AFRO-NETS> Models of Health Care Financing

[Claudio Schuftan <aviva@netnam.vn>]

Models of Health Care Financing
-------------------------------
 
----- Original Message -----
From: "Carmelita C. Canila, M.D." <carmelita@ciroap.org>
 
The following is one of the articles on Health Care Financing pub-
lished in Asia Pacific Consumer, No. 30, the quarterly magazine of 
Consumers International Office for Asia Pacific based in Kuala Lum-
pur. For more information, visit our website: 
http://www.consumersinternational.org/roap
 

Models of Health Care Financing
 
By Dr. Carmelita C. Canila
CI ROAP Programme Officer, Health & Pharmaceuticals
 
(Designing a framework for health care financing suited for the coun-
try is a daunting task. This article examines several models of 
health care financing and asserts the principle that social protec-
tion for the poor must remain a core and critical factor in any 
health care financing scheme).
 
The cost of health care is burdensome for most families, except the 
wealthy. For the poor it is debilitating. For the 1.3 billion people 
who live on less than US$1 per day in the poorest countries of the 
world, no care is available, except when provided by governments or 
charitable institutions. Unfortunately, governments are fast retreat-
ing from this very basic of their functions. Even in countries where 
health care delivery has been delivered economically and efficiently, 
schemes are being devised to ?lessen the government burden?.
 
Government solutions are being forged in health care delivery using 
an economist framework with income generation as the driving force. 
Such framework has opened up a rich ground for a profit-driven health 
care market. The privatisation of health care services, unregulated 
conduct of private Health Care providers, over-indulgence of medical 
practitioners on high-end technology in diagnostics and treatment, 
even in situations that obviously do not warrant it, have resulted in 
raising cost of health care. Worse, health care delivery provides an 
immense opportunity for corruption.
 
The weaknesses in health care financing have greatly affected access 
by the poor to effective health interventions. Take immunisation for 
instance. While immunisation saves the lives of 3 million children a 
year, an equal number die each year for not having received the basic 
vaccines. This situation is going to worsen, according to the United 
Nations Children?s Fund. There is a growing shortage of vaccines 
worldwide due to lack of increased and long-term financing approaches 
to sustain vaccine production. This is serious enough to jeopardise 
immunisation programmes both in developed and developing countries.
 
Government subsidies to the health sector do not benefit the poor. 
This is especially so in the hospital sub-sector, which tends to re-
ceive the greater portion of government health expenditure.
 
Attempts to address the structural problems related to health care 
financing fail due to a lack of political will and the public?s lim-
ited understanding of the mechanics of health care financing.
 
There is a need for complementary and cohesive strategies to finance 
health care; problems in health care financing can no longer be 
treated in a piecemeal manner.
 
Strategies must be aimed at achieving the fundamental goals of health 
care financing - universal coverage of health care, financial protec-
tion to poor families and social inclusion (nobody is excluded in the 
financing schemes). Achieving these goals is possible if health care 
financing is anchored on the principle that health is a basic and 
fundamental human right.
 
Trends in Health Care financing Table 1 shows the public, private and 
total health care expenditure as a percentage of GDP (Gross Domestic 
Product) and the per capita health expenditure of low, middle and 
high-income countries.
 
Table 1. Health expenditure, public and private*
 
Countries                       Health Expenditure (1990-98) 
                          Public       Private      Total        Per capita
                        as % of GDP  as % of GDP  as % of GDP   in US$ (1990-98)
 
Low income countries       1.3         2.8          4.2                23
Middle income countries    3.1         2.6          5.7               199
High Income countries      6.2         3.7          9.8             2,585
U.S.A.                     5.8         7.2         13.9             4,080
 
* Data may not sum to total because of rounding or differences in the 
year for which the most recent data are available.
Source: Health Expenditure, services, and use:
http://www.worldbank.org/data/wdi2000/pdfs/tab2_14.pdf
 
Public health expenditure includes:
- Recurrent and capital spending from government budgets
- External borrowings
- Grants from international agencies and NGOs
- Social or compulsory health insurance funds
 
Private health expenditure includes:
- Direct household (out-of-pocket) spending
- Private health insurance
- Charitable donations
- Direct service payments by private corporations
 
Table 1 shows that as a country?s income rises, a greater share of 
the health care expenditure is borne by the public sector. The US is 
the exception.
 
Increased spending in health doesn?t always result in better access 
to Health Care or better health. The US has the world?s highest 
health expenditure as a percentage of the GDP (Table 1) and has the 
highest health expenditure per capita (US$4,080 from 1990-98). Yet, 
health care is not equitably accessible. Around 41.2M people in the 
US (14.6% of the population) had no health insurance coverage in 
2001. But Cuba?s health expenditure per capita was only US$83 in 
1998. With such a meagre amount, Cuba fulfils its goal of providing 
universal coverage of health care. In terms of health indicators, 
Cuba has the same under-5 and infant mortality rates as the US (8 and 
7 respectively in 1998).
 
Higher income countries employ a combination of different schemes: 
general taxation, social insurance, and private health insurance with 
limited out-of-pocket user charges. Collection of insurance premium 
is easily done at source. There is a large proportion of the popula-
tion working in urban settings and/or employed in the formal sector.
 
In low-income countries, many people resort to out-of-pocket payment 
due to various factors, among them:
- Health insurance, whether mandated or voluntary, is difficult to 
  implement. Households don?t have steady sources of income to enable 
  them to contribute insurance premiums. This is especially true for 
  households in the rural areas and those employed in the informal sec-
  tor. Further, private health insurance companies won?t cover these 
  sectors, as profit is nil.
- Taxation capacity of governments in these countries is restricted, 
  thereby limiting the health budget.
- Pooling of financial resources is fragmented among income groups
  preventing effective cross-subsidies  between higher and lower income 
  groups. Insurance premiums are not properly distinguished in accor-
  dance to income types preventing cross-subsidisation.
- Without the social protection of insurance schemes, the poor resort 
  to out-of-pocket payment at the point when health services and medi-
  cines are needed.
 
Out-of-pocket payment is more catastrophic for the poor considering 
that health cost is continuously rising. Poor families end up much 
poorer when a member is hospitalised, draining the family?s savings 
and incurring heavy debts.
 
Mechanisms of Health Care Delivery
 
There are a number of different mechanisms to finance Health Care, 
namely:
1) General Taxation.
2) Out-of-pocket payment, direct payment (User-fee or fee-for-
   service).
3) Private Health Insurance.
4) Compulsory Social Insurance.
5) Community-based financing schemes.
6) Combination of the above mechanisms.
 
Model 1- Funding via general taxation
This model is characterised by the following:
- State collects taxes; a portion is allocated for the national 
  health budget used to finance public health programmes, curative ser-
  vices and personnel.
- Health services are either provided for free or for a minimum fee.
- Health Care cost is contained within the public health care deliv-
  ery system.
- Sin taxes from tobacco and alcohol can be earmarked for health pro-
  motion (Thailand and the Australian State of Victoria).
 
The factors determining access to care with this type of financing 
are:
- Health competes with other critical priorities and social services 
  such as education, and other concerns such as debt payment and the 
  expenditure for the military and physical infrastructure.
- Taxes may not be enough to provide the optimum level of Health Care 
  required.
- Absence of health care facilities and personnel in geographically 
  isolated and economically depressed areas.
 
Model 2 -Direct out-of-pocket payment
This model is characterised by the following:
- Free choice, free market.
- Most inequitable means of financing health care.
- Providers control over cost, type and quality of health care ser-
  vice.
- Health care cost is not contained.
- Health services are treated as commodities.
- One of the least efficient and most inequitable means of health
  care financing.
 
The factors determining access to care with this type of financing 
are:
- More health resources/services and products are given to those who 
  can pay more. Therefore, health resources are more likely found in 
  areas (usually urban) where there are more people with higher income.
- Poor, the elderly and those at risk do not to utilise privately 
  owned facilities but overcrowd public health care facilities. These 
  populations tend to have more serious illnesses by the time they seek 
  consultation, therefore needing more expensive treatment.
- Paying from out-of pocket at the time when services are needed is
  catastrophic for people who have barely enough to feed their fami-
  lies.
 
Model 3- Separation of payment and treatment through private health
insurance
This is characterised by:
- Free choice, free market.
- Private health insurance companies control cost, type and quality
  of health care service (profit-driven).
- Health services are treated as commodities.
- Health care cost is not contained.
- Health resources/services and products are given to those who can
  pay more.
- Health resources are most likely found in areas (usually urban)
  where there are more people with higher income.
- Those with irregular or no income such as the poor, unemployed,
  peasants, etc. are insufficiently or not covered at all by health
  care markets.
- U.S. is an example where this model is widely practised.
 
The factors determining access to care with this type of financing 
are:
- Financial variables (cost of insurance premiums, co-payments and
  the difficulty of receiving care due to a billing dispute).
- Non-financial variables (obtaining referrals, unapproved services,
  part-time employment and marital status, pre-existing medical con-
  ditions).
 
Model 4-Mandated Social Health Insurance
This model is characterised by the following:
- A financing organisation is mandated by law to pool funds and pay 
  the providers.
- Funds come from several sources including subsidies from general
  taxation, earmarked taxes such as from tobacco and alcohol, and  
  compulsory insurance premiums from consumers.
- Payment to hospitals or clinics can come in any form such as pro-
  spective budget, Fee-for-service or Charge per day/per admis-
  sion/per diagnosis
- Payment to physicians by salary, capitation or fee-for-service.
- Health care cost is controlled.
 
The factors determining access to health care services are:
- Emphasis on fundamental equality among citizens
- Economic burden of the health care system is collectively shared
- Access is income related: Those employed by the formal sector can
  afford to pay. Those in the informal sector, unemployed or those in
  geographically isolated places are not integrated into the system.
 
Model 5: Community-based financing
Having experienced health problems in catastrophic proportions, poor
communities mobilised resources to secure financial protection 
against the cost of illness. This type of financing involves the com-
munities in revenue collection, pooling, resource allocation, and 
service provision. It is not profit-oriented and targets people with 
unsteady income, mostly from the rural and urban poor.
 
The arrangements in community-based financing schemes are diverse and 
differ from one community setting to the other.
 
The model has many unique features and is characterised by:
- High social acceptability among community members.
- Strong involvement and sense of ownership of the community
- Willingness of low-income households to contribute (as long as they
  are assured of access to quality health care and the cost of health
  care is subsidised by government or donor funds).
- Improved people?s access to drugs, primary and hospital care.
- Ability of rural and low-income populations to raise more from out-
  side sources.
- Clear arrangement for the poorest of people.
- Improved financial protection against the cost of illness.
 
The determinants of successful community based financing scheme are:
- Acommodates the irregular and often non-cash revenue of members.
- Depends on the availability of a functional and complementary
  health care delivery system from which to purchase services, medi-
  cines and medical supplies.
- Trained and competent management.
- Greater efficiency in collection, pooling, management and use of
  scarce health resources.
- Outside help to augment existing funds, such as from government
  subsidies and donation.
 
Combining Features of the Various Models
One of the key developmental aspects of financing health care systems 
is to get the money from various sources. The most important aspect 
is to employ different pooling mechanisms that when taken as a whole 
will provide universal coverage; combine the resources pooled into a 
single fund; institute a payment scheme to providers; and, define the 
best standards of health practice to combat health problems. The gov-
ernment administration cost of this strategy is least costly compared 
to a multi-model system where different financing schemes operate 
separately from each other.
 
In reality no two countries have a perfectly identical scheme and 
most countries in fact employ a mix of mechanisms.
 
Financing strategies have to be context-based, country-specific and 
evidence-backed. It is therefore not advisable to copy wholesale a 
financing framework that works in another country before considering 
its likely impact in the country for which it is being considered.
 
Financing schemes operating on the principles of pre-payment, risk 
pooling and fairness where the healthy and the rich help pay for the 
sick and the poor have been found to have more health benefits than 
schemes that call for out-of-pocket payments at the point of service. 
One caution though. Financing schemes that don?t ensure adequate 
cross subsidies among different income groups will result in gross 
inequity. It is precisely those with less or no income at all who 
need protection against the financial uncertainties of illness.
 
Thailand had this problem before its universal coverage scheme was 
enacted in 2002. The per capita budget subsidy for the Government Em-
ployee Scheme was 2,500Bht (60US$), compared to the Low Income Scheme 
of 372Bht (9US$). Hospitals therefore favoured beneficiaries of the 
Government Employee Scheme to those with lesser or no subsidy at all.
 
Pooling mechanisms should be based on the economic, demographic, geo-
graphic conditions of the country and the infrastructure available to 
collect contributions. Different pooling mechanisms and structures 
for collection are needed for different subsets of population. This 
is critical for achieving the goals of health care financing.
 
In poor countries, social health insurance which gets its financial 
base from those formally employed in the urban centres, cannot sup-
port the health care needs of those in the rural areas and those em-
ployed in the informal sector. There needs to be complementary fi-
nancing schemes to cover these populations.
 
References:
 
- The World Health Report 2000.Health systems: measuring performance.
  Geneva: World Health Organisation, 2000.
- Vaccine Supply for Children at Risk. South Review. Vol. 3, Issue 2.
  May 2002.
- Bulletin of the World Health Organisation. Vol. 80, No. 2, 2002.
- Health care in a Changing Political Economy. Background paper pre-
  pared for Zurich India Programme consultation with Partners. By
  Ravi Duggal. Bangalore. 11 ­ 12 November 2002.
- Health care Financing. Paper presented at the National Workshop on
  Food and Health, Cambodia, 27-28 June, 2001. By Dr. K. Balasubrama-
  niam
- Health Insurance Coverage: 2001. Adapted from a U.S. Census Bureau
  report, 30 September 2002.
- Health financing by the people. Contact. No. 174, July-September
  2001.
 
--
Carmelita C.Canila, M.D
Programme Officer
Health & Pharmaceutical
Consumers International
Asia Pacific Office
mailto:carmelita@ciroap.org
http://www.consumersinternational.org/roap
http://www.ciroap.org/apcl
http://www.ciroap.org/food
 
Consumers International is a federation of consumer organisations 
dedicated to the protection and promotion of consumers' rights world-
wide through empowering national consumer groups and campaigning at 
the international level. It currently represents over 250 organisa-
tions in 115 countries. For more information, see: 
http://www.consumersinternational.org 
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