Health care financing

Characteristics / Approaches and

Methods
Contents
• Definition of Health Care Financing
• Importance of Health Care Financing
• Functions of Health Care Financing
• Health Care Financing Mechanisms
• Features, Problems & Challenges

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 Definition

Function of a health system concerned with the

mobilization, accumulation and allocation of money to cover
the health needs of the people, individually and collectively,
in the health system

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 Importance

 Health financing is a key determinant of health system

performance in terms of equity, efficiency, and quality

 Purpose of health financing is to make funding available,

as well as to set the right financial incentives to providers,
to ensure that all individuals have access to effective
public health and personal health care

 Understanding health financing answer questions such as:

 Are resource mobilization mechanisms equitable? Do the
wealthier subsidize the poor and those most in need?
 Is the distribution of resources equitable? Efficient? Or are
wealthier populations benefiting more from public financing
than are poorer populations?
 Do provider payments reward efficiency? Quality?

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Functions of health system financing

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 Financing Flow in the Health System

Consumers of Providers of care

health services Direct Payments (Facilities, midwives,
(Patients) doctors)
Health Services

Taxes,
Premiums Fees, Global
Budget

Insurance Claims
Payers
Coverage
(consumers, Government,
Insurers, Employers, Donors)

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 Health Care Financing Problems

Inadequacy in health care financing is a mix of:

• Absolute Deficiencies:
Resource shortage or low total health expenditure
• Relative Deficiencies:
Inefficient use of resources such as:
• Inefficient manpower use
• Inappropriate use of technologies
• Mal-distribution of available resources
• Urban vs. Rural
• Hospital care vs. Primary care
• Lack of coordination between:
• The sources of health finance
• The health providers

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 Health Financing System Dimension:
Financing Sources:
• MOF
• Donors
• Community Equity

Financing Agents:
• FMOH
• SMOH Efficiency
• MOE
Quality

Providers:
• Hospitals
• Clinics
• Pharmacies.
Efficiency
Equity
:Functions
• curative care
• Services preventive
• Ancillary services Quality 8
 Health Care Financing approaches

Usually health systems are financed through a mix of

public, private, and donor sources
Public sources: government entities that raise funds
through taxes, fees, and donors loans

Private sources: include households and employers

Donors: finance health systems through grants and in-

kind contributions

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 Mechanisms of Health Care Financing

The heath care finance is usually a mix of the

following mechanisms of funding:
 General Tax Revenues
 Earmarked Taxes
 Social Insurance
 Private Insurance
 Household Out-of-Pocket
 Community Financing
 Employer-Financed Schemes
 Private Sector Not For Profit
 Donors Funding

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 General tax revenues & Earmarked taxes

 General tax is the most common, traditional &

important way of financing health care in developing
countries
 It is often insufficient (low tax ratios)
 Earmark is “a particular tax for a particular purpose”
 It is often difficult to administer & politically
unpopular

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 Social insurance

 It is compulsory. Everyone in the eligible group must

enroll and pay a specific premium contribution in
exchange for a set of benefits

 Social insurance premiums and benefits are

established through legislation (formal political
process) & determined actuarially (illness incidence,
eligibility & benefits value)

 The main problem is equity (coverage)

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 Private insurance

 Private contract offered by an insurer to exchange a set of benefits

for a payment of a specified premium

 Marketed either by nonprofit or for profit insurance companies

 Consumers voluntarily choose to purchase an insurance package

that best matches their preference

 Offered on individual and group basis. Under individual insurance

the premium is based on that individuals risk characteristics

 Major concern in private insurance is buyer’s adverse selection

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 Community based financing

 Refers to schemes that based on three principles: community

participation, local self reliance and pre payment
 Factors for success of community financing:
 Technical strength and institutional capacity of the local group
 Financial control as part of the broader strategy in local management
and control of health care services
 Support received from outside organizations and individuals
 Links with other local organizations
 Diversity of funding
 Responding to other (non health) development needs of the
community
 Ability to adapt to a changing environment

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 Direct out of pocket

 Made by patients to private or public providers at the

time a service is rendered
 User fees refer to fees the patients have to pay to
public hospitals, clinics, and health posts not to private
sector providers
 Proponents of user fees believe that the fee can
increase revenue to improve the quality of public health
services and expand coverage
 Major objection raised against user fees had been on
equity grounds

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 Criteria for Assessing Financing Mechanisms

Based on the overall health system objectives:

• Efficiency:
• Raising resources:
• Adequacy of resources raised
• Stability or reliability
• Net yield by the source (Total - Administration)
• Using resources:
• Freedom & flexibility
• Equity:
Concern to distribute health care fairly in recognition of
differences in health need:
• Horizontal equity
• Vertical equity

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Criteria for Assessing Financing Mechanisms

• Demand/ Utilization & consumer behavior:

• Different effects on level & type of services used
• Supply/ Provision & provider behavior:
• Type of services & quality
(Curative vs. Preventive & Capital vs. Recurrent)
• Type of personnel
(Paramedical vs. Professional)
• Supply induced demand

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