Health financing mechanisms
Innovative financing methods and other related issues
In addition to the traditional methods of financial risk protection, there are a variety of other financing mechanisms with which countries are experimenting. The need for these additional sources of funds is driven by rising demand for health care services, escalating costs of care, rapid increases in technology, and a limit on how much can be raised through a traditional tax base.
Some of these methods are nationally based, such as:
- hypotheticated taxes, e.g. 'sin taxes' for tobacco and alcohol
- national and state lotteries dedicated to health
- public-private partnerships between governments and the private sector to co-fund health care.
Other mechanisms are internationally focused, such as:
- the (recently proposed) International Finance Facility (IFF). This would front-load development assistance by selling government bonds secured by future aids flows
- debt for health swaps, in which external government debt is converted into domestic debt, thereby resulting in less pressure to generate foreign exchange for debt service. A debt-for-health swap also represents an opportunity for a foreign donor to increase the local currency equivalent of a donation.
- the use of public-private partnerships to develop new products using capital markets.
It is clear that with the rising costs of health care, countries will begin to explore more of these ideas to augment traditional sources of health financing.
There are also other options that may be used to complement health financing mechanisms, e.g. conditional cash transfers or micro-banking.