Module 6_Summary
Developing health financing policy
When thinking about health financing policy, it's important to take a systematic approach, thinking in
terms of the core health financing functions rather than labels which are widely used. Some key things to
remember:
- When developing policy, start with the identifying the problem(s) rather than favoured solutions such as
"establishing health insurance for formal sector workers".
- Always keep a focus on objectives and goals, or the "ends"; what are you trying to achieve? Avoid
jumping straight to "means"-driven reforms and favoured solutions. There are multiple means or ways of
achieving your health system objectives and what works in another country may not work so well in your
country.
- Systematically explore the causes of current performance shortcomings; and the causes of the causes.
- Design policies and reforms to address the problems identified and their causes, rather than thinking in
terms of implementing a general model. Taking a comprehensive approach to health financing policy, in
other words thinking about all of the different functions, is important; focusing only on a single
interventions or area of policy may not lead to the sustained improvements you are trying to achieve.
A problem-focused approach
Even a well-designed and implemented health financing policy will not be sufficient to sustain progress
towards UHC. A coordinated approach with the rest of the health system is needed, particularly to address
shortcomings in service availability and quality.
All systems suffer from inefficiencies, but their specific nature and particular causes will vary from
country to country.
Health financing reforms have great potential to improve efficiency, provided that those strategies adopted
target the underlying causes of the identified problem, and that they are well coordinated with measures
taken elsewhere in the health system
Driven by health system goals
Health financing policy also has the potential to improve transparency and accountability in health
systems; for example to make the population more aware of their entitlements and obligations.
Universal Health Coverage (UHC) embodies both the intermediate objectives (e.g. equity in resource
distribution, efficiency), and the final coverage goals (e.g. utilization relative to need, financial protection)
of health systems; these in turn contribute to improving health and equity in health across the population.
The way in which the different functions of health financing are organised influences UHC goals both
directly and indirectly.
A shift towards universality
The increased commitment to UHC in many countries, particularly in Europe after the Second World War,
marked a shift in the underlying rationale for public policy in the health sector, with respect to population
entitlements and health system financing.
Prior to this, and beginning with Chancellor Bismarck's establishment of a welfare state in newly founded
Germany in the 1880s, the main rationale for extending health coverage was to increase labour
productivity and mitigate potential workforce unrest. Hence the focus was primarily on workers, rather
than all citizens.
The establishment of the British National Health System (NHS) and Universal Health Insurance in Japan,
are examples of a shift towards a broader rights-based approach, focusing on all citizens. This had an
important influence on how many countries defined benefit entitlements, and subsequently designed their
health financing systems.
Revenue-raising objectives
As with all health financing functions, revenue-raising policy should be guided by overall health system
objectives and goals, in particular financial protection for patients.
There are also a number of additional specific objectives for revenue raising, including raising revenues in
a fair way, stability in revenue flows, and moving towards a predominant reliance on public revenue
sources. The overall level of public funding influences the performance of a health system in terms of
universal health coverage.
Evidence suggests that once public spending falls below around 70-80% of total health spending, there is a
significant increase in the number of households falling into financial difficulties as a result of seeking
health care, often measured in terms of the number of households suffering catastrophic or impoverishin
This in turn highlights the importance of risk-sharing, given that this "unlucky 5%" would not be able to
afford these costs on their own.
Most high-income countries are able to ensure universal coverage for this "unlucky 5%", because their
pooling arrangements tend to be large in size and diverse in terms of the composition of health risks.
Importantly, fully subsidized poorer households are included in the same pool, and with the same benefits,
as higher income persons.
Pooling challenges
Reforms to pooling arrangements have been central to the successful efforts of many countries that have
made progress towards UHC. These reforms recognised that:
coverage is a right and not merely a benefit of being employed
expanding the redistributive capacity of a health system is a necessary to make progress on the
intermediate objectives and final goals of UHC
Fundamental reform is possible
Recent examples show that significant progress can be made - it is possible to fundamentally
change the way that funds are pooled in health systems. In different ways, these reforms have
reduced fragmentation in pooling arrangements, or mitigated its consequences.
The architecture of a health system can be defined by its pooling arrangements, and countries
such as Moldova, Rwanda and Thailand have succeeded in redesigning their systems to reduce
fragmentation, which in turn have enabled fundamental changes to they way that funds are
pooled and redistributed across their halth systems.
Whilst such reforms are not simple in terms of either design or implementation, they can lead
to significant progress towards UHC for a country's population.
Progress towards UHC
Another lesson from experience, is that health systems need to increasingly purchase health services in
a strategic way, for progress to be made towards UHC. This means allocating and spending funds based
on information about provider performance, as well as the health needs of the population they serve.
Important questions that a strategic purchaser must carefully consider include:
Which services are a priority to deliver
What is the price and quality of services
Which facilities and staff should deliver these services
All of these factors contribute to the efficiency of the health system.
Institutional arrangements
Institutional arrangements are also important for strategic purchasing.
The main policy issues include:
Whether or not to introduce a purchaser which is independent of providers, a situation often
known as a 'purchaser-provider split'
Whether there is only one purchaser of publicly-funded health services or multiple purchasers
The extent to which purchasers and providers are autonomous; for example, the flexibility they
have to make decisions about how to spend their own budgets, and to make decisions on
staffing matters
Tools for purchasers
Health system purchasers have several strategic tools at their disposal, including:
The agreement or contract made with the provider which defines the conditions which need to
be met for payment.
Defining the indicators used to measure service provider performance.
The specific payment mechanism(s) and related incentives used to actually pay providers.
Payment mechanisms:
Primary care is typically paid for through salary, fee-for-service and capitation
methods; increasingly a mix of payment mechanisms is used
A growing number of countries are using DRGs for inpatient services, although line-item
budgets are still common in public facilities and fee-for-service is common in the private
sector. As with primary care, there is also a movement towards mixed payment systems in an
effort to balance cost control with incentives for productivity
Not all payment methods are strategic, in particular those which bear no relation to the quantity, quality, or
efficiency of the services provided.
Rationing
Rationing takes place in all health systems.
This means that all countries, whether rich or poor, limit the publicly funded benefit package in one way or
another.
Rationing is essentially the flip-side of the benefit package; by defining clearly who is eligible, and the
services for which they are covered, the benefit package also defines who and what services
are not covered.