Health Financing System and Mechanisms
PST 06105: HEALTH FINANCING
Session
2
: Health Financing System and Mechanisms
Learning Tasks
At the end of this session students are expected to be able to:
Describe
functions of health financing system
Describe
objectives of health financing system
List
financing mechanisms
Outline
the roles of government in medicines
Activity: Brainstorming
What are functions of health financing system?
3
Functions
of Health Financing System
Health financing system is a sub-system of the health system responsible for performing
the
functions of collecting, pooling and risk management, and allocating
financial resources
to purchase health services from the various health care providers
The
health financing system performs four main functions (
Kutzin
, 2003;
Mossialos
,
2002
):
Collecting
revenue
Pooling
,
Allocation
,
Purchase
of
service
Functions of Health Financing System
1. Revenue
collection
Collection
is a process of revenue gathering or
mobilizing
financing revenue from
various
sources
It
is a process by which the health system receives money from households and
organizations
or companies, as well as from donors
The
collection process involves three elements: source, contribution mechanisms and
collecting
agents
The
collecting agents may be:
Central
governments
Regional
governments
Local
governments
Independent
public body or social security agency
Private
not-for-profit or for-profit insurance funds
Providers ( health facilities)
Functions of Health Financing System
2. Pooling
of risk
Pooling
is the
‘accumulation
of prepaid health care revenues on behalf of a
population
‟
It
is a process of accumulation and management of revenues in such a way as to
ensure
that the risk of having to pay for health care is borne by all the members of
the pool
and not by each contributor individually.
Pooling
facilitates the pooling of financial risk across the population or a
defined subgroup
When
there is no risk pooling, individuals are responsible for meeting their
own health
care costs as they arise. This entails patients‟ meeting user fee charges as
they are
incurred.
Pooling
agents may be:
Ministry
of health: central and
decentralised
units
Local
government health department/boards
Social
health insurance fund (s)
Private
insurance companies
Provider-based
schemes
Functions of Health Financing System
3. Allocation
of financial resources
Resource
allocation is defined as :
“
Process by which available resources are
distributed between competing
uses
to achieve
a particular goal” (Pearson, 2003).
“
The distribution of resources
, in particular finance, from the
centre
to
the peripheral
level. It generally concern with broad levels of aggregated
financial resources
” (Green, 2007).
The
distribution of goods and services (e.g. funds, professional time, beds,
drugs, etc
.) among competing programs or people (e.g. prevention, acute care,
clinical programs
, groups, individual, etc.)
Allocation is also related to other concepts
(budgeting and virement).
According
to Green (2007)
budgeting
“implies the more detailed determination
of precisely
how funds will be used” and may be defined a process of deciding
what financial
resources will be spend in a defined period (usually a year)
Virement
or reappropriation (Green, 2007) is a process of adjusting the budget
to shift
resources from one area to another
Three
approaches are commonly used to allocate resources:
Negotiation
and political compromise
: under this approach, the distribution of
health
resources is heavily influenced by more vocal, urban populations and
by political
and other vested interests
Incremental
allocation:
resources, under this approach, are allocated based on
the past
rather than according to any concept of need but a percentage
is increased/decreased
to the previous allocation of resource
Need-based approach:
allocation of resources is based on health needs using objective indicators. Usually a formula is used to improve equity of resource allocation.
Need-based approach:
The
main components of a needs-based resource allocation
formula should
reflect the main reasons why health needs vary.
The
following proxies
3 are
generally used:
Population
size – a greater number of people will present with a greater
health needs
;
Age
and sex profiles of populations – the very young and very old and
women have
greater needs
Degree
of relative/absolute poverty – poverty causes ill health
In Tanzania, the allocation formula has the following proxy indicators components:
Population (70 %)
Poverty count (10 %)
District vehicle route (10%)
Under-five mortality (10%)
4. Purchasing
Purchasing
is “the transfer of pooled resource to service providers on behalf of the
population
for which the funds were pooled” OR “ is the process by which pooled
funds are
paid to providers in order to deliver a specified or unspecified set of
health interventions
”
Health
system may have separate entities responsible for purchasing and
service provision
Purchasing
agents may be:
Ministry
of Health
Regional
governments
Local
governments
Social
health insurance fund(s),
Private
insurance funds
Employers
Functions of Health Financing System
Objectives
of Health Financing System
Promoting
universal protection against the financial risks associated with ill health.
Financial
protection
aims to ensure that people do not become poor as a result
of using
health care;
Promoting
a more equitable distribution of the burden of financing the health system
–
equity in finance requires richer people to pay
more
for
health
care, as a
proportion of
their
income
, than poorer
people
;
Promoting
equitable use and provision of services – equity of access to health
care based
on need rather than ability to pay;
Objectives
of Health Financing System
Improving the transparency and accountability of the system – for example, ensuring that the entitlements and obligations of the population are well understood by all, addressing the issue of informal payments where relevant, auditing institutions
and monitoring
and reporting on performance;
Rewarding
good
quality care and providing incentives for efficiency in
service
organization
and delivery;
o Promoting
administrative efficiency by minimizing duplication of responsibility
for
administering
the health financing system and minimizing costs that do not
contribute to
achieving the aforementioned goals (set out earlier).
Activity: Brainstorming
What are the common financing mechanisms used to raise financial resources
in Tanzania
?
14
Common
Financing Mechanisms
Financing mechanisms refers to the options (alternatives/ means) for raising financial
resources
for the health sector.
There
are about seven commonest health financing mechanisms or alternatives for raising
financial
resources in the health sector:
User
fees for services
Tax
based system
National
health insurance
Private
insurance
Community
health insurance
Health
maintenance organizations
International
loan/grants
Common
Financing Mechanisms
Each country health system has a mix of financing mechanisms, which are determined
by a
number of factors ( Green, 2007):
History
reasons:
system financing mechanism developed by colonialist tend to be
most
dominant financing mechanism in colonized countries
Economic
basis:
countries that have developed industrially tend to have social health
insurance
, e.g. German
Ideology
:
favour
user charges as
the
principal financing mechanism
International pressures:
international agencies promote particular
financing
mechanism
. For example, the World Bank promotes user charges; UNICEF
advocates community
financing; and the ILO promote social insurance
.
Common
Financing Mechanisms
To achieve universal health coverage(means that all people in a society are able to
obtain the
health services that they need, of high-quality
);
WHO (2017)
commends
that
Countries to develop
financing mechanisms that rely predominantly on
public/compulsory funding
sources such as tax-based financing and social health insurance.
Roles
of Government in Financing Medicines and
Medical Supplies
Formulating
health financing policy and guidelines:
developing financing policies for
medicines
and related supplies
Financing
medicines:
raising funds from different source and use them for purchasing
medicines
Coordinating
implementation of health financing policies:
coordinating and
supervising
implementers of health financing policies
Monitoring
use of financial resources:
setting standards and enforcing standards for
effective
operation of pharmaceutical market
Key Points
A
health financing system perform four major functions and it is designed to achieve
a various
objectives
There
are seven financing mechanisms that are commonly used in different health systems
Government
has various roles in financing medicines and medical supplies
Evaluation
What are the functions of health financing
system?
What
are the objectives of a health financing system?
What
are the elements of resource allocation formula used to allocate resources in
Tanzania
?
Mention
financing mechanisms used in the health sector of Tanzania
What
are roles of government in financing government?
References
Gottret
, P.
Schieber
, G. (2006). Health financing revisited: a
practioner’s
guide. World Bank
Green
, A. (2007). An introduction to health planning for developing countries(3rd Ed.)
London
: Oxford University Press.
Gruen
, R and
Howarth
, A. (2005). Financial management for health services. London: Open
University
.
Jiyenze
, M. K. (2013). Health care financing and resource allocation: handout for teaching
health
care financing.
Arusha
: CEDHA. [Notes: Unpublished]
Kutzin
, J (2001). A descriptive framework for country-level analysis of health care financing
arrangements
. Health Policy; 56, 171–204.
Tanzania
.
MoHSW
& PMO-RALG (2011). Comprehensive council health planning
guidelines
. 4th Ed. Dar
es
salaam:
MoHSW
.
References
Tanzania.
MoHSW
(2014). DHM Healthcare financing module. Dar
es
Salaam:
MoHSW
.
Mossialos
, et al (
ed
) (2002). Funding health care: options for Europe. Buckingham: Open
University
Press.
WHO
(2003). Mental health financing. Geneva: WHO.
World
Bank (1987). Financing health services in developing countries: an agenda for
reform
. Washington, D.C: World Bank
,.
World
Bank (1993). World Development Report 1993: investing in health. Oxford: Oxford
University
Press
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