Unit 8: Health system and Financing

Concept of Health system

A health system, also sometimes referred to as health care

system or healthcare system, is the organization of people,
institutions, and resources that deliver health care services to
meet the health needs of target populations.

There is a wide variety of health systems around the world, with

as many histories and organizational structures as there are
nations. Implicitly, nations must design and develop health
systems in accordance with their needs and resources, although
common elements in virtually all health systems are primary
healthcare and public health measures. In some countries, health
system planning is distributed among market participants. In
others, there is a concerted effort among governments, trade
unions, charities, religious organizations, or other co-ordinated
bodies to deliver planned health care services targeted to the
populations they serve. However, health care planning has been
described as often evolutionary rather than revolutionary.

The World Health Organization (WHO), the directing and

coordinating authority for health within the United Nations system,
is promoting a goal of universal health care: to ensure that all
people obtain the health services they need without suffering
financial hardship when paying for them. According to WHO,
healthcare systems' goals are good health for the citizens,
responsiveness to the expectations of the population, and fair
means of funding operations. Progress towards them depends on
how systems carry out four vital functions: provision of health care
services, resource generation, financing, and stewardship. Other
dimensions for the evaluation of health systems include quality,
efficiency, acceptability, and equity. They have also been
described in the United States as "the five C's": Cost, Coverage,
Consistency, Complexity, and Chronic Illness. Also, continuity of
health care is a major goal.

A good health system delivers quality services to all people, when

and where they need them. The exact configuration of services
varies from country to country, but in all cases requires a robust
financing mechanism; a well-trained and adequately paid
workforce; reliable information on which to base decisions and
policies; well maintained facilities and logistics to deliver quality
medicines and technologies.

A health system is the sum total of all the organizations,

institutions and resources whose primary purpose is to improve
health. A health system needs staff, funds, information, supplies,
transport, communications and overall guidance and direction.
And it needs to provide services that are responsive and
financially fair, while treating people decently.

A good health system improves people’s lives tangibly every day.

A mother who gets a letter reminding her that her young son is
due for immunization against a life-threatening illness is benefiting
from a health system. The same holds true for a family finally able
to access clean water at a well-tended pump in its village because
of a government sponsored sanitation project; or a person with
HIV/AIDS who gets antiretroviral medicine, nutritional counseling
and regular check-ups at an affordable clinic.

The ultimate responsibility for the overall performance of a

country's health system lies with government, but good
stewardship by regions, municipalities and individual health
institutions are also vital.

Strengthening health systems and making them more equitable

have been recognized as key strategies for fighting poverty and
fostering development.

Problems with health systems are not confined to poor countries.

Some rich countries have large populations without access to
care because of inequitable arrangements for social protection.
Others are struggling with escalating costs because of inefficient
use of resources.

WHO Definition of Health System

A health system consists of all organizations, people and actions

whose primary intent is to promote, restore or maintain health.
This includes efforts to influence determinants of health as well as
more direct health-improving activities. A health system is
therefore more than the pyramid of publicly owned facilities that
deliver personal health services. It includes, for example, a
mother caring for a sick child at home; private providers; behavior
change programmes; vector-control campaigns; health insurance
organizations; occupational health and safety legislation. It
includes inter-sectoral action by health staff, for example,
encouraging the ministry of education to promote female
education, a well known determinant of better health.

Key Roles and Functions of health system

A well functioning health system responds in a balanced way to a

population’s needs and expectations by:
 1. Improving the health status of individuals, families and
communities.
2. Defending the population against what threatens its health.
3. Protecting people against the financial consequences of ill-
health.
4. Providing equitable access to people-centered care.
5. Policy formulation, design and implementation.
6. Role in Health Budgeting

Financing

Financing is the term, which deals about from where, money

comes and where does it go. The approach to generate and
mobilize funds for health care is health care financing. The flow of
funds for a health care system consists of two basic components,
which are known as Financing and Funding. Financing means
raising or collecting the revenue to pay for the operation of the
system where as funding means allocating the revenue within
health sector.

Health financing is concerned with how financial resources are

generated, allocated and used in health systems. Health financing
policy focuses on how to move closer to universal coverage with
issues related to: (i) how and from where to raise sufficient funds
for health; (ii) how to overcome financial barriers that exclude
many poor from accessing health services; or (iii) how to provide
an equitable and efficient mix of health services.

Components of a model health financing system

According to WHO, a country is on the right track if the
government is:
 Demonstrating the political will to develop the health
financing system, to move closer to, or maintain universal
coverage and is engaging all stakeholders including the
population in the process;
 Allocating sufficient funds to health - this varies depending
on the context. The average in Africa is just over 10%. The
average proportion of total government spending devoted to
health in Europe is almost 13%;
 Researching new sources of revenue, such as different
forms of indirect taxation like sales taxes, so called "sin"
taxes on tobacco and alcohol, and taxes on currency
transactions;
 Setting up (or has set up) a system so that people pay for
health care before they fall sick and draw on the funds when
they are sick (through health insurance and/or taxation);
 Focusing on getting the best value out of every dollar it
spends on health;
 Ensuring that vulnerable groups do not miss out on needed
services.

Methods of Health Care Financing

1. Government Financing
2. Private Sources of Financing
3. Health Insurance
4. External Sources

1. Government Financing
Government financing for health care includes health expenditure
at all levels of government, together with the expenditure of public
cooperation. Major methods of government financing are as
follows:

a. General tax revenue: Taxation method varies enormously.

First, taxes may be raised for unspecified, general purposes or
specifically for health. Second, taxes may be direct or indirect.
Direct taxes are levied on individuals, households or firms and
include mechanisms such as a personal income tax, property tax
and company tax. Indirect taxes are taxes on transactions and
commodities rather than people, for example a tax on the sales of
goods, or export and import taxes. Third, taxes may be raised by
central government or locally and used to finance health care in
that specific region or locality.

In developing countries, general tax revenue is composed largely

of duties on imports and exports and scales taxes. It is not the
most reliable source of finance for health sector in developing
countries. These results low political priority frequently given to
the health sector in national budget decisions.

b. Deficit Financing: General tax revenue may be supplied by

deficit financing that is the decision to borrow and spend funds in
the present and repay them over some period of time. Deficient
finance may be raised nationally or internationally, through
mechanisms such as the issuing bonds or certificates or long tem
low interest loans. In developing countries high inflation rates
(affecting the real rate of interest on loan) and lack of confidence
in government’s abilities to honor eventual release of the bond
may make it difficult to use deficit financing as a source of support
for health systems.

c. Earmarked taxes: Most tax revenues are paid into a national

pool then shared out between different areas of government
expenditure. Some governments, however, may earmark a
particular tax for a particular purpose. E.g taxes on the sale of
particular products may be earmark for health services at either
national or local level. The problem with such taxes is that they
are often difficult to administer, may be politically unpopular, and
are also often unpopular with tax administrators because they
limit there freedom of action. E.g. taxes are levied on items such
as beer, cigarettes, recreational events or foodstuffs.

2. Private sources of finances

a. Direct household expenditure (user fees)

Household income is ultimately the source of most health care

finance. This type of finances includes any payments make by
consumers to health care providers such as fees or prices paid for
goods and supplies. Direct household expenditure is not
independent of other sources of finance. Government services
may charge user fees for certain services.

This also called out of pocket expenditure. OOP may have the
following characteristics:-

1. Made by patients to private providers at the time a service is

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

b. Employer finance schemes

In this type of schemes, employers directly finance health care for

their employees. They may for instance, pay for private sector
health services, employ medical personnel or provide necessary
facilities and equipments.

c. Charity and voluntary contribution

Charitable or voluntary contributions can take the form of financial

support or in kind donation (e.g. personal services, physical
facilities, equipment and supplies), and may originate form
business enterprises, wealth families, religious organizations or
private organizations. These resources are often channeled
through foundations or religious bodies.

d. Community financing and self-help

Community financing is based on three principles, which are

community cooperation, self reliance and community control and
management. It may be encouraged and supported by the
government through its policies, regulations and financial and
technical support.Community financing and self help can take
many forms such as drug cooperatives, micro insurance,
community health funds, rural health insurance, revolving drug
funds, community drug program and community involvement in
user fee management.

3. Health Insurance

a. Social Health Insurance

It is a scheme for mobilizing and utilizing resources through a risk

sharing mechanisms to finance the health care needs of the
members in manner that reflects value of solidarity and shared
responsibilities for health care. It may be mandatory or voluntary.
In case of mandatory, insurance payments on employed workers
as a percentage fo their wages and by imposing a similar or
somewhat higher payroll tax on their employers. In voluntary
case, non-profit scheme, community health insurance and micro-
insurance program are specially cover non-formal sectors.

b. Private Health Insurance

Private health insurance typically is a voluntary and it is done for

profit. It has three main forms: substitutive, supplementary and
complimentary. Substitute insurance is often available to sections
of the population who may be excluded from public cover or who
are free to opt out of the national system. In Germany and the
Netherlands, employees earning over a certain income are
excluded from coverage in the social insurance scheme (though
still they make the payment) and required to take out private
insurance to get the care they require. Suppplementary insurance
is an additional payment in order to receive benefits on top of
those offered in a social insurance scheme. It may allow quicker
access to care, to access better facilities (such as separate room,
rather ran being on a general ward) or covers the costs of any co-
payments (such as drugs or in patient stays). In France, for
example, about 70% of the population takes out supplementary
private insurance. Supplementary insurance can lead to inequities
between rich and poor in the sue of health care. Complimentary
insurances offers full or partial cover for services that are
excluded from the social insurance or tax based scheme, often
known as a ‘top-up’ policy. Complementary insurance is least
affordable to those on low incomes.

4. External Sources (Loans, Grants and Donations)

In many low income countries, external aid is a substantial source

of funding for the health sector and may account for as much as
90% of overall health budget (WHO, 1995). External aid takes the
form of loans or grants that are usually bound to a set of
conditions by the donor. This means that external aid serves not
only the recipient’s interest but also the donor’s political and
economic interests too.

Overview of health financing of Nepal

According to the Ministry of Health and Population (MoHP)

organogram, responsibility for Health financing lies in the Health
Economics and Financing Unit (HEFU), which is part of the
Human Resource and Financial Resource Management Division.
HEFU was established in 2002, staffed by two health economists
(by training, although the positions were administrative officer and
statistical officer) on deputation, and statistical and administrative
officers.

Core products initiated by HEFU were a regular Health Public

Expenditure Review (HPER) and National Health Accounts
(NHA). An NHA framework was produced in 2003 and 2004 and
the first NHA in 2005.

Private sector attribute to large proportion in the health care

financing system in Nepal and out-of-pocket spending plays a
prominent role. According to Nepal’s National Health Accounts, in
2008/09 the private sector financed 55.8% of total health
expenditure. An estimated 90.6% of this was paid directly by
households at the time of health care utilisation. Moreover, 21%
of spending in the health sector was financed by the Government
of Nepal and the remaining 18.5% was financed by external
agencies, grouped under the category ‘rest of the world’ (MoHP
2012).

The main provider payment mechanism in Nepal is payments

directly to health providers by the general public, i.e., ‘fees for
services/out-of-pocket payments’. The next main
provider payment mechanism is line item budgeting, which is
used by the Government of Nepal and channeled mainly through
the MoHP and its subordinates.

The planning and budgeting processes in Nepal are guided by a

top-down approach rather than a bottom-up, needs-based
approach (Torres et al. 2011). Semiautonomous hospitals receive
block grants for the operation of the hospital as well as salaries
and allowances for government employees. Lower-level facilities
receive mostly in-kind support, except for some funds generated
through the FHCS programme and Aama (Safe Motherhood)
programme.

The type and volume of services provided by private laboratories

and their financial turnover are not known. It is also not known
how many private laboratories are owned by doctors working in
public institutions. Such ownership would create the risk of
collusion, i.e., public doctors referring patients to their private
laboratories and ordering unnecessary tests for private financial
gain. The increasing role of the private sector in health care
provision is shown in the Nepal Living Standard Survey, which
found that 63% of consultations for acute illnesses take place at
private facilities, including pharmacies (Central Bureau of
Statistics 2011). Private sector facilities are, therefore, the major
recipients of out-of-pocket payments.

Key Terminologies:

Social health protection: can be understood as a system –

based on prepayment and risk pooling –that ensures equitable
access to needed quality services at affordable price, whereas
contributions to the system
are based on capacity to pay and benefits are based on needs.

Catastrophic health expenditure is health expenditure at such a

high level as to force households to reduce spending on other
basic goods (e.g. food or water), to sell assets or to incur high
levels of debt, and ultimately to risk impoverishment.

Revenue collection refers to the agencies that collect money, the

contribution methods used and the initial funding source (general
tax revenue, payroll tax, and other earmarked tax for health care
services).

Pooling refers to the accumulation of prepaid revenues on behalf

of the population.

Purchasing is the process by which pooled funds are used to pay

providers for delivering a specified set of health interventions.