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Health financing system

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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.[1] 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.

Health system inputs: from financial resources to health interventions

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.

This section on Health financing system is structured as follows:


Analytical summary

The country spends approximately 3.8 per cent of GDP on health care (including private health expenditures). Approximately 65 per cent of healthcare funds come from Government, accounting for approximately 2 per cent of GDP, while additional funding comes from development partners, the private sector and individuals.

Some mission operated health facilities and NGOs receive a large portion of their resources from Government following the declining of the global donor base. Household expenditures as percentage of total private health expenditures were estimated to have increased from 34.9 per cent to 41.7 per cent between 1998 and 2002.

The share of Government expenditure on health has increased almost six fold in the past decade from 19 million USD$ in 1998 to 113 million USD in 2009. As a share of the total budget it translates to 7 per cent of the total Government budget in 1998 increasing to 9 per cent in 2009. Despite the significant increase in absolute figures the share of the budget allocated to health did not increase significantly as a percentage of the total budget.

The advent of the HIV/AIDS pandemic assisted the sector in drawing additional attention from policy makers in the last five years. Despite significant increases in domestic resources being channelled towards vertical programmes such as HIV and AIDS the health system was not privileged to similar benefits. Equally of note the country, experienced a significant donor fatigue especially resources supporting the health systems, while there was an upsurge for external resources supporting disease specific programmes such HIV and AIDS, TB and Malaria.

The country was not able to benefit from a number of global initiatives such as GAVI and other initiatives due to economic classification while national health indicators are poor. There is limited health insurance cover mainly for the employed minority, which enables them to access private health facilities. The SDHS 2006-07 revealed that only 8 per cent of the population is covered by any form of insurance. This shows that pooled funding including pre-payment schemes are minimal.

The government pays for health care services for patients referred outside the country for specialized services such as chemotherapy and radiotherapy. Referral expenditures have risen significantly over the years as they are estimated to well over 250 million Emalangeni for all schemes.

Healthcare financing from development partners has increased almost two folds from 2005/06 to 2009/10. These resources were specifically channelled to specific diseases such as HIV/AIDS, TB and Malaria.

Resources aimed at financing these increased from approximately US$40 million in 2005/06 to US$80 million in 2009/10. External financing of healthcare system beside disease specific programmes has not significantly increased in the sector.

Organization of health financing

Health expenditures patterns, trends and funding flows

Funding sources

Pooling of funds

Institutional arrangements and purchaser provider relations

Payment mechanisms

Priorities and ways forward


Endnotes: References, sources, methods, abbreviations, etc.

  1. Everybody’s business. Strengthening health systems to improve health outcomes. WHO’s framework for action (pdf 843.33kb). Geneva, World Health Organization, 2007