Health financing is the system of fund generation or credit, fund expenditures and flow of funds used to support the health services delivery system. Finances may come from foreign or domestic sources and may be private or public in origin. A key recommendation of the Commission on Macroeconomics and Health (CMH) report is that the world's low and middle-income countries should dramatically scale up health spending to a minimum of US$35 per capita. The CMH believes it is possible for low and middle-income countries to increase budgetary outlays for health by 1% of gross national product (GNP) by 2007 and 2% by 2015, compared with 2001 levels. High-income countries should meet any remaining shortfall.
Increasingly, government-financed health services in most developing countries have come to depend on payments by patients. This is particularly the case in low-income countries, which devote a smaller proportion of public spending to health than do high-income countries. In low-income countries (excluding China and India), private health expenditure (including direct household expenditure, private insurance, charitable donations and direct service payments by private corporations) is nearly double public health expenditure. In most of South-East Asia 60-75% of total health expenditure occurs in the private sector and the same is true in many Arab countries. This means that households bear a substantial proportion of health costs while having little protection in the event of major illness or injury.
The concept of fair financing has become one of three goals of most health systems. It means that every member of society should pay the same share of their disposable income to cover their health costs (the other two goals are better health and responsiveness).
Methods of generating domestic resources for health include:
- Third-party funder: an organization that collects money from consumers and then arranges either full or partial payment of health care providers on that consumer's behalf. Increasingly, third-party funders are nondomestic insurance firms.
- Social insurance: a range of programmes designed to protect individuals in the event of a decline in income owing to unemployment, retirement, or illness. Benefits are financed through contributions that are usually earnings related or collected through payroll taxes. Although this system has been highly successful in many high-income countries, poor nations have insufficient levels of formal sector employment to finance this kind of programme. In developing countries where, for example, HIV/AIDS levels are high, the costs for those paying in to cover provision for the poorest would be very high.
- Insurance schemes: these work on the principle that people contribute a small amount of money regularly when they are well, so that when they are ill or need treatment or drugs they do not have to pay a large bill. Insurance schemes spread the cost of health care and the risks associated with ill-health. In Thailand, companies employing more than 10 people must pay into the National Social Security Scheme. It is thought that the resulting revenues will provide a health package to 100% of the population within 10 years.
- User fees: when patients are asked to pay for part or all of their treatment and medicine costs. In the 1980s user fees were introduced widely in both rich and poor countries. It was thought that they would be simple to administer and that the finance generated would raise standards and access to health facilities. In practice they have proved problematic:
- Many poor people cannot afford them. In Nigeria, Kenya and Ghana, hospitals and clinics reported a dramatic 50% decline in use within two weeks of introducing charges.
- National cost recovery levels in Africa have averaged only 5% or less, far below the 15-20% that was hoped for.
- Exemption mechanisms (e.g. for the poor, or children and pregnant mothers) have proved complicated to implement.
WHO and others are calling for user fees to be strictly controlled and monitored to make sure that they do not present a financial barrier to access to services.
Currently, globalization's economic leaders are encouraging a market-friendly and pro-privatization (i.e., for-profit provision of health services by the private sector) approach to health financing, including the introduction of public-private partnerships, user fees and insurance schemes and encouraging a reduction in the use of subsidies and tiered pricing to maintain access to medicines and essential medicines for the poorest. Public spending on health has also been affected by the debt crisis and Structural Adjustment Programmes (SAPs), as well as reductions in aid flows.