Health financing system
A good health financing system raises adequate funds for health, in ways that ensure people can use needed services and are protected from financial catastrophe or impoverishment associated with having to pay for them. Health financing systems that achieve universal coverage in this way also encourage the provision and use of an effective and efficient mix of personal and non-personal services.
Three interrelated functions are involved in order to achieve this:
- the collection of revenues from households, companies or external agencies;
- the pooling of prepaid revenues in ways that allow risks to be shared – including decisions on benefit coverage and entitlement; and purchasing;
- the process by which interventions are selected and services are paid for or providers are paid.
The interaction between all three functions determines the effectiveness, efficiency and equity of health financing systems.
Like all aspects of health system strengthening, changes in health financing must be tailored to the history, institutions and traditions of each country. Most systems involve a mix of public and private financing and public and private provision, and there is no one template for action. However, important principles to guide any country’s approach to financing include:
- raising additional funds where health needs are high, revenues insufficient and where accountability mechanisms can ensure transparent and effective use of resources;
- reducing reliance on out-of-pocket payments where they are high, by moving towards prepayment systems involving pooling of financial risks across population groups (taxation and the various forms of health insurance are all forms of prepayment);
- taking additional steps, where needed, to improve social protection by ensuring the poor and other vulnerable groups have access to needed services, and that paying for care does not result in financial catastrophe;
- improving efficiency of resource use by focusing on the appropriate mix of activities and interventions to fund and inputs to purchase;
- aligning provider payment methods with organizational arrangements for service providers and other incentives for efficient service provision and use, including contracting;
- strengthening financial and other relationships with the private sector and addressing fragmentation of financing arrangements for different types of services;
- promoting transparency and accountability in health financing systems;
- improving generation of information on the health financing system and its policy use.