Module 2_Revenue Raising
Government policies on how revenues are raised for the health system have an impact on overall
health system performance, in particular on how well patients are protected from excessive financial
costs when they use health services, and also whether the way in which revenues are raised is fair,
often referred to as equity in finance.
elect the framework to see which intermediate and final objectives are most directly affected by
revenue raising policy in a country.
A central feature of public funding is that it is based on compulsory revenue sources.
Whilst risk-sharing does take place through voluntary health insurance schemes, these tend to suffer
from adverse selection - this is a problem that results because individuals with greater health needs
are more likely to join a scheme. This leads to an imbalance in voluntary schemes, limiting the scope
to share risks across people with different health needs. In turn, this results in a cycle of increasing
premium rates, fewer healthy individuals joining the scheme, and growing financial instability.
One way to overcome the problem of adverse selection is to make health coverage compulsory or
automatic.
To know whether the way a country raises money for health is fair, or progressive, we need to look at each
of the different sources of revenue for the health sector in turn. The graph divides the population of the
USA into 10 income groups, from the poorest 10% (decile 1) to the wealthiest 10% (decile 10). For each
group, the bar shows the financial burden of making income tax contributions.
We can see that revenues for health raised through general taxation in the USA are progressive or fair, with
the wealthier groups in society generally contributing a higher proportion of their income, although the
higher percentage paid by the poorest decile shows an element of regressivity. This is a public, or
compulsory, revenue source for the health sector.
Why is stable and predictable funding important?
If the move towards UHC is to be more than an empty declaration of free care, both adequate public funds
need to be made available, together with a stable and predictable flow of those funds to health facilities.
Both are required to ensure the effective delivery of health services to those who need them.
Reliable cash flow is important for good service delivery performance. When cash flow is not stable staff
may not be paid on time, there may be shortages of essential medicines and other critical supplies, and as a
result those without the funds to seek care privately will not be able to access the services they need
What is fiscal space for health?
Even if a government wants to increase public spending on health, there may be a lack of fiscal space
which limits the extent to which this is possible. Fiscal space can be defined as:
"...room in a government´s budget that allows it to provide resources for a desired purpose without
jeopardizing the sustainability of its financial position or the stability of the economy."
(Heller, 2005).
Fiscal space for health is the availability of budgetary room to increase government spending for health,
without jeopardizing broader macroeconomic and fiscal stability.
Fiscal space increases automatically as a country's economy grows, assuming that public revenue sources
increase as a result. Greater fiscal space for health also results when health is given a higher priority in
budget allocations, although this would mean reducing fiscal space for another sector e.g. for education, or
fuel subsidies. Let's look at some of these points in more detail.
Health is only one of the many departments competing for a share of government's budget, and in
recent years the Ministry of Health has not even spent all the money allocated to them.
Furthermore, the Minister of Health is not able to clearly explain or demonstrate to me or to the
Prime Minister how his budget is being spent, or how effective it is at improving the health of the
population.
I cannot get into open-ended financial commitments, because my primary role is to control overall
government expenditure and to maintain fiscal balance. This is what I'm accountable for.
Stable and predictable
A reliable, stable and predictable flow of funds to the health sector is critical to ensure the delivery of
services covered in a publicly funded benefit package.
If the flow of funds is unreliable it is difficult to plan for and ensure the delivery of health services, for
example if staff are not paid on time and essential supplies are unavailable. This situation is widely
observed in public facilities in low income countries, and undermines trust in the health system. Such a
situation can lead to the unofficial rationing of care, and reduced access to health services especially for
poorer households.
As noted earlier, external funding for health can often be unpredictable, although efforts to increase the
stability of external funds, such as the International Financing Facility for Immunization, have improved
the situation.
An increasing number of countries are considering earmarking revenues for health, for example tobacco
taxes. In addition to potentially increasing public revenues for health, earmarking can improve the stability
and predictability of funding for the health sector.