Challenges of Health Care Finance and Economics
Revenue collection and risk pooling are some of the main components of healthcare insurance sources of funds. Revenue collection is a process that enables the healthcare system to receive funds, usually in form of taxes or premiums, from households, organizations and donors. The mechanisms involved in the collection of funds include taxation, mandatory social health insurance , voluntary private health insurance contributions and out of pocket contributions from individuals. On the other hand, risk pooling involves spreading of financial risks linked to the healthcare system among large groups. Some of the mechanisms involved are the cross-subsidization of resources from the healthy individuals to the sick individuals or from the rich individuals to the poor individuals.
The countries with large informal sectors face significant challenges for heath financing systems including revenue collection and risk pooling. Such countries are also characterized by a majority of low income earners and increased levels of communicable diseases. As a result of the international focus on poverty reduction, there has been a shift from defining the basic package of cost effective health services to designing mechanisms on how to fund and deliver those services equitably and efficiently, to the recognition of the need to scale up systems to meet the basic service requirements and to the achievement of the Millennium Development Goals. All these require huge amounts of funds which such countries cannot afford.
Countries with large informal sector have average tax revenue, which poses a challenge when the government tries to carryout revenue collection because it is the most relied upon for financing the healthcare system. This is because this collection calls for greater public spending on the healthcares system, than in any other social service in a country. In addition, in countries with large informal sector, the government finds it difficult to apply policies that make it mandatory for all the citizens to contribute a certain insurance percentage from their salaries. This limits progressivity because, many people from a country with large informal sector, are able to forgo the tax and have their salaries without passing through the banking system, which makes it difficult for the government to track their income.
The challenge in risk pooling in countries with a large informal sector involves the large number of people with poor health conditions because of average and low living standards of the people. The government finds it challenging by collection funding from a smaller population to invest in the health sector of the larger population.
There are increased incidences of global alliances and institutions that are directed towards the alleviation of specific health sector deficiencies, and they get their financing from philanthropic organization; for example, the Global fund to Fight AIDS. Even though such alliances are generally positive, they are concerns about their effects on health systems and prioritization, this is because, they end up problematic in the light of the scarce human resources available for health in the large informal sectors.
The global funds have added new dynamics to the global health policy and have new influence on the countries with large informal sector. These countries approach world’s financial lenders like the World Bank for grants in order to finance their health sectors. Such funding is normally targeted to particular diseases or interventions. This factor has an impact on the coordination and harmonization of the donor funds with huge implications on the donor’s fiscal ceilings.