Robert Yates on Public Financing – The Key to Universal Health Coverage

[Originally posted 1.10.12 on]

Across the world, countries at all income levels are aspiring to the goal of universal health coverage (UHC). Hardly a week goes by without a government making an announcement about extending coverage, either in terms of new population groups covered, new services added to a benefit package or people receiving higher levels of financial protection. In fact Mexico (the new chair of the G20) is about to announce that it has reached UHC six months earlier than schedule.

In line with the theme of the World Health Organization’s World Health Report of 2010, these countries are recognising that reforming one’s health financing system is essential to achieving UHC. But which financing mechanisms offer the best potential for countries wanting to scale up coverage?

There is now a consensus that fees at the point of service are the least attractive option and efforts should be made to replace user fees with more efficient and equitable mechanisms based on prepayment and risk-pooling. Private, voluntary health insurance (including community based insurance) has been proposed, but results to date have been disappointing. Voluntary schemes tend to have low coverage rates, high administration costs and often exclude the poor. The fact remains that no country in the world has achieved anything close to UHC using voluntary insurance as its primary financing mechanism.

Migrant workers in Dubai have no health coverage

Instead governments are increasingly recognising that public financing mechanisms hold the key to UHC. Here the two main sources of funds are tax financing and social health insurance contributions. Their unifying feature that makes them more successful is that they are compulsory. This forces the healthy wealthy to cross-subsidise the sicker poor.

In recognising the superiority of public mechanisms, the debate is shifting to how to mix funding from different public sources in large risk pools which avoid the inefficiencies and inequities of fragmented pools. This is an appropriate response, because it is unlikely that pure tax financing or SHI (statutory health insurance)

models will raise sufficient resources in countries with low tax bases and relatively small formal sectors. Furthermore countries are recognising that they can be innovative in designing their own pooling and purchasing systems irrespective of how they source their funds. For example many are using funds from tax sources (historically associated with a direct funding of facilities) to purchase services for specified population groups through third party agencies.

So rather than importing rigid models from developed countries, there is a growing trend in middle- and low-income countries to develop home-grown systems based on their own circumstances. Of particular note have been the successes of middle income countries in Latin America (eg Brazil, Mexico, Chile and Costa Rica) and Asia (Thailand, Malaysia and Sri Lanka) to use increased public financing to scale up coverage. These models are subtly different but all have one common feature. In recognising that it is very difficult to collect insurance contributions from unwaged people, they rely heavily on tax financing to cover the informal sector. In many cases this group represents the majority of the population and of major interest to political leaders – the majority of the electorate.

Of course raising funds for the health sector only deals with half of the financing equation and doesn’t address the vital areas of purchasing of health services and the generation of health resources where there is likely to be a greater role for the private sector. Furthermore, in recognising the primacy of public financing, governments would be wise not to try to eliminate private expenditure on private services as this may help relieve pressure on public resources. So long as the better off continue to pay their taxes and pool their SHI contributions, there is nothing wrong with them choosing to self-select out from the public benefit package. Indeed some countries, (for example Sri Lanka), have shown this is can be an effective way to make the benefit incidence of public spending more equitable.

However as even wealthy countries have shown, an over reliance on private financing mechanisms leads to a health system that is inefficient, inequitable and a long way from UHC. Instead as many middle income countries are keen to demonstrate, public financing is the key to UHC, and this is a message many are keen to share with the rest of the developing world. “More than 106 million Mexicans will be receiving health care through public financing” reported Mexico’s Health Minister to China’s Xinhua News Agency in November 2011.

With China itself about to announce that they too have achieved UHC, following an injection of $125 billion in tax financing, and with ambitious reforms planned in South Africa and India, expect a lot more emphasis on the role of public financing in delivering UHC in the coming months.

Video by the WHO on the many paths towards Universal Health Coverage.

WHO: The many paths towards universal health coverage

About the Author: Robert Yates – Senior Health Economist, The World Health Organization

Robert Yates is a health economist and manager by background. He has been working on health systems reforms in developing countries for 16 years.

Disclaimer: The views expressed in this blog are entirely his own