Health financing, whether understood as a component, a function or a "control wheel", is a fundamental element of health financing. health system in any theoretical framework. Moreover, it is a prerequisite for the success of all other functions and components. The way in which the financing of a health system is defined, governed and managed determines how financial resources are raised you need, how they accumulate or pooled and, finally, how they are used to purchase goods and services.
The financing model of a health system is a key factor in relation to the financial protection offered by a health system and the scope of universal health coverage. The incentives that the health system generates for the actors that provide health services or insurance also depend on this model.
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Health financing and its subfunctions
The way in which a health system is financed may come to determine the motivation for health care providers to do well and with quality, or the degree of financial hardship families may face in using health services. It also determines the resources available to attract health professionals, maintain the health infrastructures or pay for the medicines needed.
At the same time, the way the health system is financed is determined by how the different financing subfunctions are performed (rather than by how the system is classified according to the archetypal models of Bismarck, Beveridge, etc.) and by political decisions related to health coverage.
Collection of economic resources
In a mainly public system, funds come mostly through different taxes or through contributions and social health insurance contributions. In some countries, the payment of social insurance contributions is what grants the right to health care. When this happens, the system is fragmented into two: a contributory subsystem (generally of higher quality and coverage) for those who pay contributions and a subsidized subsystem (generally of lower quality and coverage) for those who do not.
In a mainly private scheme the funds come mainly from prepayments and direct payments by the families. The prepayment consists of the payment of the premium of a private insurance (from a company) or a community health insurance (with a non-profit entity), by the families. In the absence of insurance, or in the absence of coverage under the insurance they have, families make direct out-of-pocket payments at the time they are seen at health services. These direct out-of-pocket payments, however, are not considered revenue collection, since it is a direct purchase whose value is not pooled.
In the same country, there may coexist taxes, contributions, private or community insurance payments, insurance deductibles, co-payments (public, private or community insurance), out-of-pocket payments and even (to a lesser extent) external contributions from donors. There may also be different subsystems for different segments of the same population.
Accumulation or pooling of collected resources
The pooling model for the financial resources that have been obtained determines who can benefit from the resources that have been collected and how these resources are distributed among the population.
On the one hand, there are systems in which everything collected through different channels goes to a single fund (for example, a National Fund). In other cases there are several funds, either with the same or different modes of collection.
On the other hand, systems may adopt different mechanisms for equalization or risk adjustment, so that there is a correct allocation of funds for each segment of the population, according to their characteristics and needs. There may be systems that collect a large amount of economic resources, but exclude entire segments of the population from their coverage because they are unemployed or because of their citizenship.
Purchase of health goods and services
Finally, pooled financial resources are used for the purchase of goods and services. This refers to both the purchase of equipment and drugs (for example) and the payment for health services. The financing system can determine which health services will be purchased with the funds raised and pooled, from which providers, and under what conditions.
Despite the theoretical design of the system, if a system does not raise financial resources to cover the cost of a comprehensive package of benefits for the entire population, the shortfall will be compensated in practice by high out-of-pocket payments (formal or informal).
What should good health financing look like?
What should the sub-functions of health financing look like in order for the system to have sufficient and stable resources and equitably distributed among the population? To begin with, it is not enough to spend a lot on health. For example, countries like the United States spend a lot while ensuring little equity in access and poor health outcomes.
WHO proposes a theoretical framework of the contribution of health financing to universal health coverage that serves as a starting point for analysis.
Good revenue raising
A good collection of economic resources must guarantee, first of all, that the resources are sufficient to meet the need for spending. When this is not the case, out-of-pocket expenses increase (formally or informally), waiting lists increase, the benefits package is limited, or barriers to accessing health care increase, among other problems.
A system based largely on out-of-pocket payments tends to result in only those who can afford to pay for health care receiving it. Spending based on out-of-pocket payments places a disproportionate, unaffordable and often catastrophic burden on the poorest households.
However, a system based on prepayment primarily through public investment (collection through taxes and contributions) can allow those with the greatest ability to pay to pay more, and those who need it most to use health care more. There is strong evidence that strong stable public investment leads to progress toward equity, universal health coverage and better health outcomes. Hence, the Abuja health financing targets that promote African governments to allocate at least 15% of public spending to the sector. Others recommend annual public spending equivalent to at least 5% of gross domestic product (supplemented by external aid) or, as a relative benchmark, $86 dedicated annually to primary health care per capita.
There is also strong evidence that systems based on mandatory enrollment in the system, rather than voluntary enrollment, increase solidarity and equity, while reducing adverse selection (that only those who require the most services decide to join). In some countries, the existence of voluntary private insurance for the wealthier population distorts the health system. This is because it concentrates personnel and resources for this small group, to the detriment of the rest of the population.
Good pooling of collected economic resources
A good pooling depends not only on administrative costs, but also on its economy of scale.
A system fragmented into multiple funds can have enormous administrative costs. These can be even higher if these funds are private. These funds often apply exhaustive control so that only certain services are covered and according to certain procedures, in order to maximize their economic benefit. In addition, fragmentation limits the potential to redistribute resources according to need. In contrast, a system of pooling in a few funds or a single fund can be more efficient.
In some contexts it may be difficult to reduce the number of funds for political reasons. This is due to the power of insurance companies that benefit from fragmentation or the prioritization of models based on community health insurance. In these cases it may be necessary to implement measures that allow equalization of resources between funds, or measures to mitigate their problems, such as harmonization of benefit schemes or unification of information systems.
Good purchase of goods and services
Finally, good purchasing of goods and services can also have a strong impact on making those who need the services most actually have them.
Purchasing generates incentives, which can be positive or negative. Thus, a system in which payment depends on the number of services offered may encourage excessive and inappropriate provision of these services, induced by the provider itself. On the contrary, with strategic purchasing it is possible to establish capitation payment systems (in which a fixed amount is paid per person) linked to correct performance and quality of care, which generatespositive and consistent incentives for providers.
Also important is the price at which providers are contracted and purchases are made, as well as the criteria for prioritizing the purchase of services and goods with high cost-effectiveness that respond to people's needs. Here we should highlight primary health care and generic drugs. Sometimes, however, the opposite occurs, and the available resources are concentrated in the purchase of goods and services aimed at non-priority populations, or are distributed in a way that generates inequalities.
Good governance of health financing
In terms of financing governance, of particular importance is how coverage policies are designed and managed. This determines who is covered, what is covered, in what proportion and how clear the information is to the population.
A -theoretical- universal health coverage is useless if the coverage is shallow and includes few services, if it maintains high co-payments, or if people do not know their rights or the conditions to benefit from the existing social protection. In practice, moreover, a -theoretical- universal health coverage can have a poor real result, if in certain areas there is scarcity of services, poor quality, administrative obstacles, or if families do not have sufficient resources to cover high indirect costs. Examples of common indirect costs are transportation or care of dependents while receiving health care.
International cooperation to improve health financing
During a humanitarian crisis it is common for public funding of the health system to collapse, drastically reducing public resources for infrastructure, equipment, service provision, medical products and personnel.
As a result of this and other factors, stock-outs of medicines occur, health personnel do not receive their salaries (or do not do so on time), some health services are interrupted and those that are maintained are sustained to a much greater extent by out-of-pocket payments from vulnerable and impoverished people. In these cases, international cooperation can play a decisive role, although only rarely does it cover all needs.
Abolition of direct costs for essential health services in emergencies.
There has been a consensus for years that during an acute crisis or humanitarian emergency the best way to protect the most vulnerable people is to abolish the direct costs of essential health services, even if only temporarily. This requires that there be sufficient international aid - which is not always the case - and that this be used to provide services at no direct cost to users or to pay the full cost of public services. This can also be done with actions linked to performance-based financing (more common in stable contexts).
Inclusion of refugees in national public insurance schemes
Sometimes, people affected by a humanitarian crisis arrive as internally displaced persons or refugees in a place where there is already a health system in place for the population that originally resided there. In these cases, establishing parallel health services exclusively for displaced persons, although a very common measure, can lead to inequality and tension with the host community. This, for example, may occur if services for the local population are paid for while the new services for the refugee population are free or of better quality.
In some places, such as Sudan or Iran, there have been successful experiences in dedicating humanitarian aid to paying for coverage of the vulnerable displaced population in the same health insurance of the host community. When possible, this is one of the first options to be considered. There are also some more or less successful experiences with community health insurance or health equity funds (aimed exclusively at the most vulnerable people) but there is little evidence of their impact, which in any case seems moderate.
Cash transfers (for certain uses)
The use of cash transfers or delivery of money to affected families to facilitate their access to health services in humanitarian contexts is a complement to the other options. It can be done with unconditional multipurpose cash transfers that help cover the indirect costs of health care.
It should only be considered as the only option when no other option is possible (which is rare). It is generally not recommended that cash transfers replace the financing of health care provision (with options such as inclusion in national health insurance schemes or purchase and reimbursement of services). Among other reasons for this is the enormous variability in health care needs and the impossibility of predicting these costs. While it is easy to estimate a family's financial need for food, it is not possible to know in which family there will be people with serious illnesses or health problems.
Some interventions with cash transfers or vouchers, however, can be complementary to the main options. In this group, financial support for meeting specific predictable needs (for example, treatment of chronic pathologies or impregnated mosquito nets) or for incentivizing recommended practices may be an example of the latter, such as a cash transfer conditional on a certain number of prenatal contacts. Clearly, this option should only be considered after ensuring that there are no significant economic barriers to access.
Transformative technical assistance and advocacy actions
In certain situations the international cooperation actors may opt for advocacy, in order to influence decision makers to increase health financing, to increase public spending on health and on neglected priorities, or to develop more equitable health financing policies towards universal health coverage.
Another example is the use of technical assistance to help pilot new innovative financing models, identify strategies to improve resource utilization and increase system efficiency, or support authorities in the performance of their health financing subfunctions of the system.
Health systems
External links
- WHO, 2024. Global spending on health: emerging from the pandemic.
- Cylus, et al, 2022. Chapter 6. Financing. Health system performance assessment.
- WHO, 2022. Benefit design: the perspective from health financing policy.
- Hanson, 2022. The Lancet Global Health Commission on financing primary health care: putting people at the centre.
- WHO, 2020. A review of the evidence: Health financing policy in fragile & conflict-affected situations.
- WHO, 2020. Synthesis of evidence and policy recommendations: Health financing policy and implementation in fragile and conflict-affected settings.
- WHO, 2020. Assessing country health financing systems: the health financing progress matrix.
- WHO, 2020. Country assessment guide: the health financing progress matrix.
- Bertone, 2019. Health financing in fragile and conflict-affected settings. What do we know, seven years on?
- Global Health Cluster, OMS, 2018. Working paper for considering cash transfer programming for health in humanitarian contexts.
- Mcintyre, 2017. What level of domestic government health expenditure should we aspire to for universal health coverage?
- WHO, 2017. Developing a national health financing strategy: a reference guide.
- Roberts, 2008. Getting Health Reform Right: A Guide to Improving Performance and Equity.
- WHO (Regional Office for Europe), 2008. Health financing policy: a guide for decision-makers.
- Kutzin, 2001. A descriptive framework for country-level analysis of health care financing arrangements.
- WHO. Promoting strategic purchasing.
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