Health financing mechanisms are organisational options for a health financing system of how to offer financial risk protection to people against the costs of healthcare. These include tax-based financing, social health insurance, private health insurance and medical savings accounts.
Universal coverage of health care
An issue of paramount importance to policy-makers in a majority of the world's countries is how to ensure that all people have access to health care when they need it - i.e. how to achieve universal coverage of health care. The technical brief for policy-makers below summarises the main organisational options for reaching universal coverage.
Tax-based financing
In tax-based financing, individuals contribute to the provision of health services through taxes on income, purchases, property, capital gains, and a variety of other items and activities. These are typically pooled across the whole population, unless local governments raise and retain tax revenues. Health services are purchased by government, usually from a mix of public and private providers. The discussion paper below gives detailed information on tax-based financing.
Social health insurance
In social health insurance, contributions from workers, the self-employed, enterprises and government are pooled into a single or multiple funds on a compulsory basis. These funds typically contract with a mix of public and providers for the provision of a specified benefit package. Preventive and public health care may be provided by these funds or responsibility kept solely by the Ministry of Health. Within social health insurance, a number of functions may be executed by parastatal or non-governmental sickness funds or in a few cases by private health insurance companies.
Several low- and middle-income countries are interested in extending their existing health insurance for specific groups to eventually cover their entire populations. For those countries interested in such an extension, it is important to understand the factors that affect the transition from incomplete to universal coverage. This paper analyses the experience of eight countries in the implementation of social health insurance. It highlights the importance of the socioeconomic and political context, particularly in relation to the level of income, structure of the economy, distribution of the population, ability to administer and level of solidarity within the country, but also stresses the important stewardship role government can play in facilitating the transition to universal coverage via social health insurance.
Private health insurance
In private health insurance, premiums are paid directly from employers, associations, individuals and families to insurance companies, which pool risks across their membership base. Private insurance includes policies sold by commercial for profit firms, non-profit companies, and community health insurers. Generally private insurance is voluntary in contrast to social insurance programs that tend to be compulsory.
However, in some countries private insurance may also be compulsory for certain segments of the population (for example the formal, employed sector).
The article and the discussion paper below analyse how private health insurance is being used today, particularly in lower income countries.
The discussion paper below analyses how private health insurance can best be regulated to serve the public interest, with implications for its development in lower income countries.
See below for an article in Health and Ageing No12/April 2005
Community-based health insurance
A particular form of private health insurance that has often emerged in environments where the above-mentioned financial risk protection mechanisms only have a limited impact, is community-based health insurance. Contributions are not risk-related, and there is generally a high level of community involvement in the running of such schemes. The discussion paper below analyses experiences with community-based health insurance in terms of health system goals.
Medical savings accounts
Medical Savings Accounts are individual savings accounts that are restricted to spending on health or medical care. They have been generally introduced to: (1) encourage savings for the expected high costs of medical care; (2) enlist health care consumers in controlling costs; and (3) mobilize additional funds for health systems. Only a few countries in the world have experience with Medical Savings Accounts. The discussion paper below reviews this evidence.
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:
Other mechanisms are internationally focused, such as:
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.