole public production which have similar parallels in its private counterpart. The
problems relate, among other things, to: (i) public accountability, (ii) informational
asymmetry, (iii) abuse of monopoly power, and (iv) failure of strategic policy
formulation. Barring a few countries, perfect monopoly by an exclusive public
sector role now does not exist anywhere. In most countries, the production aspects
relate to restructuring what is already a complex mix of public and private roles in
the health sector.
The failure of public production is usually dealt with by the adoption of one or more
of the following approaches: (i) exit possibilities yielding place to market forces and
consumer choice; (ii) allowing scope for client participation thereby providing a
distinct role for public voice; and (iii) loyalty i.e., a structure in which significant
weightage to responsibility is accorded. The broad aim is to generate benefits to the
society by unleashing forces of competition to create an optimally functioning market.
The approach is centred around the core tenet of neoclassical economics that, if
certain conditions are met, competition produces an equilibrium in which it is impossible
to make someone better off without making someone else worse off.
The basic assumptions of a Walrasian model necessary to establish the desired
equilibrium under the mechanisms of competitive market conditions are: (i) the
goods involved behave like true private goods i.e. they are governed by the features
of excludability, rivalry and rejectability; (ii) rights are perfectly delineated; and (iii)
the transaction costs are minimum. The application of these assumptions to the
services of healthcare sector reveal that while the first of the three assumptions is
met by most healthcare goods and services (at least to some degree), the remaining
two are generally not met. Further, since our focus is on the production
characteristics, it is necessary to understand the optimal organisational arrangements
for service production.
The developments relevant to understanding the different arrangements for service
delivery derive from four theories of organisation viz. (i) the principal-agent theory;
(ii) transaction costs economics theory; (iii) property rights theory; and (iv) public
choice theory. The agency literature surveys the range of contracts observed in the
economy with respect to incentives and cooperation. Generalising from a full range
of relationships (from employment contracts to the various other more complex

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Health Economics

relationships that make up the firm), the theory points out to the need for effective
incentive alignment. The relationship between patient and physician or governments
and contracting agencies are cited as classic examples of the principal-agent
structure. On the other hand, pointing out that both the principal and the agent are
opportunists seeking to minimise production/transaction costs and maximise their
benefits, the transaction costs economics theory emphasises the need for flexible
means of coordinating activities. This theory advocates vertically integrated (i.e.
unified ownership) organisational structures with features of simple spot contracts,
franchises or joint ventures. Claiming that such arrangements provide discrete
structural alternatives, the theory holds that governance arrangements can be
evaluated by comparing the patterns of costs incurred in production and exchange.
Pooling of risks and rewards for various activities undertaken, facilitating the sharing
of information, pursuit of innovation, and promoting a culture of cooperation are
considered the positive features of the transaction cost theory. The theory however,
it is argued, suffers from characteristic weaknesses like the proliferation of influence
activities. This is illustrated by the presence of provider organisations in the
healthcare sector who try to gain advantage by influencing decisions on the distribution
of resources (or other benefits) among the providers. Evidence of such activities
is cited in the tendency to allocate resources to tertiary and curative care at the
expense of primary, preventive and public health activities. The property rights
theory attempts to find out why private ownership has strong positive incentives
for efficiency. It identifies the prevalence of this feature to the scope for residual
rights of control which refers to the rights of owners on the revenue remains of
the total proceeds once the expenses and the contractual obligations have been met
out. The public or the political choice theory focuses on the self-interested behaviour
of influential segments (e.g. politicians, bureaucrats, and other interested groups).
The theory points out that owing to the capturing of increasing portions of resources
by powerful interest groups, institutional rigidities develop impacting adversely on
the economic growth.
The insights provided by the theories of organisational behaviour emphasise the
need for the establishment of institutional frameworks which provide for measurement
yardsticks to facilitate governance. Such yardsticks should assist in the measurement
of performance which should be among the main criteria for assessment. If pure
competition is to prevail for producing efficient services then the market conditions
should be such as to allow for easy entry and exit of firms. Any barriers present
to obstruct the smooth functioning of the firms should be eliminated for which
suitable institutional mechanisms must be evolved. In order to achieve this, policy
promotion packages with features of contestability and measurability needs to be
evolved. Enabling institutional frameworks must be developed by the state in order
that factors conducive for efficient functioning of market are established. Most
goods and services have some degree of market imperfection in terms of reduced
contestability and measurability. There are various instruments which the governments
use to deal with such situations. In order of increasing intrusiveness, some of these
measures include: (i) requiring information disclosure; (ii) introducing regulations;
(iii) contracting; (iv) subsidies or direct financing; and (v) public production.

46

Contestability and measurability of goods and services are influenced strongly by

the elements of systemic environment. The environment itself is directly affected
by the policies of the government. Consequently, the structure of the market to
which organisations are exposed bears a critical influence on the behaviour of
healthcare goods and service producers. The environment therefore directly
determines the strategies to be adopted for the generation of increased revenue.
Some of the major policy initiatives which contribute to increasing the contestability
of firms in the market are: (i) unbundling large bureaucratic structures (i.e.
modification in governance); (ii) outsourcing certain functions to specialised providers
(i.e. modification in payment system); (iii) exposing the public and private actors to
the same potential benefits and losses attributable to market exposure; (iv) decreasing

barriers to entry caused by political interference or unwarranted trust in public

production (i.e. modification in market structure); and (v) explicitly separating
contestable commercial functions and non-commercial social objectives. Likewise,
measurability can be enhanced by: (i) relying on quantifiable results (i.e. output or
outcome indicators) for accountability and performance targets rather than
emphasising on inputs and procedures; (ii) shifting from difficult-to-define long-term
relationships (e.g. employment or service arrangements) to shorter-term but more
specific contractual arrangements; (iii) using quantifiable monetary incentives rather
than non-monetary incentives like consideration of ethics/ethos/status which are
more difficult to measure; and (iv) tightening the reporting, monitoring and
accountability mechanisms.

Economic Dimensions of
Financing Healthcare

Thus, when reforms to organisations such as hospitals entail a shift to earning

revenue through the delivery of services in a market, the nature of the emerging
market is crucial. In order to derive maximum gains from reforms (that expose the
public sector to competition with the private sector) adequate steps should be taken
to ensure neutrality. This requires: (i) monetisation of social functions (e.g. explicit
subsidies that adequately cover costs plus a reasonable margin in the delivery of
services to non-paying or non-insured patients; and (ii) achieving standardisation in
the fee structure and cost of capital for both the public sector and private sector.
Transition from an environment of inefficient public sector to a system of buying
services from the private or non-governmental providers needs to be effected in
phases. The process should be accompanied by capacity-building in areas such as
contracting, regulation and the coordination of non-governmental providers.
Check Your Progress 1
1) What are the three factors which promote the ability of a country to generate
the required finances for establishing/maintaining a sustainable healthcare system
in a country?
.....................................................................................................................
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.....................................................................................................................
2) What are the five ways by which the fiscal space available for a country can
be enhanced?
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3) Generating revenues by resorting to indirect taxation policies to finance the
increased health expenses in low income countries does not necessarily result
in adverse equity implications. Justify the statement in 50 words.
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
4) What are the two essential features a policy promotional measure/package
should possess to enable the assessment of its performance?
.....................................................................................................................
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Health Economics

5) What policy initiatives are normally employed to increase the contestability/

measurability of participating firms in the market?
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................

19.5

HEALTHCARE DELIVERY: RISK POOLING

Providing effective healthcare delivery involves the establishment of medical centres

across the country in such a way that they are easily accessible/affordable to all
sections of the people. A sufficiently large network of centres would have to be
functioning so as to conveniently cater to the health needs of the people. Such
needs can be grouped into two types of services: basic services for normal healthcare
needs requiring treatment for short duration (referred to as OPD services) and long
term treatment for complicated ailments requiring hospitalisation. The financial
implications of meeting the requirement of such needs, both for the individuals as
well as for the state, are of different kinds. Depending on the magnitude of the
need as determined by the geographical boundary and the population size, the
budgetary needs of the state also can be substantial. In the absence of adequate/
suitable facilities, the out-of-pocket expenses incurred by the individuals will be
huge. At present, low income countries are struggling to raise the required resources
to fund essential health services of a primary nature. As countries advance towards
higher income brackets (i.e. middle/higher income levels), issues of universal health
coverage (which includes comprehensive health coverage), financial protection and
health system efficiency assume priority. These objectives require an overhaul of
the current financing structures involving technical, institutional, and political
challenges. Risk pooling, in this context, refers to the collection and management
of financial resources so that large unpredictable individual financial risks are
distributed among all members of the pool. Pre-payment is an essential component
of risk pooling. This may be either in the form of normal tax paid (using which the
government sets up public health facilities of both the primary and the specialised
type; which is open for usage by all the persons in general) or in the form of
payment of exclusive premium paid for health coverage (in which case the facilities
are restrictively available only to the members of the system). There are various
ways of meeting the financing needs of the health insurance programmes. Four
main health insurance mechanisms used to pool health risks are: (i) state-funded
systems; (ii) social health insurance; (iii) voluntary or private health insurance; and
(iv) community-based health insurance. The features of each one of these financing
mechanisms differ significantly with no one method being inherently superior to the
others. There is therefore a need to find out which one of the methods is the best
suited for developing a system serving the essentials of equity, efficiency and
sustainability. As discussed before, it is important to align the schemes to the
country-specific economic, institutional, and cultural characteristics.
National Health Service Systems: Systems established under the national health
service have three main features. First, their primary funding comes from general
revenues. Second, they provide medical coverage to the countrys entire population.
Third, their services are delivered through a network of public providers. In many
low and middle income countries such system exists alongside that of other risk
pooling arrangements. Thus, they are not the sole source of coverage for the entire
population. The features of national health services give them the potential to be
equitable and efficient. Their wider coverage means that risks are also pooled
broadly, without the dangers of risk selection inherent in other fragmented systems.
Their efficiency potential arises from the fact that they are integrated under
48

government control and have less potential for the high transaction costs that arise
from multiple players. But when power and responsibility is decentralised with local
authorities, coordination problems can ensue. Whether public provision is more
efficient, equitable, and sustainable than private provision is a question not of
ownership but of the underlying delivery structures and incentives facing the providers
and consumers. Thus, although national health service systems have the theoretical
benefit of providing health care to the entire population free of charge (except for
any applicable user fees), the reality could be different. For instance, reliance on
general government budgets is vulnerable to the vicissitudes of annual budget
discussions and changes in political priorities. In most low-income developing countries,
public health spending as a share of the budget is low. Further, health services in
many low and middle income countries are primarily used by middle and high
income households in urban areas because of access problems for the rural poor.
Also, the poor tend to use less expensive local primary care facilities due to the
costs involved in accessing the public facilities. For exactly the opposite reasons,
the rich tend to disproportionately use more of the expensive hospital services of
the public sector. Public provision of health services also face problems of corruption
and inefficiencies caused by budgets that do not generate the appropriate incentives
and accountability. To exploit the potential strengths of national health service
systems it is, therefore, important for developing countries to improve the capacity
to raise revenue, the quality of governance and institutions, and the ability to maintain
the universal coverage and reach of the system. It is also important to take specific
measures to target spending to the poor, such as by increasing the budgetary
allocation for primary care. But the system must not neglect the needs of the
middle and high-income populations (as they are capable of influencing the political
support). They can also opt for privately financed system at the expense of supporting
the public system.

Economic Dimensions of
Financing Healthcare

Social Health Insurance Systems: The systems of social health insurance are
generally characterised by independent or quasi-independent insurance funds. They
rely on payroll contributions marking a clear link between their contributions and
their right to a defined package of health benefits. The state generally defines the
main attributes of the system although the funds are generally non-profit and
supervised by the government. Unlike in the case of national health service systems,
the payroll base for the social health insurance systems generally insulates the
system from the uncertainties of budgetary allocations. However, social health
insurance contributions alone may not be adequate to fully fund the healthcare
costs, especially when the system is intended to cover a broader population than
those who contribute. It may thus require an infusion of resources from general tax
revenues too. Additional subsidies may also come from external aid or earmarked
taxes. Social contributions (which also carries a component from the employers
side) may have a deleterious effect on employment and economic growth if they
increase labour costs. Social health insurance systems often cover only a limited
population such as those in large formal sector enterprises as it is difficult to add
the informal sector workers to the covered population. They are also difficult to
manage as they involve more complex interactions among players. Some of the
preconditions which might lead to the successful development of the social health
insurance systems in developing countries are: (i) level of income and economic
growth; (ii) dominance of formal sector vis--vis informal sector; (iii) population
distribution with growing urban population; (iv) existence of room to increase labour
costs; (v) strong administrative capacity; (vi) quality healthcare infrastructure; (vii)
stakeholder consensus in favour of social health insurance along with political
stability and rights; and (viii) ability to extend the system to informal workers with
the institutional machinery required to collect regular contributions from them. It is
therefore important to examine the specific socio-economic, cultural, and political
contexts and determine whether the setting and the timing are right for implementing
such a system.
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Health Economics

Community-based Health Insurance Systems: Community based health

insurance systems may be broadly defined as non-profit prepayment plans for
healthcare controlled by a community that has voluntary membership. The systems
operate according to core social values and cover beneficiaries excluded from
other health coverage. There is evidence that such schemes reduce out-of-pocket
spending. They may also fill gaps in the existing schemes (such as providing
healthcare for informal sector workers) enabling a more universal coverage. However,
the sustainability of most community-based health insurance schemes are questionable
as they are often unable to raise enough resources because of the limited income
of the community. The schemes size and resource levels, limited management
skills available with the community, limited potential to negotiate with providers for
quality and price, inability to cover the poorer sections of the population, etc. are
some of the weaknesses of the system. While government intervention can help in
improving the efficiency and sustainability of such systems, they can only be regarded
as complementary systems to other forms of healthcare financing arrangements.
Private or Voluntary Health Insurance Schemes: Private health insurance
systems are paid for by non-income-based premiums while the voluntary health
insurance premiums are paid for by voluntary contributions. Although the two types
of coverage are distinct, most private health insurance markets are also voluntary.
Private/voluntary health insurance markets are controversial as they often reach
wealthier populations. They are also the subject of market failures such as adverse
selection by covered individuals and cream skimming of better health risks by
insurers. Premium volatility is identified to limit affordability acting as a financial
barrier excluding many individuals from gaining access to such insurance schemes.
In view of these complexities, the relevance of private/voluntary insurance schemes
is particularly limited for low income countries. Although some of the challenges
and market failures can be addressed by regulations and mandated insurer actions,
such regulations are considered difficult to implement. This is because the
presupposed regulatory resources, political backing, and well functioning financial
and insurance markets may themselves be weak thereby posing challenges to strike
an appropriate balance between the access and equity concerns as also the promotion
of an efficient and competitive marketplace.
Thus, no particular system of healthcare financing may be uniformly suitable to all
sections of the society in a country. Low-income countries, in particular, need to
increase the efficiency and equity of all public spending systems, including health
spending. Given the budgetary constraints and difficulties in generating additional
fiscal space, low-income countries are likely to have a larger and more equitable
impact on health outcomes if they select a basic universal package of public and
merit goods. Such a package should include treatment services that have been
proven effective in advancing towards the millennium development goals. The
financing of other interventions should be targeted. As studies have revealed large
imbalances in the benefit-incidence of public spending on health, low-income countries
must improve their targeting of expenditures to those interventions that have the
greatest marginal impact on the poor. For this, they need to focus on improved
mechanisms of purchasing. The subsequent section dwells on this aspect of healthcare
financing.

19.6

50

RESOURCE ALLOCATION AND PURCHASING

Decisions of resource allocation carry important implications for equity and efficiency.
It is clear that in attempting to reach the millennium development goals (MDG) for
health, the government health expenditures will increase, while the budgetary
constraints in raising the required resources would continue to remain particularly
for the low-income countries. The targets of MDG could be achieved through a
pattern that benefits primarily the better-off, while largely bypassing the poor. This
is mainly due to the incentive that exists to use increased available resources in

tertiary hospitals, where the utilisation trends tend to favour the rich. There is also
evidence from studies focussing on the incidence of benefit in public spending on
health that the richest 20 per cent of the population accessed primary care, as well
as higher-level care facilities, more than the poorest. This therefore implies that
shifting resources to primary services alone will not necessarily increase their use
by the poor. Further, as the issues of public accountability and efficiency are low
in publicly funded hospitals, it is important to consider alternative ways of providing
the healthcare services. An important question that arises in this context is whether
it is necessary that the services are produced by the state (i.e. through state
funded/run hospitals and dispensaries) or whether the task of providing the health
services should be de-linked from that of its financing. The latter brings to
consideration the issue of purchasing the services from other non-governmental
providers. In this context, purchasing which is also referred to as financing of the
supply side, refers to the numerous arrangements used to pay the different medical
care providers. It involves the consideration of alternatives like decentralisation,
contracting, developing efficiency-based provider payment incentives and systems,
etc. Resource allocation and purchasing together therefore relates to the issues of:
what to buy, how and from whom to buy, for whom to buy, how to pay, and at what
price? These questions together focus on aspects of allocating the limited resources
so as to maximise the health outcomes. The procedures of resource allocation and
purchasing have important implications for cost, access, quality, and consumer
satisfaction. Efficiency gains (both technical and allocative) from purchasing
arrangements provide better value for money thereby becoming a means of obtaining
additional financing for the health system.

Economic Dimensions of
Financing Healthcare

What services should the government finance? In low income countries, budget
constraints impose restrictions or become binding at relatively low levels of per
capita expenditure. The states must therefore make their financing choices with
careful considerations on whether the goods/services are merited. Usually, a small
but important collection of health related activities must be financed by the state,
that too at the socially optimum level of consumption. Such public health activities
are particularly important at low income levels, for both epidemiological and economic
reasons. More importantly, from the perspective of reaching the millennium
development goals (MDGs), effective health interventions to combat child
malnutrition, child mortality, maternal mortality, and communicable disease mortality
have been charted for all health targets. These interventions must be financed by
the public sector as they provide public goods or generate externalities. However,
as many of these services are underused especially by the poor, measures to
encourage their use by the poor must also be taken up. For a targeted population,
public financing of interventions which are private goods may also be justified from
an equity perspective. The decision on which health services the government should
purchase in low income countries is usually made not only on economic considerations
but also on social and political factors. The decisions also have important implications
for the opportunity cost of the resources used (i.e. other investments not undertaken).
This should therefore be duly weighed in terms of the implications of such decisions
on outcomes and growth. Ideally, it is best for low income countries to first finance
a universal, small package of services, essentially encompassing public goods, goods
with externalities, and other interventions with proven impact on the MDGs of
health. Other investments for clinical care involving higher expenditures should be
financed for the poor through the targeting mechanism.
How and from whom should the government purchase services? Public funds may
be used to pay for the provision of services by public providers (budget allocation),
or to purchase services from private or public providers. Once resources are
available, restrictions on how to use them are determined by the countrys absorptive
capacity. Absorptive capacity includes the ability of the public sector to design,
disburse, coordinate, control, and monitor public spending. The coordination is both
vertical (i.e. between the national and local governments) and horizontal. Absorptive

51

Health Economics

capacity also takes into account situations where an allocated resource may not be
spent within the time limit (usually the financial year) and also the effective execution
of a budget. The crucial question is whether the governments (and the institutions)
have the capacity to manage a large increase in real expenditures. The issue
relates to effective public expenditure management, free from or having minimum
of leakages. The perception of corruption, payment delays and difficulty in adhering
to contractual agreements, and the overall lack of absorptive capacity negatively
affect prices for medical supplies. They result in delays and sometimes even
cancellation of donor financing to the health sector. This is important as the term
absorptive capacity is more particularly used in cases of external funding where
the donor countries may insist on a level of public expenditure management expertise
in the recipient countries. It may, therefore, even constitute a necessary precondition
for scaling up programmes in health or other social sectors. Well-designed health
plans need to be part of a multi-sectoral strategy, reflected and costed as part of
poverty reduction strategies. The instruments and policy options available to
governments to improve expenditure performance are: poverty reduction strategy
papers (PRSPs), poverty reduction support credits (PRSCs), medium-term expenditure
frameworks (MTEFs), public expenditure reviews (PERs), and public expenditure
tracking surveys (PETS). Judicious employment of these instruments to monitor the
programmes coupled with public expenditure management strategies would result
in optimum outcomes ensuring good returns on investment.
For whom should the government purchase services? A major problem with
allocations of resources is that increased expenditures often may benefit the betteroff more than the poor. Studies have repeatedly shown that the poor benefit much
less than the non-poor from government health expenditures in many countries.
Supply-side subsidies (like financing of public hospitals) and gratuities (payments to
physicians for favours) are common in many countries. Together they imply a
subsidy to the rich, who take advantage of a public facility by paying an amount
that does not cover the full cost while receiving a privileged service because of
their ability to pay the gratuity to the doctor. Similarly, supply-side subsidies to
deficit-ridden social insurance institutions imply a subsidy to the non-poor, as such
institutions cover mostly formally employed urban workers. In this context, the
question of how to and for whom the government must purchase the health services
assumes relevance. There is no conclusive evidence that either of the collective
resource generation mechanisms for health services [viz. social insurance (Bismarck
model) or general taxes (Beveridge model)] works better for the poor. Both require
some level of cross-subsidy, through either differential premiums or progressive
taxes, to favour the poor. However, in a low-income country, given the limits of the
formal economy, as well as the binding constraints faced by government at low
levels of per capita expenditures, the options for reaching the poor are less clear.
In view of this, beyond a basic universal package, special targeting mechanisms are
needed to ensure financing of needed services for the poor population.
Evolving a suitable framework for resource allocation and purchasing thus involve
many issues surrounding purchasing decisions. It requires financial sector reforms
which carries important implications for long-term fiscal sustainability. Central to
such reforms is the issue of separating purchasing from provision. There is a need
to evolve incentive based payment systems which rely on features like capitation
and managed care, case-based payments to hospitals, and mechanisms to ensure
a more equitable sharing of financial risk between the purchaser and the provider.

19.7

52

USER CHARGES

User charges (or fees) refer to charges levied on the users of public healthcare
services. While this view limits its scope only to the fee charged in public health
facilities, in a more general sense, it includes expenses incurred for availing health
services in private centres too. An underlying distinction is also brought out by the

nature of its (i.e. the user fees) subsequent availability for improving the healthcare
services. For instance, in the case of public healthcare services, the fees generated
goes to the public exchequer and therefore may not necessarily get redirected for
improving the services in the public facilities. But in the case of private health
services, such collections may be invested in the improvement of health services.
This reinvestment may take the form of stocking drugs, payment of bonus to
medical personnel, etc. In a much larger context, the various indirect expenses
incurred by the people (e.g. cost of transportation to and from the hospitals, travel
and staying expenses of accompanying relatives and friends, expenses on food
purchase, opportunity costs lost by way of study time/wages/home duties, etc.) also
constitute important components of expenses incurred on healthcare, even though
not directly as user charges in the restricted sense.

Economic Dimensions of
Financing Healthcare

Limiting the scope of user charges levied in government/public healthcare centres

and relating it to the more fundamental question of equity concern (i.e. the extent
to which such charges serve to dissuade the poor from availing the services in
public hospitals), therefore, provides a narrow view of the concept. The concept
merits to be viewed from a much larger perspective i.e., one of resources required
for expanding the healthcare services. In other words, in the absence of a proper
perspective of distinctions (e.g. distinguishing the goals from the instruments, or
distinguishing the user fees for public services from the overall and much larger
Table 19.1: Arguments For and Against User Fees
Arguments for User Fees

Arguments Against User Fees

Generates additional revenues from

which improvement in quality of
healthcare services can be achieved.

Are rarely used to achieve

significant improvements in quality of
care, either because their revenuegenerating potential is marginal or
because revenue generated by fees
is not used to finance quality
improvements.

Increases the demand for services

owing to improvement in quality.

Do not curtail spurious demand as in

poor countries there is actually a
lack of (not an excess of) demand.

Reduces the out-of-pocket and other

costs even for the poor as the
charges in public facilities will be
relatively modest in comparison to the
higher priced and the less accessible
private care services.

Fails to promote cost-effective

demand patterns as the public health
systems are generally not efficient to
make cost-effective services
available to the users.

Promotes more effective consumption Reduces access by the poor thereby

patterns by reducing spurious demand disturbing the equity principle.
and encouraging the use of costeffective services.
Encourages patients to exert their
right to obtain good quality services
and making health workers more
accountable to patients.

Waivers and exemption systems are

seldom implemented and, where they
are, the poor receive lower quality
treatment.

By combining with a system of

waivers and exemptions (targeted
towards the poor), the system serves
as an instrument to target public
subsidies especially to the poor;
thereby reducing the leakage of
subsidies to the non-poor.

Many of the user payments made

are informal (such as in China and
India) and will not disappear merely
with the adoption of a law by
legislation.
53

Health Economics

out-of-pocket spending on health needs, etc.) the larger issue of improving the
access to healthcare services in an equitable, efficient, and on a sustainable basis
remains inadequately focused. Further, the objective of finding the resources for
achieving the millennium development goals of health, needs to be especially
distinguished from the different instruments available for raising the resources (e.g.
domestic resource mobilisation, external/donor assistance, improving the technical/
allocative efficiency of spending, etc.) of which the levying of user charges is one
of the options.
Evidence of the impact of user fees on access to quality health services by the poor
is mixed. While in some cases, the evidence shows that where user fees have been
removed, demand for the health services by the poor increased, in some others
there are reported decreases. This shows that the demand can be both price elastic
as well as inelastic. Such a seemingly contradictory view needs to be examined for
the differences in the methodology of studies as also for the differences in the
socio-economic settings (i.e. circumstances/situations). Nonetheless, there is growing
evidence that the demand for healthcare is more price-responsive among the poor.
This underscores the need to find well-functioning waiver systems for better targeting
of subsidies to the poor. There is also evidence that implementation of user fees
can lead to quality improvements, but such a link is not automatic and needs careful
design and implementation.
As low-income countries emerge from poverty, they move toward greater public
financing of healthcare and universal coverage. This would be done either through
the establishment of national health service systems or through social health insurance
systems. At such a stage, policies for promoting demand for preventive, primary
and other health services would need to be adopted. Policies for enabling the poors
access to medical care without jeopardising their consumption of basic goods and
services would also be needed. Again at such a stage, the implementation of user
fees for achieving overall operational sustainability of health systems may become
warranted. Policies for adopting user fees need to be harmonised with exemption
and waiver systems to foster access by poor to health enhancing services and
protect them from catastrophic health spending. Achieving improvement in the
quality of public services, reducing waiting time, reducing the need for costly selfmedication, substituting lower-priced quality public services for more expensive
private care, etc., are the directions in which focused attention is needed.

19.8

DEVELOPMENT ASSISTANCE FOR

HEALTHCARE

In the context of achieving the millennium development goals (MDGs) for health,
development assistance for health by donor countries assumes significance. The
effectiveness of such aid depends upon the absorptive capacity of the recipient
countries. Absorptive capacity has macroeconomic, budgetary, management, and
service delivery dimensions. It rests on critical macro conditions like: good
governance, controlled corruption, and sound financial institutions. Of crucial
importance is the need to have trained human resources in public sector management
and service delivery. In order to ensure the adherence to the desired norms of
efficient spending, aid recipient countries must base their macroeconomic and sectoral
reforms on poverty reduction strategies.

54

External sources account for 8 per cent of health spending in low income countries
and less than 1 per cent in middle income countries. Studies focusing on examining
the effectiveness of health expenditure received from donor countries record a
range of effects: from no impact to limited impact and to impacts limited to specific
interventions. The association of stronger institutions and higher investments in
other health related sectors (e.g. education and infrastructure) to improved health
outcomes is established by many studies. While the impact of developmental

assistance on under-five mortality is found to be direct, that on maternal mortality

is indirect. The latter is linked to government health spending (through budgetary
support). A study of 14 countries receiving development assistance for health has
found that 30 per cent of external aid was not reflected in the balance of payments
(BoP), while another 20 per cent entered the BoP but not through government
budget. Of the remaining 50 per cent, only 20 per cent was routed through general
budget support. The off-budget nature of a significant amount of external aid, the
exclusion of much aid from the BoP etc., are, however, considered essential features
in funds management. Such flexibilities are needed for the recipient countries to
implement their country-owned programmes effectively. Referred to as aids
fungibility, such features of funds management/accounting, is described to imply
that governments may divert domestic resources to other uses in the presence of
donor funding in areas like primary healthcare.

Economic Dimensions of
Financing of Healthcare

Although at one level flexibility features in accounting practices are considered

essential, concern on the future implications of budgetary shortfalls have also been
raised. For instance, it is pointed out that analysis must take into consideration that
higher levels of spending in a sector, when financed from external grant flows, may
have a ripple effect on spending in other sectors. As grant financing may not be
available for those sectors, the demand needs to be met through internal resources.
Also, increases in expenditures at a point of time may need to be limited as funds
may not be available to cover the increased expenditures when grant financing
becomes unavailable at a later time point. Changes in accounting practices cannot,
by themselves, create additional scope for expenditure by providing increased fiscal
space. In the light of these possibilities, it is necessary that fiscal analysis at the
country level must take into consideration the spill over effects of expenditure
decisions. This can be done either by strict adherence to sector expenditure ceilings
or by meeting the additional offshoot expenditures through internal financing.
The implementation bottlenecks arising out of funding by external sources have
important implications for the resource allocation by donor countries in general and
for its effective utilisation by the recipient countries in particular. Donors as well
as recipients need to hold themselves mutually accountable for their promises,
commitments, actions and results. Donor countries need to reconcile and harmonise
their national political interests with the global needs. They also need to increase
the predictability and longevity of aid flows. Recipient countries, on their part, need
to improve governance, their macroeconomic and budgetary management capacity,
reduce corruption, and ensure that they have well functioning health systems supported
by long-term sustainable financing systems. Partnerships with international aid giving
agencies must be effectively combined with suitable institutional arrangements in
the recipient countries. Such arrangements should involve national nongovernmental
service providing agencies. Together, the efforts must aid the achievement of
objectives in terms of improved human development indicators.
Check Your Progress 2
1) What are the four main health insurance mechanisms used to pool the health
risks?
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
2) What are the pre-conditions which contribute to the successful development of
social health insurance systems in developing countries?
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................

55

Health Economics

.....................................................................................................................
3) What is purchasing in the context of financing of healthcare needs from the
supply side? What are the alternatives that are considered while evolving a
suitable purchasing mechanism in a country?
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
4) Mention the instruments and some of the policy options available to government
to improve their expenditure performance?
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
5) What are user fees? While adopting user fees as an alternative for achieving
overall operational sustainability of a health system, in what ways the adverse
equity impacts on the poor can be protected?
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................

19.9

LET US SUM UP

The issues relating to the financing of healthcare encompasse many dimensions of

tax administration and governance viz. collection, strengthening of institutions, quality
of governance, establishment of incentive structures to allow for private sector
participation, appropriate regulatory mechanisms, efficient public expenditure
management system, etc. The objective is to pool the risks in such a manner that
the expenditures required to be incurred during major health problems does not
impose financial hardships on the people. Establishment of the required ideal conditions
in which the healthcare needs of all sections of the people are met is, however,
linked to the pace of economic growth and better income distributions in the
society. In countries with low income level, the emphasis of the government should
be to provide essential/primary healthcare services through the general budgetary
allocations of the government. In such a situation, the out-of-pocket expenditures
incurred by the people to meet their major health needs would be substantial. With
improvements in the institutional and finance sector reforms, establishment of prepayment based insurance systems to cover for the costlier health needs would
become feasible. Attainment of the millennium development goals relating to the
health sector requires massive resources for which low income countries would
need external assistance from donor countries and international financial institutions.
However, investments from such assistance need to be effectively serviced for
which the absorptive capacity of the economies needs to be strengthened. Ensuring
the financial sustainability of health sector investments by methods like the collection
of user charges is an available option in this regard. As this can impact adversely
on the poor to avail the services needed, evolving suitable exemption and waiver
systems is essential. Although different methods of financing the health sector
needs exist, no single method can be universally applied. The socio-economic,
political, and cultural settings of an economy, and within an economy of different
regions, should be duly taken note of before any particular system is instituted in
an area.
56

Economic Dimensions of
Financing of Healthcare

19.10 KEY WORDS

Adverse Selection

The systematic selection by high-risk

consumers of insurance plans with greater
degrees of coverage. The insurers who offer
these plans end up with insureds who incur
greater than normal costs.

Contestability

Refers to the feature in the market which allows

competition for the market to substitute for
competition in the market. A market can be
said to be perfectly contestable if firms can
enter it freely (i.e. without any resistance from
other firms) and subsequently leave it without
losing any investments, while having equal
access to technology (i.e. no asset specificity).

Contestable Goods

These are goods characterised by low barriers

to entry and exit from the market as opposed
to non-contestable goods which have high
barriers such as sunk cost, monopoly market
power, geographical advantages, and asset
specificity.

Fiscal Space

Refers to the budgetary room that allows a

government to provide resources for a desired
purpose without any prejudice to the
sustainability of its financial position.

Healthcare

Goods and services used as inputs to produce

health.

Measurability

Measurability in the health sector, as in other

sectors, is the precision with which inputs,
processes, outputs and outcomes of particular
goods or services can be measured.

Out-of-Pocket Expense

The cost incurred directly for healthcare

services by the consumer and which is not
subsequently recovered from an insurer or
government.

Premium

Payment made to an insurance company in

return for insurance coverage.

Purchasing

Refers to arrangements for buyers of healthcare services to pay healthcare providers and
suppliers.

Risk Pooling

Is the collection and management of financial

resources so that large unpredictable individual
financial risks become predictable and are
distributed among all members of the pool.

Technical/Allocative
Efficiency

Technical efficiency refers to production of

maximum possible sustained output from a given
set of inputs. Allocative efficiency refers to
applying the inputs to best possible use so that
no further gains in output or welfare are possible.

User Fees/Charges

In the classic public finance parlance, user fees

are defined as charges for publicly provided
services. In a more general sense, user fees
are defined as payment for publicly and
privately provided services.

57

Health Economics

19.11 REFERENCES
Alexander S. Preker and others, (2000), Make or Buy Decisions in the Production
of Healthcare Goods and Services: New Insights from Institutional Economics and
Organisational Theory, Bulletin of World Health Organisation, 78(6), pp 779-790.
ODonnell, O., and others. (2005a), Who Pays for Health Care in Asia?, EQUITAP
Working Paper 1, Erasmus University, Rotterdam and Institute for Policy Studies,
Colombo.
ODonnell, O., and others. (2005b), Who Benefits from Public Spending on Health
Care in Asia? EQUITAP Working Paper 3, Erasmus University, Rotterdam and
Institute for Policy Studies, Colombo.
Pablo Gottret & George Schieber (2006), Health Financing Revisited A
Practitioners Guide, The World Bank.

19.12 ANSWERS/HINTS TO CHECK YOUR

PROGRESS EXERCISES
Check Your Progress 1
1) The three factors are: (i) greater formalisation of the economy; (ii) greater
ability of the individuals and businesses to pay taxes; and (iii) better tax
administration.
2) The different ways by which the fiscal space available for a country can be
enhanced are: (i) by widening the scope of tax collection and by strengthening
the tax administrative machinery; (ii) cutting lower priority expenditures to make
room for more desirable ones; (iii) borrowing resources, either from domestic
or from external sources; (iv) by resorting to deficit financing i.e. asking the
central bank to print money and lend to the government; and (v) receiving
grants from outside sources.
3) Taxes like VAT are usually collected by exempting very small businesses operating
below a permitted threshold in terms of their turnover. To the extent the poor
buy their consumption needs from smaller businesses operating from a makeshift establishment (called foot-loose enterprises in the informal sector parlance),
the poor are exempted from taxes like VAT. This alleviates the regressive
character of indirect taxes levied on goods and services.
4) Contestability and Measurability.
5) See Section 19.4 (last but one para) and answer.
Check Your Progress 2
1) (i) state-funded systems; (ii) social health insurance; (iii) voluntary or private
health insurance; and (iv) community-based health insurance.
2) The preconditions are: (i) level of income and economic growth; (ii) dominance
of formal sector vis--vis informal sector; (iii) population distribution with growing
urban population; (iv) existence of room to increase labour costs; (v) strong
administrative capacity; (vi) quality healthcare infrastructure; (vii) stakeholder
consensus in favour of social health insurance along with political stability and
rights; and (viii) ability to extend the system to informal workers with the ability
to collect regular contributions from them.
3) Purchasing refers to the numerous arrangements used to pay the different
medical care providers. It involves the consideration of alternatives like
decentralisation, contracting, developing efficiency-based provider payment
incentives and systems, etc.
58

4) The instruments and policy options available to governments to improve

expenditure performance are: poverty reduction strategy papers (PRSPs), poverty
reduction support credits (PRSCs), medium-term expenditure frameworks
(MTEFs), public expenditure reviews (PERs), and public expenditure tracking
surveys (PETS).

Economic Dimensions of
Financing of Healthcare

5) User charges (or fees) refer to charges levied on the users of public healthcare
services. Policies for adopting user fees need to be harmonised with exemption
and waiver systems to foster access by poor to health enhancing services and
protect them from catastrophic health spending.

59