PHA-Exchange> Models of Health Care Financing (AP Consumer Magasine)
Carmelita C. Canila, M.D.
carmelita at ciroap.org
Thu Jun 5 21:25:23 PDT 2003
The following is one of the articles on Health Care Financing published in
Asia Pacific Consumer, No. 30, the quarterly magasine of Consumers International Office for Asia Pacific based in Kuala Lumpur. For more information, visit our website, 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 country is a
daunting task. This article examines several models of health care financing
and asserts the principle that social protection 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 retreating 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 receive 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 limited 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 protection 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) Health Expenditure
Public as % of GDP Private as % of GDP Total of GDP Per capita 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 population 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 sector. 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
accordance 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 medicines 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 services and personnel.
- Health services are either provided for free or for a minimum fee.
- Health Care cost is contained within the public health care delivery system.
- Sin taxes from tobacco and alcohol can be earmarked for health promotion (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 service.
- 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 families.
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 conditions).
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 prospective budget, Fee-for-service or
Charge per day/per admission/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 communities 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 outside 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, medicines 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 government 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 Employee 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, geographic 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 support the health care needs of those in the rural areas and those employed in the informal sector. There needs to be complementary financing 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 prepared 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. Balasubramaniam
- 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
Lot 5-1 Wisma WIM,
7 Jalan Abang Haji Openg,TTDI,
60000 Kuala Lumpur, Malaysia.
Tel: (603) 77261599
Fax: (603) 77268599
E-mail: carmelita at ciroap.org
Websites: www.consumersinternational.org/roap , www.ciroap.org/apcl , www.ciroap.org/food
Consumers International is a federation of consumer organisations dedicated to the protection and promotion of consumers' rights worldwide through empowering national consumer groups and campaigning at the international level. It currently represents over 250 organisations in 115 countries. For more information, see: www.consumersinternational.org
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