Health Investment & Finance

Editorial

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Multipillar Financing for Healthcare

This Editorial provides a vision for a multi-pillar system for financing health care that combines the best of both private and public policy options.


Today the people who live in most industrial countries (except Mexico, Turkey, and the United States) enjoy universal access to a comprehensive range of health services that are financed through a combination of general tax revenues, social insurance, private insurance, and charges. Large segments of the population work in urban settings and in formal employment. It is relatively easy to tax these workers’ wages at the source and to design health care systems that are financed by government or progressive payroll taxes.

A number of low- and middle-income countries (such as Costa Rica, Malaysia, Sri Lanka, and Zambia) have tried to follow a similar path. But 30 years after the Alma Ata Declaration on universal access to primary care, the quest for access to quality health care and financial protection against the cost of illness by 1.3 billion of the world’s poorest people has been elusive.

Low-income countries often have large populations working in the rural areas and the informal sector. This limits the effective taxation capacity of their governments. When a country’s taxation capacity is as low as 10 percent of GDP or less, it would take 30 percent of government revenues to meet a target of 3 percent of GDP. Yet, in most low-income countries, public expenditure on health care is less than 5 to 10 percent of total public spending or less than 1 percent of GDP.

Poor registration systems, lack of trust, risk aversion, social exclusion, and a host of other problems plague government-run schemes.

Alternative to a Public Option

Several factors suggest that there may be a better alternative to paying for health care out of pocket or relying on what is often a failed public option in many low- and middle-income countries.

First, there is extensive evidence that the willingness to pay for health care by households—even the poor—is often much greater than the ability of governments to mobilize revenues through formal taxation mechanisms. Second, reviews of community participation in microinsurance programs ndicate that even poor households are insurable.

Third, a number of low-income countries have successfully used premium subsidies to ensure that the poor can participate in nongovernmental programs.

It is in this context that private voluntary health insurance is evolving in many developing countries. It often provides one of several critical components of a multipillar system for financing health care when governments alone have failed (figure 2).

Under such a system, some of the pillars are dedicated to income smoothing across the life cycle. Others are more focused on poverty and equity objectives. Still others are better at managing financial risk. More complex health financing systems such as that used in Singapore combine these various dimensions to optimize achievement of the underlying policy objectives.

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Editorial Staff

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Email: estaff@healthfinance.org
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