THE health sector may claim notionally to cater universal health coverage as the doors and the windows to all public health facilities are open to all citizens. The universal health coverage, however, relates to three specific dimensions, not available now in public health facilities. These are the quality of service and equitability with its two dimensions — reaching everyone, but reaching everyone with the services which they need. Equitability, therefore, demands that everyone is covered for required services, irrespective of their payment ability. This implies that someone will have to pay for them. It may be the state or a philanthropist, singularly or through a common pot of many philanthropists or through some other avenues.
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Types of healthcare financing
HOW does a state pay for health services of those who cannot pay for themselves. It may be from a portion of the revenue that the state collects. In practice, however, what many states do pragmatically is to pay for health services of the entire nation from collected revenues.
Revenue may fall short of the required amount for health care as it usually does in developing countries and it might as well be true for Bangladesh, where the tax-gross domestic product ratio is less than the optimum. So, what may be the other strategies that a state may adopt to bridge the gap in the state coffer for paying for the health care of the have-nots? A frequently practised strategy by a state is collecting what is called ‘sin-tax’, levied on, for example, alcoholic drinks, tobacco, unhealthy food and beverages, etc or surcharges.
The state may collect financial contributions from businesses as businesses may create negative effect and impact on human environment and society. This is what is known as the corporate social responsibility, applied to make good for these negative effects and impact. Through the corporate social responsibility contributions, businesses pay, instead, for creating positive ethical impact, honour human rights and undertake philanthropic and economic responsibility. It is, therefore, not considered the application of any undue force.
Some European nations practise what is known as the social health insurance system. This is based on the insurance contributions undertaken by both employers and employees for the health care of employees. The payment for the health care of those who are unemployed or those who are not in a position to pay for their health care is shouldered by the government from taxes and insurance premiums that it collects. To facilitate this, governments strive to expand the net of the insurance holders and rationalise their premiums by offering service packages at various prices. They pull the funds and help to cover those who are unable to pay for their services. As is apparent, this scheme works when a sizeable portion of people work in formal sectors and are able and willing to put their money in a solidarity fund through the premiums that are realised from them. Social health insurance, or any insurance scheme for that matter, therefore, needs a law to compel the eligible people to be members of the schemes and pay premiums regularly and without question.
A third option of footing the health bills of the citizens is to introduce a national health insurance, whereby people pay premiums for covering their health costs, to an office or organisation that is selected by the government for managing — buying and paying for — the health care of the people. Obviously, those who cannot pay for the health services have to be covered by the state. A fourth option is buying health insurance coverage individually while a fifth avenue is paying out of pocket when people procure services. Out-of-pocket is actually the sharing of service cost, which is different though from a co-payment, made by the insured service recipients in obtaining health care. Co-payment is to deter service providers and service recipients from what is known as ‘moral hazard’ ie unnecessary care production and consumption, especially when the care is free or subsidised or when the care recipients do not have to pay for additional care or an extra large volume of care as these are facilitated by prepayment systems.
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Pros and cons of funding sources
THE tax-based financing of health care is said to be the most progressive as it is a single buying and paying system. So, fewer experts may be pressed into managing the services judiciously, backed by information, that allows the assessment of skills, quality and the rationale of care and protects the service-seekers from inaccurate or induced care relatively easily and at a reasonable price, hinged on a lower overhead cost. As the channel of management is unitary, management is apt to be more efficient, cushioned on linearity of communication, which engenders fewer background noises. Countries that implement social health insurance system employ various types of management agencies which is liable to increase the administrative/establishment costs. This is also because of the collection of fees from very many payment points as these increase the administrative/ establishment costs.
The national health insurance is usually managed by an independent public sector authority, which is responsible for implementing and operating the scheme, eg member registration, issuing identity cards, managing the insurance fund and processing claims — the functions that every prepayment financing scheme management undertakes. Such an authority, the national health insurance authority, also assists people, especially vulnerable population, to access healthcare services and may, through other organisations, educate the public about health insurance, again, like in any other insurance schemes. Like the social health insurance scheme, the insurance authority may be administered by the public sector or the private sector, or a combination of both.
Private health insurance bought by individuals for them or family is regressive as the onus of selecting an efficient service package, which includes the selection of efficient service providers, may be tricky, complex and erroneous. The health market is a distorted market because of the information asymmetry among people. Nevertheless, the private health insurance system still accrues benefits of a prepaid system as it pools risks and funds. It may be mentioned that only 0.4 per cent of the population is covered with private health insurance now. The out-of-pocket expenditure is said to be the most regressive approach as it compels a service-seeker to pay heftily for various reasons for a costly service that they may need all of a sudden. On the top of that, it has all the negativity of the private health insurance system.
The out-of-pocket expenditure may drag a marginally poor family below the lower poverty line. According to the Health Economics Unit, the out-of-pocket expenditure is 68.5 per cent, as of 2022. The government’s target is to reduce it to 32 per cent by 2032, to attain which, the target for covering the people with a prepaid system is 100 per cent by 2032 while, as of now, it is less than 1 per cent. These two targets do not appear to stand juxtaposed and look like a distant dream. Efforts should however, be taken to reduce the out-of-pocket expenditure to protect people from catastrophic illness that compel people to sell off their assets, reduce consumption and stop the schooling of their children. Now households facing catastrophic health expenditure is 24.4 per cent and surveys suggest that slightly more than 3 per cent of people actually fall below the lower poverty line because of the out-of-pocket expenditure, every year.
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Steps for smart healthcare financing
STRATEGIC conditions that must be satisfied for an efficient healthcare financing would include (1) clarity at the outset on the agreed goals and targets of the health sector which the sectoral actors must believe in, be committed to and dedicate to. These are equitable, effective, qualified, adequate and sustainable provisions of appropriate health care, which among, other factors, would be facilitated by efficient sectoral management through good leadership and management skills. This should be followed by (2) a wise investment in services that would offer the greatest cost-benefit ratio/allocative efficiency, without sacrificing need-based health benefit packages for all, ie that will satisfy the conditions of inclusivity as a condition to attaining equitable health care for all ie serving everyone by type and volume of health care that they need; (3) a fair participation in payment for care, which would mean paying for care as per ability, keeping Gini coefficient into consideration and intelligent bracketing of people’s income horizontally and vertically for realising correct premiums; (4) an efficient pooling and distribution of illness risks for protecting against catastrophic health expenditures; (5) responsiveness to people’s needs and expectations; (6) maximising health outcome for a given amount of service cost which may be assured through management efficiency and good governance, ie transparency and accountability; (7) an assurance of sustainability of a system, which hinges on (a) adaptability of the system to the evolving needs and changes in the external and internal environments of the sector; (b) fiscal and economic changes and (c) demand-side demographic, economic. topographic and epidemiological perspectives; (8) reduction in unspent health budget to 5 to 10 per cent, which was 22 per cent in the recent past, the target of which by 2032 has been set to be 0.5 per cent; (9) multifaceted and multidimensional care that would include strategic purchasing of health care from the private sector, if and when necessary, to ensure unhindered supply and continuity of care to the citizens as their right and which would include efficient emergency care; (10) an efficient management of services-based information, information from research and its efficient utilization in planning and decision making; (11) an adequate and appropriate planning for (a) services, construction of user-friendly service facilities, the provision for adequate and appropriate resources, ie human resources including appropriate managers, equipment and supplies, operational and management funds and their need-based efficient distribution; and (b) the availability of all the components and tools that are necessary for catering effective and efficient care; (12) encouraging and supporting stakeholder engagement in planning, programme review and demand generation, which will reduce unit cost of services, and which will also assist in fund generation; (13) an emphasis on preventive and promotive healthcare and disease control activities as these will reduce the need for costly curative services down the line; (14) the development of climate-resilient and adaptive healthcare systems and healthcare facilities; (15) an efficient programme and contract management; (16) a meticulous monitoring of the use of resources and the attainment of goals and targets; (17) an effective supervision for quality improvement; (18) an accurate programme review and evaluation; (19) seeking solutions to problems through non-linear systems approach; (20) incentivising good performance; and, above all, (21) selecting efficient sources of healthcare financing and efficient and intelligent buying and paying modalities and skills.
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Types of health service contracts
TWO pertinent points linked to efficiency in procurement need explanation. One is buying and the other is paying for health care from the private sector, which is also known as strategic purchasing of care. We need to realise that the buying/procuring of care and payment for care are not the same phenomenon. The buying of health care by the government from individuals or groups may also include the private care providers, including private hospitals and diagnostics. On the other hand, the government may appoint a third party, which would buy services for the people from care providers and the government would pay this third party for managing the care.
This contract for supplying services may be ‘contracting in’ or ‘contracting out’. Contracting in may be in whole or in part, ie contracting either some service providers or management or both while the facility is managed by the public sector. In a contracting out modality, the whole facility, with its service responsibility, is managed by a contracted party. Payment may have different modalities such as salary being the least efficient and performance-based payment being a preferred choice.
The public-private partnership is another form of financing avenue that takes different shapes, depth, arrangement, contents, goals and conditions. The public-private partnership is always a long-term contractual arrangement where the public sector offers some concession to the private sector, for example, land for building a hospital by a private entrepreneur, tax holiday, etc. The private sector builds and operates the hospital as long as it does not get its desired profit back after which it transfers the ownership of the hospital to the government. A public-private partnership may be a grey-field public-private partnership, in contrast to the green-field public-private partnership, where, for example, the private sector moves into an already built space and all that it has to do is, for example, provide staff and equipment.
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Some caveats
CONTRACTUAL transactions may be very tricky and may suffer from poor transparency, which may shoot up contractual costs to an illogically high level.
The financing of a project by the public sector is apt to cost less as the government may borrow money at a lower interest rate. On the other hand, when the project is big, several private companies come together to fund it by creating, what is known as a special-purpose vehicle. Profit sharing among several companies would increase the cost of the enterprise even higher. The public-private partnership in reality has not been touted as a very pragmatic way of financing for the public sector. Public sector contract managers in a public-private partnership arrangement have to be quite astute, experienced and knowledgeable.
Finally, the quality of work or services may also be poor, in contract, as the private sector’s usual aim is profit maximisation, unlike the public sector, which aims benefits maximisation. Restrictive contractual conditions may stifle innovation and supply of high-end products by the private contractors or public-private partnership partners.
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Abu Muhammad Zakir Hussain, a former director of Primary Health Care and Disease Control, former regional adviser to SEARO, WHO, and former staff consultant of the Asian Development Bank, is chair of the Community Clinic Health Support Trust.
