Day 4: Health Financing

Hello every1!! 

Sorry I've been quiet this whole time... I was sick with fever n flu... But don't worry! Coz I'm feeling much better now.

Alrite... Since I'm up n well, I've been reading something interesting about... Health Financing! 

That time when I was sick, I went to see doctor and get my medications. You see, I went to see 2 doctors (I know it’s not advisable but that’s not the point here); one a doctor from private hospital (it was Sunday evening, there's no other available clinics at that time) and the other was a clinic doctor.

I was prescribed: 

• panadol for fever; 
• loratadine for my flu; 
• Curam, an antibiotic to prevent secondary infection; 
• lozenges for sore throat and 
• lotion aid for my mouth ulcers 

You can see that there are 5 different medicines prescribed here. How much do you think it costs? It's not very cheap, that's for sure. And I'm paying it from out-of-pocket. However after 3 days, my sore throat getting worse and my mouth ulcers are not healing and they are very painful. So, my dad decided to bring me to see the other doctor, the one he always consults.

A new ulcer medication is prescribed, Kanolone. However, this time we didn't have to pay for the medication because it is covered by insurance.

Okay... Enough with my story. We shall proceed to the actual topic, health financing. 

If you have read earlier bout my story, you'll notice that I've mention two types of payment: (1) out-of-pocket and (2) insurance.

Here I'll elaborate more about it...

Health care financing is very prominent in the global health policy agenda. It has and still remains a major problem in low- and middle-income countries to provide health care needs of their populations.

Health care financing has 3 main functions:

1. Revenue collection - concerns the sources of funds, their structure and the means by which they are collected. Revenue-raising capacities increase as country incomes increase (as a result of greater formalization of the economy, greater ability of individuals and business pay, and better tax administration). Revenue collection in developing countries is the art of the possible, not the optimal. Although there are numerous public and private sources for raising revenues, the institutional realities of developing countries often preclude the use of the most equitable and efficient revenue-raising mechanisms.

2. Pooling of funds - the unpredictability of illness, particularly at the individual level; the inability of individuals to mobilize sufficient resources to cover unexpected health care costs; and the need to spread health risks over as broad a population group and period of time as possible. Risk pooling and prepayment are critical for providing financial protection. Pooling health risks enables the establishment of insurance and improves citizens' welfare by allowing individuals to pay a predetermined amount to protect themselves against large unpredictable medical expenses.

3. Purchasing - transfers pooled resources to health service providers so that appropriate and efficient services are available to the population. Resource allocation and purchasing mechanisms determine for whom to buy, what to buy, from whom, how to pay and at what price. Purchasing includes the many arrangements used by purchasers of health care services to pay medical care providers. Resource allocation and purchasing procedures have important implications for cost, access, quality, and consumer satisfaction. 

Just now I've mention 2 ways to pay my for my medication fees. Here, I'll mention 3 ways of health services payment. 

Main mechanism of health care financing:

1. Government Funding

Government-funded systems are managed through ministries of health (MoH) or national health services. They generally have 3 main features:

• primary funding comes from general revenues
• taxes, including direct taxes, levied on personal and company income; and indirect taxes, such as value added tax and customs duties.
• deficit funding, whereby domestic and international loans are secured to fund government activities
• donor funding, from bilateral or multilateral international organizations, may take the form of loans, which have to be repaid along with interest charges, or of aid grants, which do not have to be repaid
• provide medical coverage to the country's entire population
• their services are delivered through a network of public providers

2. Health Insurance

Mandatory Health Insurance (MHI)

MHI is an insurance system that the law requires certain population groups or the entire population to adhere to. It is often called the "social health insurance" (SHI), especially if only certain groups are legally required to become members or if only those who make insurance contributions are entitled to coverage. SHI systems are generally characterized by independent or quasi-independent insurance funds, a reliance on mandatory earmarked payroll contributions (usually from individuals and employers). It is thus require an infusion of resources from general tax revenues and any additional subsidies may come from external aid or other earmarked taxes. SHI systems often cover only a limited population and it is difficult to add informal sector workers to the covered population. They are sometimes more difficult to manage because they involve more complex interactions among players. 

National health insurance (NHI) is also a form of MHI but one that covers the entire population, including individuals who have not personally contributed to the scheme. Contributions are "community-rated", meaning it is based on the average expected cost of health service use by the entire insured group and not by that of an individual or sub-group. Contributions can also be tailored to income level and in some cases, to the number of dependents covered by the scheme. There may be a single insurance fund or several insurance funds. Where there are several funds, a standardized, prescribed minimum benefit package is usually specified in the enabling legislation and a mechanism is put in place for sharing risks among the different funds.

Voluntary Health Insurance (VHI)

VHI is also called "private health insurance" and it has been used majority by the higher-income groups. VHI is defined as any health insurance paid for by voluntary contributions. It is frequently employment-based (company employees join a health insurance scheme and contributions to the scheme are shared between employees and employers, although membership may be open to anyone who chooses to contribute. In the case of insurance schemes run on a for-profit basis by commercial companies, contributions tend to be risk-rated, meaning adjusted according to the anticipated cost of service use (eg: the elderly and people with chronic conditions would pay a larger contribution than people likely to require fewer and less costly services). 

A form of VHI that in recent years has become widespread in Africa and Asia is the community-based health insurance (CBHI), sometimes called "mutual health insurance", "community-based prepayment schemes", "community health funds" or "micro-insurance". These schemes exist within localized communities, most often in rural areas. Members make small payments to the scheme, often annually and after harvest time, and the scheme covers the fees charged by local health services. The schemes can be broadly defined as not-for-profit prepayment plans for health care that are controlled by a community that has voluntary membership. They are often unable to raise significant resources because of the limited income of the community, and the pool is often small, making it difficult to serve a broad risk-spending and financial protection function. The schemes' size and resource levels make them vulnerable to failure. Government intervention could improve the efficiency and sustainability of financing arrangements.  

3. Out-of-pocket Payments

Out-of-pocket payments are direct payments made by patient to health care provider (funds are not channelled via any financing intermediary). Another form of out-of-pocket payment consists of co-payments made by members of a health insurance scheme, which reimburses only a portion of the cost of a health service paid by the members. Usually, out-of-pocket payments are also made to private providers by individuals not covered by any form of health insurance.

Okay... Now we have some idea about the health services payments. Now the question is, how do we know which is reliable? 

We shall now look at: 

Assessing Financing Mechanisms

Health care financing mechanisms are frequently judged on the basis of the extent to which they are feasible, equitable, efficient and sustainable. These criteria are used in the analysis of health care financing and to identify financing mechanisms that exemplify 'best practice'.

1. Feasibility

Feasibility, often overlooked in assessing financing mechanisms, raises critical questions: 

Are stakeholders likely to support or to oppose a given financing mechanism? Is there adequate administrative capacity (eg: actuarial expertise, information systems, etc.) to ensure its successful implementation?

2. Equity

The concept of equity is still a much-debated subject. There is, however general agreement that individuals should contribute to health care funding according to their ability to pay and should benefit from health services according to their need for care. An equitable health care financing system will, therefore, involve cross-subsidies from the rich to the poor and from the healthy to the ill. These cross-subsidies ensure that no household is impoverished by its need for health services and that an unexpected health care costs does not fall solely on an individual or a household. 

Debate also centres on how the principle of 'contributing according to pay' should be interpreted. It is clear that any health care scheme should, as far as possible, avoid regressive financing mechanisms, whereby low-income groups contribute a higher percentage of their income to health care than high-income groups. However, it is not immediately clear whether it is preferable to have a proportional system, whereby everyone contributes the same percentage of income to health care funding (although the wealthy will obviously pay more in absolute terms); or a progressive system, whereby high-income groups contribute a higher percentage of their income than low-income groups. For countries with a substantial degree of income inequality, as is the case in many low- and middle-income countries, there is a strong case for progressive health care financing. Although a proportional or even mildly regressive health care financing system would help to reduce inequalities in such countries, but progressive funding mechanisms are preferred as a means of achieving an equitable financing system, in which individuals contribute according to their ability to pay.

3. Efficiency

An efficient financing mechanism is one that generates a relatively large amount of funding and thus obviates the need for multiple funding mechanisms, with each generating only a limited amount of funds. In addition, the costs of fund collection and administration will be low with an efficient financing mechanism, leaving as much revenue as possible for actual health service provision. An important point is the extent to which a health care financing mechanism fosters both allocative efficiency (doing the right thing) and technical efficiency (doing it the right way) in the use of resources.

Allocative efficiency refers to the allocation of resources among different levels of care (tertiary hospital vs. primary health care), and among services dealing with different areas of care (tuberculosis, immunization, hypertension). 'Doing the right thing' through allocative efficiency means allocating resources to those services dealing with the heaviest burden of ill-health in the community for which effective interventions exist and, within those services, giving priority to the most cost-effective interventions (interventions offering the lowest cost per unit of health outcome).

'Doing it the right way' through technical efficiency means providing resources to the maximum number of fundable services and minimizing the cost of each service without compromising quality of care.

4. Sustainability

The sustainability of a financing mechanism refers mainly to its long-term stability and potential for generating revenue. If the revenue generated by a financing mechanism is subject to considerable and frequent fluctuations, the mechanism cannot be regarded as reliable and is likely to be replaced by financing mechanisms that are more predictable in the medium to long term.  Sustainability also relates to the ability of a financing mechanism both to maintain its level of funding in the long term and to expand its level of funding overtime as the need for health care grows. Sustainability implies on going long-term, purposeful planning for gradual increases in domestic funding for health services.


REFERENCES:

1. Health Financing: Health care financing in low- and middle-income countries; Global Forum for Health Research 2007
2. Health Financing Revisited: A Practitioner's Guide; The World Bank 2006
3. Prof. Ali Ghufron lecture: Health Financing
4. Chapter 12: Financing Health Systems in the 21st Century