Health Investment & Finance


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Alexander S. Preker

Private Alternatives to a Public Option

In this Viewpoint, Alexander S. Preker discusses the role of private health insurance as an alternative to the public option in the US health care debate.

The world’s attention has recently turned to the struggle to expand health insurance coverage for 40 million people in the United States. Four billion people in low- and middle-income countries face the same challenge.

Two central themes have emerged: (a) the role of governments and private sector as a main provider of additional coverage for the noninsured; and (b) how to finance the cost of the many noninsured who cannot pay for the full cost themselves.

With strong public policies, it is now generally recognized that the private sector can contribute to both health and financial objectives in service delivery, life sciences, supply chains, and the education of health workers (see Viewpoint 8:1). Opinion is more divided on the role of the private sector in financing health care. And most people do not like to have their taxes increased, not even to pay for worthy causes.

Financing Health Care

In 2011, global spending on health care was around $6.0 trillion, about 10 percent of total global gross domestic product (GDP) of US$60 trillion. Of those resources, about $600 billion (10 percent) was spent in low- and middle-income countries. Spending in Sub-Saharan Africa was less than 4 percent of global spending on health and less than 5 percent of GDP in many other low-income regions, despite the heavy burden of disease and worsening demographic trends in many developing countries. In this context the money that can be mobilized through private channels cannot be ignored.

Pooling of Risks

In many low- and middle-income countries, out-of-pocket spending is large—sometimes constituting as much as 60 to 80 percent of overall health spending. Often less than 2 percent is channeled through government-managed risk-sharing arrangements. According to a number of recent reviews, community financing schemes and other risk-sharing arrangements such as private enterprise-based health insurance schemes are often set up to fill gaps in government programs.

Spending Wisely

Ministries of Health typically channel funds to publicly owned and managed health care providers. To make spending on health care more efficient and equitable, many countries are experimenting with strategic purchasing of services from both public and private providers and with pay-for-performance (P4P) payments rather than passive resource allocation. This is much easier to do if the funds are channeled through intermediate financing mechanisms such as health insurance.

Contact details

Alexander S. Preker

Health Investment & Financing
14 Wall Street, 20th Floor
New York, NY
United States of America

Office: 1 (212) 348-1866
Cell: 1 (202) 667-8286
Fax: 1 (212) 348-2866

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To read more see Viewpoint 10:1