Session 7

Health Sector/care Financing

1
Session objectives

Total expenditure in health sectors

Types of health care financing

 Government

 User charge

 Insurance

 Community

2
 Definition of health sector
 In practice, the boundaries of the health sector vary
considerably between countries and different definitions have
been developed for different purposes.

 In developing countries, the definition tends to be broader than

in developed countries due to greater deficiencies in certain
areas (e.g. environmental health) and extensive use of the
traditional health sector.

 A useful rule of thumb is to include all finance/ expenditure

whose primary intention (regardless of effect) is to improve
health. 3
 Definitions of financing
raising revenue to pay for a good or services.
 Function of a health system concerned with the
mobilization, accumulation and allocation of money
to cover the health needs of the people,
individually and collectively, in the health systems.
 The whole processes of health care finance
involves:

where the money came from

How it was collected

Pooled

Redistributed to the third party payers

Finally used to pay the providers for their services
4
1. Revenue collection
 Is the way the health system raises money from
households, businesses and external sources.
 It is concerned with the Sources , Structures and
means by which funds are collected.

2.Pooling of funds and sharing of risks

 Is the collection and management of financial
resources so that large unpredictable individual
financial risks become predictable and are
distributed among members of the pool.
 Prepayment allows pooling of funds. 5
6
3. Purchasing
 Refers to the many arrangements for buyers of health care
services to pay health care providers and suppliers.
 Purchasing is the transfer of pooled resources to service
providers on behalf of the population for which the resources
are pooled.
 In short it is a mechanism to secure services from public
and private providers
 Purchasing includes:
1. Choice of benefit package (type of service, type
provide and route of access)

2. Choice of mechanisms of paying the provider

7
 Money is the mother's milk of health care; however,
money does not automatically produce efficient, equitable, and

effective health care.

 More health spending does not necessarily mean better

health outcomes.
 Low-income countries:
 56% of global disease burden
 2% of global health spending

 8% of health spending come from external sources.

Out-of-pocket health expenditure

93% in low-income countries

85% in middle income countries

56% in high income countries
8
 Sub-Saharan Africa (SSA)

Low government expenditure on health

Household out-of-pocket expenditure 80% of private

spending 50% of total health spending
 Africa in general

25% of global disease burden

Accounts for <1% global health spending

Has just 2% of global health workforce

9
10
 11
The World Bank, 2005
 12
The World Bank, 2005
 Health expenditure and Health
 There is no clear link between spending more on health and better
health.
 There is enormous variation in size of health care expenditure per
head

 Four things are important;

Knowing the determinants

Appropriate level of spending

Economic approaches how to spend the given budget

Social contribution to health care

13
What is appropriate level of spending?
Benefit

---------------------------
Flat of the curve medicine

-------------a b c

Health care spending

 A=the pay of is to increased the health care spending and the health care
sending is high

 B= flat curve of medicine here the pay of to higher spending is zero

14
 C=The pay of is negative and the manufacture produce the ill health
Health expenditure …
 As income increase and increase the marginal
product of health spending decreases
 In higher level income health expenditure is more
likely to impact on quality than mortality
In sum, the questions need to be addressed are
how to:

Bring about socioeconomic development

Invest in appropriate health programs

Improve the organization and access to the

services 15
 Health expenditure
 There are four categories of countries:
1. Spending more than expected and achieving higher
levels of health (Costa Rica)

2. Spending more and achieving less than expected (e.g. USA)

3. Spending less and achieving more (e.g. Srilanka)

4. Spending less and achieving less (Ghana).

16
Comparisons of different country

17
Factors influencing health care Financing

1.Demographic changes
 Demographic change may lead to variation in health
service coverage
 The older, younger, ANC and Under five year need
higher health costs
2. Economic Recession
 Low or negative economic growth has an implication on
health care financing
3. Raising expectation
 Expectation of the consumer affect the financing as
middle category population need high technology

18
4. Concern about Equity

 Addressing the health care service with in the

concept of equity PHC principle affect the health
care financing
5. Disease Pattern Change

Disease pattern change may result due to change in

average income level or change in social development
6. Efficiency
 In order to use the limited resource in efficiently
also affect the health care financing
19
7.Displacement effect

 The is the condition when one fund resource replace one

the other fund resource

 This consequence is not necessary undesirable, but if it is

more efficient than the previous its more important

8.Wider effect of health sector

 The activity of health sector may have spill over effect in

economy as whole,

 This would have effect in health care financing

20
 How should health services be financed? (Cost
recovery? Cost sharing?)

 How should health funds be allocated for the provision of

health care services? (Relative share of different
components of the health care service)

 How could we reduce inefficiencies?

 How should the finance component of the health system

be organized

21
Principles of health care financing

 Cost recovery: the cost incurred in the provision of health care

should be recovered

 Patients cover a substantial proportion of the cost of

provision
 It can be sustainable but does not consider ethical and
social values of health

 Cost sharing: Cost sharing is the financial contribution that

patients are required to make when they use health care
services, amounts that are not reimbursed (repay, compensate) by their
health plan

22
Forms of cost sharing include:
 Copayments : Copayments are fixed-dollar fees that a health plan
enrollee is required to pay for a covered service (e.g., $10 per office
visit $3 per prescription drug).

 Coinsurance : A percentage of the charge that the consumer must

pay. It refers to the freed percentage of covered expenses shared
by a health plan and an enrollee after the deductible requirement
has been met

 Deductibles : An amount the consumer must pay out-of-pocket

before coverage begins, usually applied for a specific time period,
such as yearly.

23
Criteria for choosing the financing system

1. Viability and ease of using the system

2. Revenue generating ability

3. Effect on service provision

4. Effect on equity

5. Participation in decision making

24
Source of Funding

 Policy makers must assess the most appropriate mechanism to pool

health risks and provide financial protection to their population

 The challenge of lower and middle income countries is to somehow

direct the high level of out of pocket spending either in to public or
private arrangement so that individual will have real financial
protection

 National health care financing system has pluralistic nature in

funding

25
1. Public source
1.1.Direct government budgeting
 National health service and public health
service system

 The public sector is both the financing and

provider health services

26
1.2. Social health insurance sponsored or
mandated by the government

Characterized by independent/or quasi independent
insurance fund.

Reliance on mandatory earmarked payroll
contribution

The government is the financer but may or may
not be the provider
1.3.Community financing
 Health services are paid for through
contribution of the fund

27
2.Private insurance

2.1.Direct payment by the household

Fee for service and other types of payments

2.2.Private voluntary health insurance

Indirect individual payment

2.3.Employer based health insurance

Payment by community and other local organization

3. External financing

Foreign aid or development loans
28
29
30
Health care Financing in Ethiopia

 Ethiopia is among countries with lowest health status

in the world

 Low socio-economic development

 Low standard of living

 Poor environmental conditions

 Inadequate health services

 Extreme resource constraints

31
 Serious under-funding of health services and very low rates of
recurrent spending

 Government dominates the investment side (three-quarter of

capital investment)
 2007/08 - 4.5% of GDP
 Per capita expenditure
$ 5.6 in 2000
$7.1 in 2004/05
$16.1 in 2008/09
 Share of external resource between 1995/06 – 2007/08
 Increased from 8% to 40%

 Share of government
 Decreased from 37% to 21%
32
•Private consumption through out-of-pocket spending also
represents a large share of this spending (37 percent),
The private health expenditure share of GDP in Ethiopia has been about
2.4%
33
 High out-of-the pocket spending including direct
payments to private practitioners, traditional healers,
private pharmacies and government facilities in the
form of user charges

 Private spending on health is a low proportion of all

consumer expenditures

34
35
Thank you

36