CHAPTER 7

HEALTH FINANCING MODULE

7.1 Overview

7.1.1 Chapter Outline

This chapter presents the health financing module of the assessment tool. Section 7.1 defines
health financing and its key components and describes the process of resource flows in a health
system. Section 7.2 provides guidelines on preparing a profile of health financing for the country
of interest, including instructions on how to customize the profile for country-specific aspects of
the financing process. Section 7.3 presents the indicator-based part of the assessment. Section 7.4
provides guidance on how to synthesize your findings and presents suggestions for possible
solutions to the most common problems in health system financing.

7.1.2 What Is Health Financing?

The World Health Organization (WHO) defines health financing as the “function of a health
system concerned with the mobilization, accumulation and allocation of money to cover the
health needs of the people, individually and collectively, in the health system.” It states that the
“purpose of health financing is to make funding available, as well as to set the right financial
incentives to providers, to ensure that all individuals have access to effective public health and
personal health care” (WHO 2000). The rest of this section draws from PHR (1999) and
Mossialos and Dixon (2002). Health
financing has three key functions Tip!
(illustrated in Figure 7.1 and defined
Definitions of health financing terms can be
below): revenue collection, pooling of found in the following glossaries—
resources, and purchasing of services.
• European Observatory's Health Systems
and Policies (2006) Glossary
Revenue collection is concerned with the
sources of revenue for health care, the • World Bank Health Systems
Development—Glossary (World Bank
type of payment (or contribution
2006)
mechanism), and the agents that collect
these revenues. All funds for health care,
excluding donor contributions, are collected in one way or another from the general population
or certain subgroups. Collection mechanisms include taxation, social insurance contributions,
private insurance premiums, and out-of-pocket payments. Collection agents (which in most cases
also pool resources and purchase health care services from providers) could be government or
independent public agencies (such as a Social Security agency), private insurance funds, or
health care providers.

7-1
 Health Systems Assessment Approach: A How-To Manual

Notes: Figure 7.1 presents the most common flows of health system resources; some countries may have other options of health system financing. “Other
Government Agencies” can include the Ministry of Education and Ministry of Defense.

Figure 7.1 Health Financing Flowchart

7-2
 Chapter 7. Health Financing Module

Pooling of resources, the second main aspect of health financing, is the accumulation and
management of funds from individuals or households (pool members) in a way that insures
individual contributors against the risk of having to pay the full cost of care out-of-pocket in the
event of illness. Tax-based health financing and health insurance both involve pooling. Note that
fee-for-service user payments do not involve the pooling of resources. Some fees, however, may
be set to “cross-subsidize” certain services or groups by charging more than the cost of
production for a service or a group to allow less than the cost to be charged for another service or
to another group.

Purchasing of health services is done by public or private agencies that spend money either to
provide services directly or to purchase services for their beneficiaries. In many cases, the
purchaser of health services is also the agent that pools the financial resources. Purchasers of
health services are typically the Ministry of Health (MOH), Social Security agencies, district
health boards, insurance organizations, and individuals or household (who pay out of pocket at
time of using care). Purchasing can be either passive or strategic; passive purchasing simply
follows predetermined budgets or pays bills when they are presented, whereas strategic
purchasing uses a deliberate approach to seeking better quality services and low prices.

For good performance of the health system, the financing agents need to generate an appropriate
amount of revenues relative to what is possible in the country; pool risk effectively; create
appropriate incentives for providers; and allocate resources to effective, efficient, and equitable
interventions and services. These functions should be managed efficiently, minimizing
administrative costs.

Resources on health financing, including selected articles and references to specialized literature,
are provided in the bibliography for this chapter.

7.2 Developing a Profile of Health Financing

This section presents a basic model of health financing and discusses common country context
issues, related to decentralization, that the assessment team needs to consider in developing an
understanding of the financing process.

7.2.1 How Does Health Financing Work?

Figure 7.1 shows a general model of the flow of health care resources from sources of funds to
health service providers. The assessment team should redraw the flowchart as needed to reflect
country-specific characteristics of the health financing process. The payment mechanisms
presented by the arrows that connect the various levels of financing assessed are in the last part
of the indicators section. The assessment team is encouraged to customize Figure 7.1 for the
country of interest after completion of the indicator-based assessment of health financing
(Section 7.3). Customizing will facilitate the process of synthesizing the findings from this
module (Section 7.4).

7-3
 Health Systems Assessment Approach: A How-To Manual

The Ministry of Finance is typically the central revenue collector of funds for the public health
care system. The Ministry of Finance receives funds from foreign donors (in the form of grants
or loans) and from private firms and individuals (in the form of taxes). The pooling of resources,
the next step in health financing, is conducted by intermediaries and revenue managers, who
could be the MOH and other government agencies such as the Ministry of Education (in charge
of medical education institutions) and the Ministry of Defense (in charge of military health
facilities); social insurance and sickness funds; community-based insurance schemes; and private
insurance entities.

The MOH receives the government budget funds allocated for health from the Ministry of
Finance, but the level of government decentralization dictates whether all or only part of the
government health budget goes directly to MOH (see Section 7.2.2 in this chapter and the Core
Module in Chapter 5 for a more detailed discussion of decentralization issues). The MOH often
receives a large share of donor contributions for health as in-kind contributions (e.g., medicines
and technical experts). Other ministries or government agencies can also receive central
government funds for expenditures on health: for example, the Ministry of Education to fund
university teaching hospitals and the Ministry of Defense for medical facilities that are under its
umbrella. Social and private health insurers receive contributions in the form of insurance
premiums from individuals or households and from private firms that purchase or subsidize
insurance premiums for their employees. Social health insurance (SHI) organizations also
receive government funds, either as direct subsidies (usually when the SHI scheme is not self-
sustaining financially, which is often the case with nascent schemes) or as premium payments for
individuals who are eligible for government-subsidized SHI contributions (usually children, the
elderly, military recruits, civil servants, or the indigent or unemployed).

All intermediaries and revenue managers and individuals or households are purchasers of health
care services. The payment mechanisms used by health care revenue managers for each type of
provider vary across countries (and provinces or districts within countries) but the most
commonly used methods are the following.

• Line item budgets are allocated for each functional budget category, such as salaries,
medicines, equipment, and administration.

• Global budgets are allocated to health facilities and typically depend on the type of
facility, historical facility budget, number of beds (for hospitals), per capita rates, or
utilization rates for past years.

• Capitation is a payment method that allocates a predetermined amount of funds per year
for each person enrolled with a given provider (usually a primary care provider, such as
family physician) or resident in a catchment area (in the case of hospitals, for example);
usually there is a defined package for services covered by providers under such schemes.

• Case-based payment combines the estimated costs associated with all interventions
typically prescribed for the treatment of a given condition and involves a set payment to
providers for each patient treatment episode by condition, according to a predetermined
payment schedule based on estimated total cost.

7-4
 Chapter 7. Health Financing Module

• Per diem payment is a predetermined payment that providers receive for each patient-day
of hospital stay; the amount of the payment usually varies by type of hospital department.

• Fee for service (or user fee) is the out-of-pocket payment that patients make for each
health care service at the point and time of use.

7.2.2 Health Financing in Decentralized Systems

The level of decentralization of the general government or the public health care sector is an
important factor that can influence the patterns of resource flows through the health system, as
well as key issues related to, for example, service provision (such as the allocation of resources
across programs or budget categories) and provider incentives for quality of services.

Part A of Figure 7.2 shows the basic flow of government funds for the public health care sector
under general government decentralization. A portion of government funds allocated for the
public health care sector are distributed from the Ministry of Finance to the MOH, for general
programs administered by the MOH. The Ministry of Finance also allocates “grants” to
decentralized political units (such as local government administrations or district councils), who
then decide how much of these funds are allocated to health, among other sectors.

The funds from the Ministry of Finance to local government administrations are typically block
grants determined by a number of criteria such as share of total population or burden of disease.
Block grants may or may not include earmarks for health. If they do not, health competes at the
local government level with other sectors for budget resources. Alternatively, the Ministry of
Finance might pay certain recurrent costs of public health facilities such as the salaries of public
health sector employees, in which funds flow directly from Ministry of Finance to MOH
providers, and local governments do not have discretion over this part of health system
financing.

Part B of Figure 7.2 illustrates the flow of government funds for the public health care sector
under MOH decentralization. In this type of system, funds flow to providers through a hierarchy
of MOH administrative units, though salaries can sometimes be paid directly from the Ministry
of Finance. When funds are allocated wholly within the health system without regard to local
government decisions, the main resource negotiations are first between the central MOH and
districts or regions and second between the central MOH and the Ministry of Finance.

Both of these types of decentralization have strengths and weaknesses, and both can be managed
well or poorly. Each country’s health funding situation has to be examined on its own merits to
identify how well it functions for adequate generation of revenues for health and for effective
allocation of health resources to the service delivery level.

7-5
 Health Systems Assessment Approach: A How-To Manual

A. General Government Decentralization B. Ministry of Health Decentralization

Ministry of Ministry of
Finance Finance

Ministry of Local
Health government Ministry of
Health

Payment for specific costsa

Provincial
Health Other sectors (e.g., MOH division
education, transport,
social welfare)

District MOH
division
MOH Private
providers providers
MOH
providers

MOH institutions

a
In certain decentralized systems, MOH may continue to pay for certain costs at health facilities such as health
worker salaries and vaccines.

Figure 7.2 Flow of Government Funds for the

Public Health Sector in Decentralized Systems

7.3 Indicator-based Assessment

The indicators assessed in this module are organized in the two components described in Chapter
2. Component 1 has general health financing indicators, data for which can be obtained from the
data file titled “Component 1 data” (available on the CD that accompanies this manual and
discussed in Chapter 5.2) or from the Internet if you do not have access to the CD. Component 2
combines a desk-based assessment and stakeholder interviews to collect information on
additional health financing indicators. Stakeholder interviews should complement the
information collected from a review of documents and provide important information that may
not be available through document review.

7-6
 Chapter 7. Health Financing Module

Although the indicators in Component 1 are measurable indicators, the indicators in Component
2 are often descriptive questions about, for example, the process or practices related to a
government policy.

Note that this module is longer than the other

modules in the assessment. Not all indicators Box 7.1
Prioritizing Indicators
may be relevant in your country, however;
look for the screening questions placed If you are able to complete only part of this
throughout this section because they will module because of limited time or resources, do
guide you to skip over indicators that you may the following—
not need to assess. If you have limited time • First, assess indicators 1 through 6, because
and are not able to cover all indicators, refer to data for them are readily available in the CD
Box 7.1 for guidance on how to prioritize your database that accompanies this manual or
assessment work. from Internet sources.
• Second, assess indicators numbered 7, 10,
Note that answering a screening question “no” 11, 14, 15, 18, and A1 (in Annex 7A).
may indicate that an important aspect of • Third, if possible, assess all remaining
health financing is missing; you should indicators to get a more comprehensive
consider investigating the reasons why and picture of health system financing in the
defining some potential recommendations or country.
interventions to address this problem. For
example, if the country has no private health insurance market, a possible recommendation might
be that donors assist with the process of developing private insurance in the country.

7.3.1 Topical Areas

The indicators in this module are grouped around the three main functions of health financing
that were illustrated in Figure 7.1: (A) revenue collection: amount and sources of financial
resources; (B) pooling and allocation of financial resources; and (C) purchasing and provider
payments.

A. Revenue Collection: Amount and Sources of Financial Resources

This group of indicators looks at how much is being spent on health care in the country and how
much of this spending comes from public, private, and external donor sources. The health system
performance criteria addressed by these indicators are access, equity, quality, and sustainability.
All indicators in this group are Component 1–type indicators.

B. Pooling and Allocation of Financial Resources

For the purposes of this rapid assessment, the indicators on pooling and allocation of financial
resources focus on the government health budget and health insurance.

• Government budget allocation. These indicators look at the MOH budget trends, the
process of health budget preparation at various levels of health system administration,
and the distribution of central and local government funds across different types of
spending categories, services, and regions. The health system performance criteria

7-7
 Health Systems Assessment Approach: A How-To Manual

assessed in this group of indicators are sustainability, equity, efficiency, access, and
quality.

• Health insurance. These indicators investigate the different types of insurance schemes
(if any) operating in the country of interest, such as social, private, or community-based
health insurance schemes. The health system performance criteria assessed in this part of
the module are efficiency, equity, access, sustainability, and quality.

C. Purchasing and Provider Payments

This set of indicators analyzes the process by which funds are paid by purchasers to providers of
health services. The performance criteria assessed in this part of the module are access,
efficiency, equity, sustainability, and quality.

7.3.2 Detailed Descriptions of Health Financing Indicators

Table 7.1 groups the indicators in this module by topic.

Table 7.1 Indicator Map—Health Financing

Component Topical Area Indicator

Numbers

Component 1 Revenue collection: amount and sources of financial resources 1–6

Pooling and allocation of financial resources—Government
7–14
budget allocation
Pooling and allocation of financial resources—Health insurance Not applicable—
Component 2 indicators
included in Annex
7A only
Purchasing and provider payments 15–18
Annex 7A.
Health Insurance: Coverage, Funding, and Policy Issues
— A1–A4

7-8
 Chapter 7. Health Financing Module

7.3.2.1 Component 1

For all indicators that are part of Component 1, you may want to do regional comparisons, where
possible (some regional averages are provided in Annex 5A). Regional comparisons are often
used to suggest where a country fits in relation to neighbor countries or countries in the same
region with similar economic and population profiles. Regional comparisons, however, may not
necessarily offer good benchmarks when a country has important differences in, for example,
standards of living, per capita incomes, structure of health system, and extent of donor
contributions.

A. Revenue Collection: Amount and Sources of Financial Resources

1. Total expenditure on health as % of GDP

Definition, rationale, The percentage of gross domestic product (GDP) spent on health is a measure
and interpretation of the share of a country’s total income that is allocated to health by all public,
private, and donor sources.

A standard measure used for international comparisons, this indicator typically

ranges between 2 and 15 percent of GDP spent on health. An extremely low
percentage of GDP spent on health suggests that not enough resources are
mobilized for health, that access to health care is insufficient, and that the
quality of services is poor. An extremely high expenditure suggests a
widespread use of high technology and likelihood of inefficiencies. There are,
however, no commonly accepted benchmarks or targets for an appropriate
percentage of GDP that a country should spend on health.

Module link: Core Module, indicators 12 (GDP per capita) and 14 (total health
expenditures per capita)

Suggested data WHO (2006). The World Health Report 2006 <www.who.int> or most recent.
source

2. Per capita total health expenditure, at average exchange rate (USD)

Definition, rationale, This indicator reflects the average amount of resources spent on health per
and interpretation person. It is another standard measure that can indicate whether spending on
health is adequate to achieve appropriate access and quality. According to the
report of the Commission on Macroeconomics and Health (WHO 2001),
providing minimal essential health care services would require expenditure in
2007 of at least 34 U.S. dollars (USD) per capita per year in low-income
countries. Countries with relatively low per capita spending (e.g., below USD
30 per capita) are likely to have poor access, a low quality of health care, or
both.

Module link: Core Module, indicator 14 (total health expenditures per capita)

Suggested data WHO (2006). The World Health Report 2006 <www.who.int> or most recent.
source

7-9
 Health Systems Assessment Approach: A How-To Manual

3. Government expenditure on health as % of total government expenditure

Definition, rationale, This indicator illustrates the commitment of government to the health sector
and interpretation relative to other commitments reflected in the total government budget. The
allocation of government budget to health is subject to political influences and
judgments about the value of health spending relative to other demands for
public sector spending. A relatively large commitment of government
spending to health (e.g., above 20 percent) suggests a high commitment to the
sector.
Suggested data
WHO (2006). The World Health Report 2006 <www.who.int> or most recent
source

Notes and caveats Trends over time are a more reliable measure of the reliability of government
spending on health, as a share of total government spending, than any single
year. (See indicator 7c.) Note as well that if the country has a Social Security
scheme, its funding for health is included as government funding, even though
a large share of it comes from private sources (individual and employee
mandatory contributions).

4. Public (government) spending on health as % of total health expenditure

Definition, rationale, This indicator is a measure of the relative contribution of central and local
and interpretation government, relative to total health spending. If the percentage is relatively
low (i.e., below 40 percent) it can reflect (1) a low tax capability of the
country’s government, (2) a philosophy of a limited role for government in
health (i.e., that public spending should not play a large role in financing or
providing health services for the population), or (3) both. A low value for this
indicator also means that the government has limited ability to act to address
equity issues.
Suggested data
source
WHO (2006). The World Health Report 2006 <www.who.int>

Notes and caveats Trends over time are a more reliable measure of the reliability of government
spending on health as a share of total health spending than any single year.

5. Donor spending on health as % of total health spending

Definition, rationale, The share of total health spending financed by donors measures the
and interpretation contribution of international agencies and foreign governments to total health
spending. A very high donor contribution to a country’s total health spending
(e.g., above 10 percent) is a concern for financial and possibly institutional
sustainability if the donor contributions are withdrawn.
Compare this indicator to government health spending as a percentage of total
health spending (indicator 4) to assess the sustainability implications of the
share of donor spending. Very high donor health spending suggests that the
government would have to increase its health spending by a large proportion to
replace donor contributions, should they be withdrawn, to avoid placing the
burden on private spending.

7-10
 Chapter 7. Health Financing Module

5. Donor spending on health as % of total health spending

Suggested data
WHO (2006). The World Health Report 2006 <www.who.int>
source

Notes and caveats Because donor contributions are in foreign currencies and the country’s
government spending is in local currency, this percentage can be affected by
fluctuations in exchange rates.
Because donor contributions can fluctuate with political situations, they can be
subject to frequent changes in amount, target of spending assistance, or both.
Therefore, trends over time are a more reliable measure of the reliability of
donor spending on health (and of the country’s dependence on donor
spending), than any single year.

6. Out-of-pocket spending as % of private expenditure on health

Definition, rationale, This indicator represents the expenditures that households make out of pocket
and interpretation at the time of using health care services and purchasing medicines, relative to
total private spending on health. Out-of-pocket expenditures exclude payment
of insurance premiums, but include nonreimbursable insurance deductibles,
co-payments, and fees for service.

Module link: Core Module, indicator 16 (Out-of-pocket expenditures as

percent of private expenditures)

If out-of-pocket spending represents a large share of private health spending

(e.g., above 80 percent), pooling of private resources is limited. It means that
most of the time households need to produce funds at the time of seeking care,
which can be a barrier to accessing care and can threaten the financial status of
the household (e.g., push some into poverty).

In lower income countries, out-of-pocket spending usually represents a very

high or nearly all of total private spending on health.

Suggested data WHO (2006). The World Health Report 2006 <www.who.int>
source

7-11
 Health Systems Assessment Approach: A How-To Manual

7.3.2.2 Component 2

While Component 1 indicators covered revenue collection (topical area A), Component 2
indicators will cover the pooling and allocation of financial resources (topical area B), and
purchasing and provider payments (topical area C).

B. Pooling and Allocation of Financial Resources

For the purposes of this rapid assessment, the indicators on pooling and allocation of financial
resources focus on the government health budget allocation and health insurance.

Government budget formulation and allocation. In most countries, several government

ministries have health services or activities included in their budgets (e.g., Ministry of Defense
for military health, Ministry of Education for medical education). For purposes of the rapid
assessment, the following section concentrates only on the MOH budget because that is available
to the whole population and is usually the major source of recurrent health spending (see Box 7.2
for definitions).

Box 7.2
Definition of Recurrent and Investment Budget

The recurrent budget includes costs incurred on a regular basis. Examples of recurrent costs
in health are personnel salaries, medicines, utilities, in-service training, transportation, and
maintenance.

The investment budget includes costs for purchase of assets that are used over many years.
Examples of investment costs in the health sector are construction of new health care facilities,
major renovations, or the purchase of medical equipment. The investment budget for health is
quite often developed and executed by Ministries of Planning, especially when it is done in
coordination with donor investment or capital cost grants.

7-12
 Chapter 7. Health Financing Module

7. Ministry of Health budget trends

a. Do MOH expenditures keep pace with inflation and with population growth? Inflation
(measured by the consumer price index) and rate of population growth are indicators
included in the Core Module.
b. Does the country have any mandated level of public spending on health as percentage of
total public spending? If not, is the MOH share of the total government recurrent budget
increasing or decreasing?
c. What percentage of the total public health budget is for capital investments?
d. What is the trend in difference between the authorized budget and actual expenditures?
Definition, rationale, These four indicators related to trends in MOH budget spending are common
and interpretation measures to indicate whether the MOH budget is a sustainable source of
funding for the health sector.
a. If annual actual or planned expenditure is not increasing at the same rate as
the annual general price level plus the rate of population growth, then there
is a real decrease (decline in purchasing power) of resources allocated by
the MOH. It cannot provide the same level of services to people that it
provided in the previous year(s).
b. If the MOH share of total government budget is decreasing, this trend
indicates a decrease over the years in commitment of the government to
fund health.
c. Capital investment includes assets such as physical infrastructure and
medical equipment. In low-income countries, capital expenditures can be
as high as 40–50 percent of the total public health care budget if, for
example, the physical infrastructure is being created or restored after years
of conflict. Knowing how much capital investment occurs, in comparison
with recurrent costs, is important to ensure that capital is not wasted or is
not draining off funds needed for other inputs (e.g., if many new health
facilities are built but no funds are available to staff them and supply
medicines).
d. If actual is less than planned or authorized expenditure, then the budget is
unreliable and unpredictable as a source of funds for health. In this case,
salaries tend to be paid late and medicine allotments tend to be less than
needed. Actual expenditures are rarely higher than planned expenditures
(if they are, budget controls and financial management are most likely the
problem).
Suggested data Government budgets
source

Notes and caveats In countries with sector-wide approach (SWAp) funding from donors, the
funds from donors are often channeled through the MOH budget. In this case,
examine changes in SWAp funding amounts when assessing MOH budget
increases or decreases.

7-13
 Health Systems Assessment Approach: A How-To Manual

Table 7.2 MOH Budget Trends: Authorized or Planned and Actual Expenditures
Year
Authorized or Planned Actual Expenditure
Budget Amount Percentage Amount Percentage Percentage
Change over Change over Difference from
Prior Year Prior Year Authorized
(+ or –)
Total MOH recurrent
budget
Total government
recurrent budget
Total MOH investment
budget

8. Process of MOH budget formulation

a. Are MOH budgets developed based on last year’s or historical totals, or are budgets
developed based on estimates of resources required to meet the population’s health
needs?
b. Is budget planning done centrally or is the budgeting process bottom-up, beginning at
the district or local level (i.e., accumulation of district or local budget planning requests)?

Definition, rationale, a. When budgets are historically based, they usually allocate funds based on
and interpretation the number of hospital beds or health workers without regard to the
occupancy rate of different hospitals or different utilization rates of the
clinics across the country; they simply reflect the amount of funding from
the previous year, with a possible adjustment for inflation or changes in
overall government spending. “Needs-based” MOH budgets, conversely,
are built each year from estimates of the population’s health service
delivery needs (along with needs for public health prevention; disease
control; information, education, and communication; and other programs)
according to epidemiological and health profiles in the various localities in
the country.
Over time, historical budgeting does not reflect changing needs, and it
becomes out of step with funding requirements. Thus, it tends to lead to
inefficiency with more funding allocated to some functions than needed and
less to others.
Needs-based budgets are more likely to reflect actual use and funding
requirements for population and inflation changes and, subsequently, are
more likely to lead to allocation of funds to facilities, districts, and regions
where the funds are needed. Similarly, needs-based budgeting can point to
underused hospitals and other facilities that can be closed or consolidated.
b. Historical or needs-based budgets can be developed centrally, with little
input from local levels and facilities, or they can be developed from the
bottom up, with budget requests coming from districts to regions, provinces,
or states, and then to the central MOH and finally to the Ministry of
Finance.

7-14
 Chapter 7. Health Financing Module

8. Process of MOH budget formulation

a. Are MOH budgets developed based on last year’s or historical totals, or are budgets
developed based on estimates of resources required to meet the population’s health
needs?
b. Is budget planning done centrally or is the budgeting process bottom-up, beginning at
the district or local level (i.e., accumulation of district or local budget planning requests)?

Bottom-up budgets, if based on local resource requirements for the health

needs in that area, are more likely to reflect actual health funding needs. If
these budgets are done well and eventually approved and executed, funds
are more likely to be allocated effectively and specific local services more
likely to be sustainable.

Suggested data MOH budgets, stakeholder interviews

source

Stakeholders to MOH and Ministry of Finance officials

interview

Issues to explore Although bottom-up budget preparation approach may exist as a policy,
examining the practice to see if local input actually influences central MOH
decision-making is important.

Tip!
Note that the following indicators on MOH and central or local government budget (indicators 9
through 14) refer to recurrent cost budgets, unless indicated otherwise.

9. MOH budget allocation structure

What structure does the MOH use to allocate its budget? Line items? Programs? Other?

Definition, rationale, Line-item budgets allocate funding by object class (e.g., salaries, electricity,
and interpretation fuel, medicines, rent). Program budgets allocate funding by program or service
delivery area (e.g., Expanded Program on Immunization, TB, HIV/AIDS
prevention and treatment, maternal health care or broadly defined primary
health care [PHC], prevention, or curative and inpatient hospital care).

Line-item budgets provide no way to monitor and track the effectiveness or

sustainability of spending allocated according to the service delivery and
health outcomes that a health budget is funded for. Program budgets do
provide a way to track whether spending is achieving the intended results.
Program budgets also provide a way to evaluate whether funding is being used
efficiently for priority services and health policy initiatives.

Suggested data MOH budgets

source

Stakeholders to MOH officials

interview

7-15
 Health Systems Assessment Approach: A How-To Manual

9. MOH budget allocation structure

What structure does the MOH use to allocate its budget? Line items? Programs? Other?

Issues to explore What criteria do Ministry of Finance officials require and rely on for approval
of MOH budgets? Does the MOH have any evaluation process to assess
whether the budget is allocated appropriately to achieve policy and program
goals in the five-year health plan?

Screening question: Do local government authorities have responsibilities for health in systems in
which general government is decentralized? Does the central government allocate to local government
administrative authorities funds that are specifically earmarked for health? If the answer to both
questions is “no,” then proceed to indicator 12.

10. Central and local government budget allocations for health in decentralized systems
a. How does the central government allocate funds for health to lower level administrative
units such as states, regions, provinces, and districts?
b. Do local government units have local taxing authority? If so, do they appropriate funds
for health? Do they have any other method of local public funding for the health sector?

Definition, rationale, a. Alternative methods of allocating central funds to local levels have different
and interpretation incentives for the local levels to use those funds for health. Block grants
from the central government are the most common forms of allocating
funds to local levels in systems where general government administrative
authorities are decentralized.
If grants are earmarked for health and if those earmarks are adjusted for the
locality’s health needs (e.g., adjusted for population or socioeconomic
indicators), the funds are more likely to be spent on health, reflect equity
considerations, and maintain (or improve) the local population’s access to
health services.
b. If local governments also have taxing authority and can raise and allocate
additional funds for health, this capacity increases the possibility of
sustainable and adequate health funding.
In general, experience to date suggests that in the early years of
decentralization, funding for health and especially for priority PHC services
may decline or become unreliable, thus affecting access and sustainability.
If wealthier local governments provide additional health funding from their
own budgets, inequality across districts or regions can increase.
Suggested data Central and local government budget data, stakeholder interviews
source
Stakeholders to MOH, Ministry of Finance, and Ministry of Local Government
interview Local government officials, local health administrative units
Issues to explore Describe the combination of sources of funding for health at the local level
(central government grant, local government tax-financed budget, MOH
contribution toward salaries and other expenses). Review recent funding trends
in central government allocation to local administrations to see if this
mechanism promotes reliable funding for health and equity of distribution of
central government health funding across the country.

7-16
 Chapter 7. Health Financing Module

11. Percent of government health budget spent on outpatient/inpatient care

Definition, rationale, This is a general indicator for the sustainability of outpatient care funding
and interpretation through the MOH budget. The MOH budget allocated to inpatient care often
crowds out funding for outpatient care (and thus PHC services), especially in a
tight MOH budget situation.

Although public spending for inpatient care is generally higher than for
outpatient care, no standard benchmarks exist to define an appropriate,
sustainable, or efficient ratio between these two main categories of services.
Trends are likely to be more important for interpreting the implications of the
ratio than funding in any one year. If the share allocated in the MOH budget
for outpatient services declines over time, or periodically, it means that
outpatient care is being cut in favor of inpatient spending. This cutback, in
turn, can reflect either a decreasing priority of outpatient care for the
government or changes in the disease profile of the population that require
more inpatient care.

Suggested data MOH budgets (you may have to do this estimate manually, with assistance of
source MOH staff), National Health Accounts (NHA) if available
Module link: Health Service Delivery Module, indicator 17 (primary care or
outpatient visits per person per year)

Stakeholders to MOH officials, staff involved in NHA if available, representatives of donor

interview agencies who may be taking the lead in outpatient or hospital services

Issues to explore Donor funding is frequently targeted toward PHC and related outpatient care
services. Examine whether this targeting is the case and whether the
government MOH budget may thus provide less funding for PHC and other
outpatient care because it is relying on donors to cover those costs.

Notes and caveats Although a common indicator for spending by level of health services
distinguishes between PHC and hospital care, comparing spending on
outpatient and inpatient services instead is preferable to account properly for
PHC services that are provided at outpatient departments of hospitals (and to
avoid overestimating the expenditures on inpatient hospital care). In addition,
the definition of outpatient care is more straightforward than the definition of
PHC, which varies widely across countries, and a standardized NHA measures
outpatient and inpatient care expenditures.

If obtaining data on the breakdown between inpatient and outpatient

government spending is difficult, consider instead the percentage of the budget
allocated to hospital and non-hospital facilities as a proxy for this indicator.

7-17
 Health Systems Assessment Approach: A How-To Manual

12. Percent of government health budget allocation in rural/urban areas

Definition, rationale, The proportion of the government health budget spent in rural and in urban
and interpretation areas, relative to the proportion of the population living in rural and urban
areas (from Core Module) is a common indicator of how equitably public
health resources are allocated. Typically, the proportion of public spending on
health in urban areas is high relative to the proportion of the urban population.
In addition, since the cost per capita of serving dispersed populations in some
rural areas may be higher, such patterns of resource allocation further
exacerbate inequities of access between rural and urban populations.

Suggested data MOH budget

source You may need to analyze the budget and spending estimates allocated
manually, in consultation with MOH budget officials. See if any studies have
been done (e.g., sponsored by donor organizations) that provide this
information.

Stakeholders to MOH officials

interview
Representatives of donor agencies who may be taking the lead in urban–rural
health inequities, poverty initiatives, or both
Issues to explore You can subtract spending on tertiary hospitals before disaggregating spending
between rural and urban areas. Tertiary hospitals are in urban areas but
expected to provide specialized services to both rural and urban residents.

13. Percentage of the government health budget spent on—

a. Salaries of health workers?
b. Medicines and supplies?
c. Other recurrent costs (e.g., administrative costs at central and district levels, in-
service training)?

Definition, rationale, The amount and shares of funding for salaries and medicines are the most
and interpretation relevant categories to assess for purposes of a rapid assessment.
Generally, as much as 70–80 percent of MOH budgets is allocated to salaries
and benefits, most of it for health worker salaries and benefits. When the
budget is not sufficient to cover the costs of medicines, people have to pay for
medicines separately at the public health facility or at a local private pharmacy,
and health workers do not have the wherewithal to treat patients. This shortfall
affects the quality of care, as well as equity.

Suggested data MOH recurrent cost budget

source
Module link: Pharmaceutical Management Module, indicators 3, (government
expenditures on pharmaceuticals) and 19 (value of government procurements
for drugs)
Stakeholders to MOH officials, particularly staff who have been involved in NHA estimates
interview (where available).

7-18
 Chapter 7. Health Financing Module

13. Percentage of the government health budget spent on—

a. Salaries of health workers?
b. Medicines and supplies?
c. Other recurrent costs (e.g., administrative costs at central and district levels, in-
service training)?

Issues to explore Even if a high proportion of the MOH budget is allocated to salaries, it may
not be sufficient to provide adequate pay to health workers. Examine also
whether salaries are paid on time and regularly. Compare the distribution of
spending to that of other countries with similar per capita income level, if
possible.

Notes and caveats This group of indicators is most easily measured from a line-item MOH budget
or an NHA that included this breakdown. If neither is available, the
calculations must be done manually in consultation with MOH budget
officials.

See also the Pharmaceutical Management Module (Chapter 10).

14. Local level spending authority

a. Do MOH health facilities have autonomy in making recurrent cost expenditures such as
procurement of supplies, gasoline, and medicines, and hiring of supplemental
personnel?
b. Does a system exist at the central, district, or facility level for tracking and auditing
budget expenditures?

Definition, rationale, a. Having authority to make decisions about allocating spending to the service
and interpretation delivery costs at the facility level is important to assure that funds are
prioritized and spent for needed items. This authority can be granted in line-
item budgets if the facility manager can reallocate among the designated
expenditure categories (e.g., from supplies to transportation for outreach). It
can also be made available in global budgets, which is generally the most
effective method. With a global budget, facility managers have the
discretion to allocate the total funds across uses according to their service
delivery needs.
b. Systems to track and audit expenditures against budget authorizations are
essential to good financial management and accountability, and can be key
to efficient management and allocation of resources.

Suggested data Key informant interviews

source
Module link: Pharmaceutical Management Module, indicator 16 (procurement
processes)
Stakeholders to
MOH central and local level administrators and managers
interview

7-19
 Health Systems Assessment Approach: A How-To Manual

14. Local level spending authority

a. Do MOH health facilities have autonomy in making recurrent cost expenditures such as
procurement of supplies, gasoline, and medicines, and hiring of supplemental
personnel?
b. Does a system exist at the central, district, or facility level for tracking and auditing
budget expenditures?

Issues to explore Exploring the different administrative and service delivery levels of the system
separately on this issue is important because different levels of facilities (e.g.,
health post, clinic, secondary, or tertiary hospital) may have different rules for
autonomy and expenditure tracking.

Notes and caveats In decentralized systems, different jurisdictions (zones, districts) may have
different policies regarding budget flexibility and cost control measures for
ensuring proper use of budgeted expenditures.

Health insurance. Three major types of health insurance may be available in the country—

• Social health insurance (SHI): a mandatory government-organized program that provides

a (usually) specified benefit package of health services to members. Usually funded by
payroll deductions from the employee and the employer and paid into a separate health
insurance fund.

• Community-based health insurance (CBHI): a voluntary program that provides (usually)

a specified benefit package of health services to members who pay premiums to a
community-based and community-managed health fund.

• Private for-profit health insurance: a voluntary program of a specified benefit package of

health services offered by private commercial insurance companies. Paid for by
premiums (and often co-payments and deductibles) that members pay to the insurance
company.

Screening Question: Do SHI, CBHI, or private for-profit health insurance exist in the country? If
yes, refer to the set of indicators in Annex 7A; otherwise proceed to Topic C (Purchasing and
Provider Payments).

C. Purchasing and Provider Payments

This section investigates user fees and performance contracting for health service providers.
Payment from the public sector to MOH health facilities and payments by health insurance
entities to providers were already covered in the previous section.

User fees are a form of payment (usually a fixed charge) for services, supplies, and medications
provided by health care facilities.

Performance contracts may be made between MOH and public or private providers. They relate
health worker pay or facility allocations to performance (measured by, for example, indicators of
quality of care, number of patients served, efficiency of resource use).

7-20
 Chapter 7. Health Financing Module

15. Policies for user fee payments in the public sector

a. Do patients have to pay fees for outpatient care: visits, medicines, supplies (e.g.,
bandages), and laboratory and other diagnostic tests?
b. Do patients have to pay for hospital inpatient care: fees for their stay (e.g., per day or per
admission); fees for doctors’ or nursing services; charges for medicines, supplies, and
laboratory and other diagnostic tests?
c. Do any policies remove the requirement for user fees for some patients using primary
care services?1 In particular, are fee exemptions or waivers provided for any—
• Sociodemographic groups, such as children under age 5, students, elderly, military
personnel, health care workers, or the poor?
• Health care services, such as immunizations, services included in a basic benefit
package (see Box 7.3), TB-DOTS, other chronic care?
Definition, The primary purpose of user fees in the public sector is to help facilities with cost
rationale, and recovery to improve quality and sustainability. Another function is to prevent
interpretation unnecessary use of services because cost-sharing discourages over-utilization of
health care or use of services at a higher level than necessary. At the same time, user
fees can add financial barriers to the use of services, especially for the poorest, thus
producing inequalities.
Fee waivers and exemptions can promote equity of financial access for the poor and
can promote use of services by priority population groups or people with conditions
requiring follow-up or continual care. Waivers and exemptions must be administered
well and accurately, however, and they must not erode the purpose of user fees in the
first place (helping to pay for the quality and availability of health services in the
public sector, especially when MOH budgets are constrained). For example, many
countries establish official user fees and then provide exemptions and waivers that
cover 80–90 percent of PHC visits.
Suggested data MOH policy documents; key informants
source
Module link: Health Service Delivery Module, indicator 16 (user fee exemption and
waivers); Pharmaceutical Management Module, indicator 38 (cost recovery methods)
Stakeholders to
MOH officials at central and local levels, facility managers
interview
Issues to Are fees are set nationally or locally? If locally, they may be more in line with the
explore in ability of the local population to pay the established level.
stakeholder
interviews Investigate whether formal criteria exist and have been promulgated for identifying
patients who are eligible for fee exemptions or waiver—especially whether clear
eligibility criteria exist for waivers for the poor (such criteria are often controversial
and difficult to establish).
Find out if the country has a mechanism to compensate facilities for the revenue
foregone when exemptions are granted. If not, the incentives are for the facilities to
give fewer exemptions.
Explore what effect user fees have on utilization of services for which fees are
charged, especially on utilization by the poorest. Reviewing evidence-based data and
evaluations or studies to assess this impact is especially important.

1
Although fee exemption and waiver policies may exist for inpatient hospital care, this issue is primarily raised with
respect to PHC services, especially priority services. For purposes of the rapid assessment, concentrate on PHC for
question 15c.

7-21
 Health Systems Assessment Approach: A How-To Manual

Box 7.3
Basic Benefit Package

A basic benefit package (BBP) is usually a defined group of essential

and cost-effective services provided by government health facilities.
BBPs of PHC services usually include the typical and routine services
provided at lower level health facilities, such as maternal health
services, preventive services for children (e.g., immunizations),
services related to integrated management of childhood illness, and
essential medicines. A BBP may cover selected hospital services when
lower level facilities have made a referral. Typically, BBP services are
free of charge for users.

16. Allocation of user fee revenues

a. Are all or a portion of user fee revenues retained at the facility where they are collected?
b. If so, are there guidelines for use of fee revenues? Describe the suggested or required
uses of fee revenue retained at facilities (e.g., to buy additional medicines, to subsidize
the poorest or give them fee waivers, to make infrastructure renovations, to provide staff
bonuses). Is there community participation or oversight for the use of fee revenues?
c. What is the average percentage that user fee revenue constitutes of non-salary operating
costs for hospitals and for PHC facilities?

Definition, rationale, If revenues from user fees can be used at the facility where they are collected,
and interpretation this promotes incentives to collect them, and fee revenue can lead directly to
improvements in quality and access to care.

User fees are typically established for purposes of increasing resources for
non-salary operating costs, especially when MOH budget allocations to
facilities for those purposes are low. If, on average, retained user fees
constitute a substantial percentage of non-salary operating costs of facilities,
then fees are likely to contribute significantly to the quality of services, as long
as the MOH (or local government in a decentralized system) is not offsetting
its budget allocation to the facility by the amount of user fees. Community
participation in the use of fee revenues can increase the probability that they
will be used to improve quality.

Suggested data Key informant interviews

source
Module link: Governance Module, indicator 29 (financial accountability of
public authorities); Pharmaceutical Management Module, indicator 38 (cost
recovery methods)

Stakeholders to MOH officials at central, district, and facility levels

interview

7-22
 Chapter 7. Health Financing Module

17. Informal user fees in the public sector

a. Are informal user fees (widely) practiced in the public health sector?
b. What is the typical form of informal fee payments?
c. To what extent are informal user fees a financial barrier to use of services?

Definition, rationale, Informal user fees in the public sector are fees that are not officially
and interpretation sanctioned, often called under-the-table payments. They can exist in the form
of cash, in-kind payments, or gratuities, and are often charged for access to
scarce items such as medicines, laboratory tests, and use of medical
equipment.

The amount of informal user fees that will be charged is difficult for patients to
anticipate and can act as a barrier to care, just as formal fees do. Allocation of
the revenue from informal user fees is subject to the discretion of the provider
and, as opposed to revenue from official user fees, may not be used to increase
the quality or access to public health services.

Suggested data Special studies; key informant interviews

source

Stakeholders to Representatives of donor agencies, nongovernmental organizations (NGOs),

interview and consumer advocacy organizations; users of health services (through focus
group discussions)

7-23
 Health Systems Assessment Approach: A How-To Manual

18. Contracting mechanisms between MOH and public or private service providers
a. Within the public sector (either MOH or social health insurance providers—or both), are
any contracting mechanisms or performance incentives used? If so, describe them.
Distinguish between inpatient hospital care and PHC, if relevant.
b. In the funding arrangements between the MOH and private health care providers, are any
contracting or grant mechanisms or performance incentives in place? If so, describe them.
Distinguish between inpatient hospital care and PHC and between private not-for-profit
(NGO, faith-based organizations) and commercial providers, if relevant.

Definition, Different provider payment methods give the providers different incentives for the
rationale, and quality and quantity of services they provide and the number of patients they serve.
interpretation These incentives affect quality, access, and efficiency. Often the payment method
is as important as the amount of payment.
Often, salaries are deemed to provide the least incentive for outstanding health
worker performance. Salaries are, however, the most common method that MOHs
use for public sector health workers. Sometimes MOH may assign MOH salaried
health workers to NGO facilities as a form of in-kind grant to such facilities.
Performance contracts sometimes exist in the public sector that relate health
worker pay, or facility recurrent cost budget allocations, to performance (e.g.,
percentage of children fully immunized, percentage of relevant patients receiving
family planning counseling, percentage of cases with correct diagnosis). These
performance criteria promote provision of services to attain coverage results the
MOH has set.
Performance contracting (sometimes called pay for performance) is becoming
more common in the arrangements between the public sector and private providers.
Traditionally, public payments to NGOs and other not-for-profit providers have
been in the form of a grant, without conditions for payment of the public funds.
Careful choice of performance criteria can improve the provider incentives for
quality, access for priority services or populations, and efficient use of resources.

Suggested data Key informant interviews

source
Module links: Core Module, section 5.3.4 (structure of government and private
sector in health care); Governance Module, indicator 40 (partnerships with
providers); Health Service Delivery Module, indicator 18 (private sector service
delivery)

Stakeholders to MOH officials and medical and nursing professional associations; NGOs and other
interview private providers receiving government (e.g., MOH or Social Security) funds for
service delivery
Issues to explore in Assess with key informants whether alternative or revised payment methods or
stakeholder health worker incentives may be needed.
interviews

Notes and caveats Distinguish between inpatient hospital care and PHC and between private not-for-
profit (NGO, faith-based organizations) and commercial providers, if relevant.

7-24
 Chapter 7. Health Financing Module

7.3.3 Summary of Issues to Address in Stakeholder Interviews

This section includes a summary listing of the types of stakeholders to interview in assessing the
indicators from Component 2 and the issues to address with each stakeholder. This process will
help the assessors in planning the topics to discuss in stakeholder interviews, as summarized in
Table 7.3.

Table 7.3 Summary of Issues to Address in Stakeholder Interviews

Profile of Stakeholders to Interview Issues to Discuss with Stakeholder

MOH officials (including staff involved in NHA Process of MOH budget formulation and allocation structure
preparation) by government health budget spending in rural and urban
areas; by levels of service (inpatient and outpatient care); and
by categories of recurrent costs, user fee policies in the public
sector (including exemptions), informal user fees, and basic
benefit package of services
Ministry of Finance officials Process of MOH budget formulation; ability of MOH to use
allocated funds
Social Security officials Details of SHI scheme: population coverage, funding
mechanisms, and provider payment mechanisms
Ministry of Local Government, local Relative priority of health in decentralized budget allocations;
government officials, local health administrative central and local government recurrent cost budget allocations
units for health, local taxation powers, local level budget spending
authority, user fee policies in the public sector (including
exemptions), and informal user fees
Representatives of donor agencies Sustainability of donor support; changes in donor support
(e.g., mix of project and in-kind, SWAp, general budget
support); government health budget spending by levels of
service (inpatient and outpatient care) and in rural and urban
areas; user fees (especially informal user charges)
Private insurers Details of private insurance schemes: population coverage,
funding mechanisms, provider payment mechanisms
CBHI committees Details of CBHI schemes: population coverage, funding
mechanisms, and provider payment mechanisms
Representatives of medical and nursing Provider payment mechanisms by government
professional associations, NGOs, and other
private providers receiving government funds
for service delivery
Public health facility managers User fee policies in the public sector (including exemptions),
informal user fees
Representatives of PVOs, NGOs, the media Overall perception of the government financing system,
including user fees, fee exemptions, informal charges; rural
and urban, outpatient and inpatient balances

7.4 Summarizing Findings and Developing Recommendations

Chapter 4 describes the process that the team will use to synthesize and integrate findings and
prioritize recommendations across modules. To prepare for this team effort, each team member

7-25
 Health Systems Assessment Approach: A How-To Manual

must analyze the data collected for his or her module(s) to distill findings and propose potential
interventions. Each module assessor should be able to present findings and conclusions for his or
her module(s), first to other members of the team and eventually at a stakeholder workshop and
in the assessment report (see Chapter 3, Annex 3J for a proposed outline for the report). This
process is iterative; findings and conclusions from other modules will contribute to sharpening
and prioritizing overall findings and recommendations. Below are some generic methods for
summarizing findings and developing potential interventions for this module.

7.4.1 Summarizing Findings

Using a table that is organized by the topic areas of your module (see Table 7.4) may be the
easiest way to summarize and group your findings. (This process is Phase 1 for summarizing
findings as described in Chapter 4.) Note that additional rows can be added to the table if you
need to include other topic areas based on your specific country context. Examples of
summarized findings for system impacts on performance criteria are provided in Annex 4A of
Chapter 4. In anticipation of working with other team members to put findings in the SWOT
framework (strengths, weaknesses, opportunities, and threats), you can label each finding as
either an S, W, O, or T (please refer to Chapter 4 for additional explanation on the SWOT
framework). The “Comments” column can be used to highlight links to other modules and
possible impact on health system performance in terms of equity, access, quality, efficiency, and
sustainability.

Table 7.4 Summary of Findings—Health Financing Module

Indicator or Findings Source(s) Commentsa
Topical Area (Designate as S=strength, (List specific documents,
W=weakness, O=opportunity, interviews, and other
T=threat.) materials.)

a
List impact with respect to the five health systems performance criteria (equity, access, quality, efficiency, and
sustainability) and list any links to other modules.

7.4.2 Developing Recommendations

After you have summarized findings for your module (as in Section 7.4.1 above), it is now time
to synthesize findings across modules and develop recommendations for health systems
interventions. Phase 2 of Chapter 4 suggests an approach for doing this with your team. In this
section, we discuss a list of common interventions seen in the area of health financing that you
may find helpful to consider in developing your recommendations.

7-26
 Chapter 7. Health Financing Module

A. Revenue Collection: Amount and Sources of Financial Resources

If the country is heavily dependent on donor spending, consider policy initiatives or reforms to
develop alternative methods for raising funding for health from domestic public and private
resources. In immediate post-conflict or rebuilding state situations, these measures would
typically be developed as longer term goals and phased in over a longer period than in other
more stable states and economies. For example, initiatives may need to be undertaken to increase
the MOH budget or to introduce user fees (with waivers for the poorest) in the public health
facilities. SHI and CBHI initiatives may also be appropriate.

If out-of-pocket spending is a large share of health spending in the country and if that appears to
be due to inadequate government funding (i.e., not deliberate ideological policy), consider—

• Alternative methods for cost-sharing along with initiatives to increase the MOH or SHI
budgets or both (e.g., more evidence-based budget formulation process, stronger budget
advocacy skills)

• Whether the use of informal user fees and design strategy for moving from informal to
formal user fees is widespread

B. Pooling and Allocation of Financial Resources

Government Budget Allocation. If MOH spending for inpatient and outpatient services appears
to be inequitable or out of balance, consider whether—

• Alternative financing methods might be appropriate, such as forms of insurance for select
populations or selected inpatient services or higher user fees with appropriate waivers and
exemptions for higher levels of service

• Reallocation of existing MOH spending may be appropriate

If a substantially higher portion of the MOH budget is spent in urban areas (relative to the share
of urban population in the country), policy initiatives or reforms for alternative financing
methods and allocation of the MOH budget may need to be considered.

If government budget allocations for medicines appear to be inadequate, consider adoption of

generic pharmaceutical policies and improved prescribing practices if appropriate. The purpose
of these options would be to make the best use of available resources for medicines. (This issue
is also covered in the Pharmaceutical Management Module, Chapter 10.)

If public sector facility managers do not have any authority for spending user fee revenues or
government budget allocations, consider policy initiatives to increase facility management
authority, such as fee retention policies or flexible budget allocations.

Health Insurance. If no or negligible public, private, or community-based insurance exists,

consider whether the situation warrants greater investment in, or more analysis of, expanded risk
pooling.

7-27
 Health Systems Assessment Approach: A How-To Manual

If substantial social insurance exists that excludes coverage for informal sector workers, consider
alternative allocations of MOH budget spending to target excluded workers if their access to
health care appears to be substantially lower than covered workers and households.

If a basic benefit package exists that provides selected services free of charge at the time of use,
consider risk-pooling mechanisms for high-cost, high-risk services outside of the package.

C. Purchasing and Provider Payments

If government contracting with private providers appears ineffective, inefficient, or hard to

achieve despite government support for it, consider whether the form of provider payment or
contracting needs to be altered to provide greater incentives.

If formal user fees appear to have a negative impact on utilization of PHC or other priority health
care services in the public sector, consider—

• Strengthening the waiver and exemption systems

• Examining the process for setting the level of fees at PHC and hospital facilities

• Evaluating the perceived quality of health care services

• Exploring the willingness and ability to pay for different types and levels of health care
services

D. Cross-Cutting Issues

If policy initiatives are already under way to address major health care financing issues, consider
whether (additional) evaluation design or implementation would be appropriate and if
(additional) technical assistance would be appropriate.

Consider using neighboring countries in the region that perform better on key indicators of
interest to policy makers as a site(s) to be analyzed to see if their methods are replicable; if so,
consider these sites for study tours.

For any financing intervention proposed, consider—

• Evaluating the incentives it provides to both provider and to consumer

• Incorporating complementary quality; information, education, and communication; and

other interventions that may remove the nonfinancial barriers that may be strong barriers
to use of services

7-28
 Chapter 7. Health Financing Module

Bibliography

Bennett, S., and L. Gilson. 2001. Health Financing: Designing and Implementing Pro-Poor
Policies. London: DFID Health Systems Resource Center.

European Observatory on Health Systems and Policies. 2006. “Glossary.”

<http://www.euro.who.int/observatory/glossary/toppage> (accessed Sept. 22, 2006).

Gottrett, P., and G. Schieber. 2006. Health Financing Revisited: A Practitioner’s Guide.
Washington, DC: World Bank.

Mossialos, E., and A. Dixon. 2002. Funding Health Care: An Introduction. In Funding Health
Care: Options for Europe, E. Mossialos, edited by A. Dixon, J. Figueras, and J. Kutzin. Open
University Press. <http://www.euro.who.int/observatory/Publications/20020524_21> (accessed
Sept. 22, 2006).

PHR (Partnerships for Health Reform). 1999. Alternative Provider Payment Methods: Incentives
for Improving Health Care Delivery PHR Primer for Policymakers Series. Bethesda, MD: PHR

Schieber, G., and A. Maeda. 1997. A Curmudgeon’s Guide to Financing Health Care in
Developing Countries. In Innovations in Health Care Financing: Proceedings of a World Bank
Conference, March 10–11, 1997, edited by G. Schieber (World Bank Discussion Paper No. 365).
Washington, DC: World Bank.

Sekhri, N., and W. Savedoff. 2005. Private Health Insurance: Implications for Developing
Countries. Bulletin of the World Health Organization 83: 127–34.

WHO (World Health Organization). 2000. Who Pays for Health Systems? In World Health
Report 2000. Geneva: WHO.

———. 2001. Macroeconomics and Health: Investing in Health for Economic Development.
Geneva: WHO.

———. 2006. World Health Report 2006. Geneva: WHO. <http://www.int/whr/2006/en/>

(accessed Sept. 22, 2006).

World Bank. 2006. “Glossary.”

<http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTHEALTHNUTRITIONANDP
OPULATION/EXTHSD/0,,contentMDK:20218439~menuPK:459277~pagePK:148956~piPK:21
6618~theSitePK:376793,00.html> (accessed Sept. 22, 2006).

7-29
 Health Systems Assessment Approach: A How-To Manual

Annex 7A. Indicators for Health Insurance Schemes

This annex is to be completed only if health insurance schemes exist in the country.

If the community-based health insurance or private for-profit health insurance (or both) exists
but covers very small populations or provides very limited coverage, it is not necessar, for
purposes of this rapid assessment to spend much time gathering data about them. Noting that
some small schemes exist is sufficient.

Health Insurance: Coverage, Funding, and Policy Issues

Use the guidelines for information and data collection provided in questions A1 through A4 to
fill in Table 7A1 and to develop a profile of any of the three major types of health insurance that
may be available in the country: social health insurance, private for-profit health insurance, and
community-based health insurance. Note that not all three types of health insurance may be
present in your country.

All countries face policy and implementation issues with respect to insurance. Elicit comments
from key informants about (1) any issues they have faced with respect to services and population
covered, the funding, provider payment mechanisms and subsides used, and (2) any policy or
implementation initiatives or reforms they are undertaking. Based on those discussions, identify
for further exploration analysis or study issues that would improve the design or implementation
of any of the three insurance types. For example, community-based health insurances are
typically very small but of increasing interest to governments and international donors.

Table 7A1. Characteristics of Insurance Schemes: Social Health Insurance, Community-

Based Health Insurance, and Private Health Insurance
Social Health Community-Based Private Health
Indicator
Insurance Health Insurance Insurance
A. Population coverage
• Members: who is covered?
• Percentage of total population
covered
B. Services covered
• Types of services covered
• Key exclusions
• Waiting periods
C. Funding mechanisms
• Sources of funding
• Government subsidies
D. Payment mechanism for providers
• Types of payment mechanisms
used
• Quality or accreditation
requirements for provider
payments

7-30
 Chapter 7. Health Financing Module

A1. Population coverage of health insurance

a. Who belongs to the scheme?
• Public employees?
• Formal sector (non-public) employees?
• Informal sector—urban and rural workers?
b. What percentage of the population is covered?
c. Who is entitled to benefits under the scheme?
• Only those people who pay premiums?
• People who pay premiums and all or some of their family members?

Definition, rationale, Generally, social and private health insurances cover primarily urban
and interpretation populations working in the formal sector for wages. Community-based health
insurance is often developed by rural and urban informal sector populations
who join together to help cover the costs of user fees in the public sector, the
private sector, or both.

The percentage of the population covered by insurance indicates the proportion

of the population with risk pooling that shares the costs of health care across
the healthy and the sick. Membership in risk pooling adds financial protection
against high costs of health care at the time of use and over time, compared
with paying user fees to a provider at any time that the need for health care
arises. It thus improves financial access and reduces the financial barriers to
use of the health care services that the insurance covers.

Suggested data Key informant interviews

source

Stakeholders to MOH, Social Security officials, private insurers, community-based health

interview insurance committees

Issues to explore If either of the two types of voluntary insurance (i.e., commercial private and
community-based health insurance) have existed for several years, exploring
their evolution over time is useful to see if population coverage has expanded.

A2. Services covered by health insurance

a. Which services are covered by the insurance (e.g., a basic package of ambulatory PHC,
hospital inpatient services)?
b. Are any priority health services (e.g., child immunizations, family planning, childbirth,
voluntary counseling and testing, antiretroviral therapy for HIV-positive patients)
excluded from the benefit package?
c. Is coverage provided for medicines and, if so, at what prices or co-payments?

Definition, rationale, The greater the range of health care services covered by insurance, the more
and interpretation financial protection that members have against high costs of health care. If an
insurance plan requires members to pay a significant co-payment at the time of
using a service, it will weaken the financial protection of the plan for members.

7-31
 Health Systems Assessment Approach: A How-To Manual

A2. Services covered by health insurance

a. Which services are covered by the insurance (e.g., a basic package of ambulatory PHC,
hospital inpatient services)?
b. Are any priority health services (e.g., child immunizations, family planning, childbirth,
voluntary counseling and testing, antiretroviral therapy for HIV-positive patients)
excluded from the benefit package?
c. Is coverage provided for medicines and, if so, at what prices or co-payments?

Suggested data Key informant interviews

source

Stakeholders to MOH, Social Security officials, private insurers, community-based health

interview insurance committees

Issues to explore If co-payments for covered services are very high, exploring how those
requirements may have affected utilization of covered services is important.
Also important is finding out if the government offers priority services (e.g.,
immunization, family planning) services free of charge at the time of use (e.g.,
as part of a basic benefit package). In that case, one would not expect to find
those services included in an insurance package.

A3. Funding mechanisms and sustainability of health insurance

a. Is the insurance adequately funded, or does it consistently have losses?
b. Does the government or any other entity (such as charities, NGOs) subsidize
membership for any groups? (For example, does it pay the premiums for the indigent or
elderly or contribute a general subsidy, such as from general tax revenue?)
Definition, rationale, a. Although many factors affect the financial sustainability of insurance, a key
and interpretation factor is whether a scheme is underfunded (e.g., because of adverse
selection of members, failure of members to pay premium installments,
financial mismanagement).
b. The poorest population groups are generally unable to afford either private
commercial or CBHI premiums and are typically not covered by SHI
because they are in the informal sector. If the government or charitable
organization subsidizes or pays the premiums to cover the poorest,
however, it extends the financial protection of insurance to them, thus
increasing equity of financial access.

Suggested data Key informant interviews

source

Stakeholders to MOH, Social Security officials, private insurers, community-based health

interview insurance committees

7-32
 Chapter 7. Health Financing Module

Tip!
See Section 7.2.1 for definitions of the
most common mechanisms that
purchasers of health services use to
pay providers.

A4. Provider payment mechanisms under health insurance

What are the mechanisms used by insurance schemes to pay health service providers?

Definition, rationale, Different payment mechanisms provide different incentives to providers. For
and interpretation example, fee for service promotes responsiveness and quality but may lead to
cost escalation and inefficiency. Capitation and case-based payment promote
efficiency and sustainability but may be problematic for quality.

Quality assurance is promoted if only the providers who are accredited or

licensed can be paid for services covered by the insurance plan.

Suggested data Key informant interviews

source

Stakeholders to MOH, Social Security officials, private insurers, community-based health

interview insurance committees

7-33
Health Systems Assessment Approach: A How-To Manual

7-34