Health Care Financing: Finding Ways to Pay for Healthcare

All around the world, countries are struggling to find enough money to pay for healthcare. This is
because:

- Many people are getting older and need more healthcare

- New treatments and technologies are expensive

- Administrative costs are increasing

To solve this problem, we need to think about how to finance healthcare. There are two main ways to
do this:

Public Financing

- Government funding (tax money)

- Social insurance (everyone contributes a small amount)

Private Financing

- User fees (paying out-of-pocket for healthcare)

- Private health insurance (individuals or companies pay for insurance)

- Community financing (local communities raise money for healthcare)

- Donations (foreign aid or charity)

These options can be grouped into five main categories:

1. Direct government financing

2. User charges (out-of-pocket expenses)

3. Community financing

4. Health insurance

5. Donors (foreign aid)

Direct Government Financing: How Governments Fund Healthcare

In many developing countries, governments play a significant role in funding healthcare activities
directly. They do this in two ways:
1. Allocating a portion of their general revenue to healthcare

2. Assigning a specific tax or revenue stream to fund healthcare

Since governments are responsible for overall health policy and planning, it's natural to assume they are
the primary source of healthcare funding. However, the reality is that the government's share of
healthcare funding varies greatly worldwide.

Government revenue comes from various sources, such as taxes, and is often combined into a general
fund. This makes it difficult to identify the specific source of funding for a particular healthcare program.
However, some governments dedicate specific revenue streams, like lottery proceeds, to fund
healthcare and other social welfare programs.

Despite the importance of direct government funding for healthcare, many countries, especially
developing ones, have found it inadequate. The World Health Organization (WHO) recommends that
governments allocate at least 15% of their total budgetary expenditure to healthcare. However, in
Nigeria, government financing of healthcare is still insufficient.

There are several reasons why African governments have committed less money to health compared to
other countries. These include:

1. Economic conditions: Many African countries face economic challenges, and their healthcare
expenditure is largely dependent on general tax revenues, including duties on imports and exports.

2. Prioritization of other sectors: Some countries prioritize other sectors, such as defense, over
healthcare, despite little evidence that defense expenditures contribute positively to economic growth
or sustainable development.

User Charges (Out-Of-Pocket Expenses): Paying for Healthcare Directly

User charges, also known as out-of-pocket expenses, are fees that patients pay directly for healthcare
services. These fees can vary widely and may be charged in different ways, such as:

- Per visit or encounter with a healthcare provider

- Per episode of illness or treatment

- Per item or service, like lab tests, drugs, or procedures

Some healthcare providers may charge a uniform price for all patients, while others may offer discounts
or exemptions for certain groups, like the poor or children. In some cases, sliding scale fees are used,
where people with lower incomes pay lower fees.

The advantages of user charges include:

- Encouraging financial responsibility and a sense of ownership in healthcare

- Promoting cost-consciousness among both patients and healthcare providers

- Increasing willingness to contribute to the cost of healthcare programs

Overall, user charges can help make healthcare more sustainable and efficient, but it's important to
ensure that they don't create barriers to access for those who need care.

User fees are becoming increasingly common in Africa as a tool for cost recovery and reinforcing the
referral system. However, their administration poses challenges in developing countries, where the poor
are disproportionately affected. The largest reduction in healthcare utilization is often seen among the
poor, who cannot afford user fees. This raises concerns about equity and accessibility.

Arguments in favor of user fees include:

- Increased patient awareness and responsibility for healthcare services

- Contribution to health financing, no matter how small

- Improved quality of care and confidence in services

However, arguments against user fees include:

- Management capabilities may be lacking at lower levels of healthcare delivery

- Revenue collection may not be substantial compared to service costs

- Introduction of user fees can reduce healthcare utilization

- User fees can lead to greater healthcare utilization if:

- Introduced gradually (phased in)

- Providers are accountable to the population

- Resources are managed locally (decentralized system)

- Patients perceive higher quality care

- Services compete favorably with others

It's essential to strike a balance between cost recovery and equity, ensuring that user fees don't create
barriers to healthcare access for the poor and vulnerable populations.

Community Financing: Working Together for Better Healthcare

In developing countries, community support often focuses on providing resources (money, materials, or
people) to build or improve healthcare infrastructure like health facilities, latrines, and wells.
Community financing of healthcare requires community organization and involvement.
While community financing has many benefits, one of the biggest challenges is sustaining contributions
to cover ongoing program costs. People may be unwilling to continue paying for programs that don't
benefit them directly.

Despite this, community financing is advocated for several reasons:

- Individuals and households already spend a lot on private healthcare, so redirecting this spending
towards more effective healthcare services wouldn't be an additional burden.

- Community financing can tap into unused resources like labor, land, and donations.

- When people help create and maintain healthcare services, they are more likely to use and support
them.

- Community financing is a good way to collect contributions from self-employed individuals.

By working together, communities can improve healthcare services and make them more sustainable.

Community financing encompasses various approaches to funding healthcare, including:

1. Community-approved payment schemes: Paying full or reduced rates for healthcare services
organized by the community, with payment terms approved by the community rather than market
forces or individual negotiation.

2. Voluntary community insurance schemes: Prepaying for healthcare services through community-
organized insurance plans, often linked to income or production, with standard charges applied.

3. Gift-giving: Donating cash, labor, or goods without expecting direct individual benefits, but
contributing to collective community benefits.

4. Community capitalization schemes: Funding community-led initiatives, such as nutrition and

sanitation programs, through grants or loans from community-managed funds.

These community financing approaches empower communities to take ownership of their healthcare
funding, promoting collective responsibility and sustainability.

Health Insurance: A Way to Share Healthcare Costs

Health insurance is a system where people pay a third party (like an insurance company) to cover some
or all of their healthcare expenses if they get sick or injured in the future. This system combines funds
from different sources, including:

- Employers

- Employees

- Government (sometimes)
There are three main types of health insurance:

1. Government or social insurance (often mandatory): Contributions are based on income, not risk.

2. Private insurance: Third-party institutions cover healthcare costs.

3. Employer-based insurance: Employers or organizations act as third-party payers or collection agents.

Health insurance helps:

- Diversify healthcare funding sources

- Share healthcare costs over time and among a larger population, reducing risk

- Individuals pay for their own healthcare, but with support from others

Insurance mechanisms collect funds from potential healthcare users to:

- Pay providers for services

- Reimburse users for payments made to providers

This system helps make healthcare more affordable and accessible.

Health Insurance Schemes: Voluntary or Compulsory

Health insurance schemes can be operated by various entities, including government agencies, non-
profit organizations, and private companies. Membership can be voluntary or compulsory, and the
insuring agency may employ healthcare providers directly or contract with public or private providers.

The advantages of insurance include:

- Converting unpredictable healthcare expenses into budgetable payments

- Pooling resources to meet the needs of participants who fall ill

Most developed countries have evolved from voluntary to compulsory health insurance, providing
universal access to healthcare. Compulsory insurance schemes are often financed by employer and
employee contributions, and may cover self-employed individuals on a compulsory or voluntary basis.
However, collecting contributions from self-employed individuals can be challenging.

Voluntary insurance options include:

- Contributing to social security schemes run by government or statutory agencies

- Insuring with profit or non-profit agencies

- Joining group schemes

Insurance schemes often require:

- Initial payments (deductibles) before benefits apply

- Co-payments (small shares of additional costs) to discourage overuse

- Standard rates for common procedures

- Defined services for payment to control claims against the insurance fund

These measures aim to make healthcare more accessible and affordable while managing costs.

Foreign Aid: Helping Fund Healthcare in Africa

Foreign aid donors play a crucial role in funding healthcare in Africa, especially when governments face
revenue shortfalls. In the 1980s, bilateral donors provided 62% of healthcare assistance in Sub-Saharan
Africa, while multilateral agencies and non-governmental organizations (NGOs) provided 32% and 6%,
respectively.

External financing comes from institutions like:

- Bilateral agencies (e.g., USAID)

- Multilateral organizations (e.g., UNICEF, WHO, UNDP)

- Banks (e.g., World Bank)

Financial cooperation is typically channeled through a central authority in the recipient country, such as
the Ministry of Finance or Ministry of National Planning. In some cases, funds may be routed directly to
specific ministries, agencies, or NGOs.

While NGOs may contribute relatively small amounts of funding, they play a significant role in mobilizing
people and promoting self-reliance. Foreign aid has been essential in supporting public expenditures in
developing countries, but it also has some negative effects, including:

- Focus on vertical programs (e.g., specific diseases) rather than comprehensive healthcare

- Sustainability issues (e.g., dependence on external funding)

- Priorities often determined by donors rather than recipient countries

- Inadequate coordination among external agencies funding healthcare programs

- Funding disproportionate to total health needs

Foreign aid has both benefits and drawbacks, and it's essential to consider these factors when allocating
funds for healthcare in Africa.
Voluntary contributions come from individuals or groups within a country, including:

- Philanthropists who donate cash or goods (e.g., buildings, equipment)

- Religious groups that support healthcare services

- Non-profit organizations running healthcare services

Other private sector involvement in healthcare financing includes:

- Private enterprises offering medical services to employees

- Government physicians engaged in private practice

- Full-time private practitioners offering fee-for-service care

- Chemist shops and pharmacies

- Private for-profit hospitals and clinics

- Indigenous or traditional practitioners (and, in some cases, unqualified practitioners)

While some of these entities prioritize profit, they still contribute significantly to healthcare financing
and support the healthcare system in various ways.