Health Care Financing

Health Care Financing

Introduction

• Definition: Health care financing is the system by which funds are collected, pooled, and used to purchase health services. It comprises three core functions: revenue collection (how money is raised), pooling (how financial risks are shared), and purchasing (how funds are allocated to providers and services). 
• Effective financing improves access, quality and financial protection (reducing out-of-pocket catastrophic payments). (World Health Organization)
• Goals of good financing: achieve Universal Health Coverage (UHC) — equitable access to needed services of sufficient quality without financial hardship; promote efficiency, equity, financial protection, and responsiveness to population health needs. (World Health Organization)

Background — historical evolution & common models

• Historical shift: In many countries, health financing evolved from predominantly out-of-pocket, then to mixed public financing, social health insurance, or tax-funded systems, with increasing interest in pooling and prepayment to provide financial protection. International actors (WHO, World Bank, donor agencies) influenced policy choices in low- and middle-income countries (LMICs). (NCBI)
• Common models (with pros/cons):
• General taxation (tax-funded, NHS-style): high pooling, strong financial protection; depends on fiscal capacity and political prioritization. (NCBI)
• Social health insurance: payroll or contribution-based; good for formal workforce but problematic for the informal sector and equity unless heavily subsidized. (NCBI)
• Private insurance / voluntary insurance: often leads to risk selection and inequity; limited financial protection for low-income groups. (NCBI)
• Out-of-pocket payments (OOP): immediate payment at point of use; principal cause of catastrophic health expenditure and impoverishment. (World Health Organization)

Revenue collection, pooling and purchasing — levers and design choices

• Revenue collection: taxes (general, earmarked), social contributions, premiums, donor funds, user fees. Tradeoffs: predictability vs. progressivity; earmarking can improve visibility but reduce fiscal flexibility. (NCBI)
• Pooling: single national pool vs. fragmented pools. Larger, compulsory pools provide better cross-subsidization (healthy → sick; rich → poor). (NCBI)
• Purchasing and provider payment mechanisms: line-item budgets, global budgets, fee-for-service, capitation, DRG/case-based payments. Choices affect provider incentives (overuse, under-provision, cost control, quality). Strategic purchasing (linking payment to performance/outcomes) is an important modern reform objective. (NCBI)

Role of the World Bank in health financing

• Policy and financing partner: The World Bank provides lending, technical assistance and policy advice to strengthen health financing systems — supporting fiscal space analysis, design of insurance schemes, strategic purchasing, and primary care strengthening to progress toward UHC.
• Its work emphasizes linking macro-fiscal policy and health sector priorities (domestic resource mobilization, efficiency). (World Bank)
• Evolution of role: From limited involvement in earlier decades to becoming a major financier and policy actor in global health (projects spanning health systems, disease programs, and pandemic preparedness).
• The Bank now stresses catalytic financing and system reforms. (PMC)

Role of UNDP in health financing

• Capacity building and catalytic support: UNDP focuses on governance, institutional capacity, policy advice, and facilitating partnerships (including with Global Fund and national governments) for sustainable financing and health systems resilience.
• UNDP often supports countries to design sustainable, equity-oriented financing approaches and to mobilize domestic and external resources. (undp-capacitydevelopmentforhealth.org)
• Niche & comparative advantage: UNDP’s strength lies in governance, public financial management, and cross-sectoral approaches linking health financing to poverty reduction, gender equality, and resilience. (healthimplementation.undp.org)

Time-bound goals of India’s Eleventh Five-Year Plan (2007–2012) — health targets

• Context: India’s Eleventh Plan emphasized inclusive growth with measurable targets across poverty, education, health and infrastructure; the Plan explicitly set monitorable health indices and time-bound actions for the Plan period (2007–2012).
• Key health priorities included maternal and child health, immunization, nutrition, communicable disease control, and expansion of health infrastructure and human resources. (NITI AAYOG)
• Representative time-bound elements (selected):
• Strengthen NRHM (National Rural Health Mission) implementation to improve maternal and child indicators. (NITI AAYOG)
• Increase public spending on health (ambitious targets to progressively increase public health expenditure as % of GDP were articulated across planning documents). (NITI AAYOG)
• Expand access to primary care, immunization and essential services with measurable reductions in IMR, MMR and malnutrition over the Plan period. (NITI AAYOG)
• Note: The Eleventh Plan’s time-bound targets were ambitious but implementation varied across states; later policy packages (12th Plan, National Health Mission, Ayushman Bharat) sought to follow up on gaps. (NITI AAYOG)

Central Government Health Scheme (CGHS) — overview and financing aspects

• What is CGHS: A Government of India scheme providing comprehensive primary and specialist outpatient services, medicines, diagnostic services, and hospitalization benefits to central government employees, pensioners and certain other categories across designated cities through CGHS dispensaries and empanelled hospitals. It is a tax-funded entitlement scheme with user eligibility criteria. (CGHS)
• Financing & structure: Funded from central government budget allocations (no direct premiums for most beneficiaries); services are provided through government dispensaries and empanelled private hospitals/diagnostic centres. CGHS reflects an employer-based, entitlement model (contrasting with population-wide schemes). (CGHS)
• Challenges for CGHS: rising beneficiary numbers and cost pressures; urban concentration of services; portability and integration issues with newer national schemes (e.g., convergence with broader UHC initiatives). (CGHS)

Major concerns and challenges in health care financing (global & India)

• Insufficient public spending: Low public health expenditure (% of GDP) leads to high OOP payments and financial hardship; many LMICs under-invest in primary and preventive care. (World Health Organization)
• High out-of-pocket expenditure: Major cause of impoverishment; indicates weak pooling and inadequate prepayment mechanisms. (World Health Organization)
• Fragmentation of risk pools: Multiple small insurance schemes reduce cross-subsidization and increase administrative costs. (NCBI)
• Equity and coverage gaps: Informal sector, rural populations, and marginalised groups often left out of contributory insurance schemes unless subsidized. (NCBI)
• Provider payment incentives: Fee-for-service → over-provision; poorly designed payments can encourage low quality or cost escalation. (NCBI)
• Fiscal constraints & competing priorities: Macroeconomic shocks (e.g., COVID-19) can reduce fiscal space for health; maintaining sustainable financing during crises is challenging. (World Health Organization)
• Governance, corruption, and capacity constraints: Weak public financial management, poor regulatory oversight of private providers and insurance, and limited strategic purchasing capacity. (undp-capacitydevelopmentforhealth.org)

Recent trends in health care financing (last decade → present)

• Push toward Universal Health Coverage (UHC): Renewed global emphasis (WHO/World Bank) on UHC with financial protection as a core objective. Countries are reforming pools and purchasing to expand coverage. (World Health Organization)
• Large national insurance programs in LMICs: Example — India’s Ayushman Bharat / PM-JAY (AB-PMJAY) represents expansion of publicly financed health insurance for secondary & tertiary care; evidence on impacts (utilization, financial protection and quality) is being actively studied. (PMC)
• Strengthening primary health care financing: A shift toward financing comprehensive primary care (e.g., Health and Wellness Centres under Ayushman Bharat) to reduce hospital dependence and costs. (PMC)
• Strategic purchasing & payment reform: Movement from passive line-item budgets to performance-based contracting, DRG-like payment systems, capitation for primary care, and blended payment models to align incentives. (NCBI)
• Increased role of domestic resource mobilization and fiscal space analyses: International partners (World Bank, UNDP) working with governments to expand domestic financing and improve efficiency, especially after COVID-19 fiscal shocks. (World Bank)
• Public–private partnerships (PPPs) and private sector engagement: Governments increasingly engage private providers through empanelment, contracting, and regulatory arrangements; concerns remain about quality, cost-control and accountability. (Taylor & Francis Online)
• Digitalization and data-driven purchasing: Adoption of digital health IDs, interoperable claims systems and e-governance to reduce fraud and improve purchasing. (See program experience in national schemes.) (PMC)

Policy options / reforms commonly recommended

• Raise and sustain public spending on health (progressive taxation, reprioritization, innovative financing) to expand prepayment and pooling. (NITI AAYOG)
• Move toward larger, compulsory risk pools (or integrate multiple schemes) to improve cross-subsidy and equity. (NCBI)
• Strengthen primary health care financing & strategic purchasing (capitation, performance-linked payments) to improve efficiency and outcomes. (PMC)
• Improve governance, transparency and regulation for public funds and private providers; strengthen fraud detection in claims systems. (undp-capacitydevelopmentforhealth.org)
• Protect poorest and vulnerable groups through targeted subsidies and entitlements rather than reliance on voluntary insurance. (NCBI)

Illustrative country example — India (short synthesis)

• Trajectory: From NRHM and incremental public spending to Ayushman Bharat (Health and Wellness Centres + PM-JAY insurance) — representing a mixed strategy of strengthening primary care plus expanding insurance for hospitalization. Evidence on AB-PMJAY’s effect on financial protection and quality is emerging and mixed; scholars call for stronger primary care investment and better strategic purchasing. (PMC)
• Ongoing issues: Public expenditure as % of GDP remains a major policy lever; fragmentation across central/state schemes and integration of entitlements (for schemes such as CGHS) with national programs remains an operational challenge. (NITI AAYOG)

Key references & sources (selected, authoritative)

• WHO — Health financing overview and framing for UHC. (World Health Organization)
• World Bank — Health financing policy and country support. (World Bank)
• UNDP — Sustainable health financing and partnership roles. (undp-capacitydevelopmentforhealth.org)
• Government of India — Eleventh Five Year Plan (2007–12) (Plan documents with time-bound targets). (NITI AAYOG)
• CGHS official site — scheme details and coverage. (CGHS)
• Recent studies/reviews on Ayushman Bharat and primary health financing (peer-reviewed articles on PMC/NCBI). (PMC)

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