Summary of Economic Dimensions of Financing Healthcare

The issues relating to the financing of healthcare encompasse many dimensions of tax administration and governance viz. collection, strengthening of institutions, quality of governance, establishment of incentive structures to allow for private sector participation, appropriate regulatory mechanisms, efficient public expenditure management system, etc. The objective is to pool the risks in such a manner that the expenditures required to be incurred during major health problems does not impose financial hardships on the people. Establishment of the required ideal conditions in which the healthcare needs of all sections of the people are met is, however, linked to the pace of economic growth and better income distributions in the society. In countries with low income level, the emphasis of the government should be to provide essential/primary healthcare services through the general budgetary allocations of the government. In such a situation, the out-of-pocket expenditures incurred by the people to meet their major health needs would be substantial. With improvements in the institutional and finance sector reforms, establishment of pre-payment based insurance systems to cover for the costlier health needs would become feasible. Attainment of the millennium development goals relating to the health sector requires massive resources for which low income countries would need external assistance from donor countries and international financial institutions.

However, investments from such assistance need to be effectively serviced for which the ‘absorptive capacity’ of the economies needs to be strengthened. Ensuring the financial sustainability of health sector investments by methods like the collection of ‘user charges’ is an available option in this regard. As this can impact adversely on the poor to avail the services needed, evolving suitable ‘exemption and waiver’ systems is essential. Although different methods of financing the health sector needs exist, no single method can be universally applied. The socio-economic, political, and cultural settings of an economy, and within an economy of different regions, should be duly taken note of before any particular system is instituted in an area.