How should health care be financed in developing countries, and how does the system of financing impact health care for the poor? This paper written for the UK Department for International Development (DFID) by the DFID Health Systems Resource Centre (DFID HSRC) summarises what is known about the effects of the main health care financing systems, and how they can be designed and implemented to be ‘pro-poor’.
Health care systems in the developing world are often paid for using various combinations of five major financing mechanisms. This paper describes how these mechanisms work and evaluates the impact of each on the poor. Issues relating to the design and implementation of any financing mechanism have a critical impact on what happens in practice.
The impact of the principal health care financing mechanisms on the poor are summarised as follows:
- Tax-based financing: service delivery is often inequitable, biased towards urban areas and hospitals rather than the rural poor; reliance on indirect taxation raises questions of equity; limited tax base provides low level of funding.
- Social insurance financing: often only people in formal sector employment covered; redirects money away from the poor; even with universal coverage inequitable access remains a problem.
- Private health insurance: those able to afford often benefit from capturing government subsidies, such as private insurers dumping expensive cases on the public system; regulations to encourage the redirection of resources towards the poor cannot be ensured.
- User fees: often results in less people using the service, especially amongst the poor; design and implementation has been poor; requires reallocation of resources from rich to poor areas; there is no incentive to exempt the poor from payment.
- Community-based health insurance: offers considerable benefits to poor where operated successfully, however very poor require special arrangements to allow access; geographical inequities require redistribution.
Capacity for pro-poor schemes needs to be developed. Broader consultations with the poor and consensus built through public debate are necessary. Technical skills and management information systems need to be developed, and technicians should be given influence in policy design. Other policy implications are that:
- The implications of the methods of financing for poor people’s health care need to be considered during the design stage.
- Reforming existing organisational mechanisms is often the best way to improve quality of service for the poor. Community-based health insurance is probably more pro-poor than user fees, whilst for social health insurance to be considered pro-poor requires the poor to be covered or guarantees made that rates for the uninsured will not rise.
- User fees and community-based health insurance require exemption mechanisms for the very poor. Few mechanisms established to date have been effective.
- Pro-poor assessment should be carried out on the mix of mechanisms used. The very poor are unable to make financial contributions so health care should be provided. Private insurance should rarely be encouraged.
