Minimizing out-of-pocket payments as a source of financing for health and PHC
To ensure that people can afford PHC, policymakers should avoid relying on out-of-pocket payments. Out-of-pocket payments reduce people’s use of needed services, especially among the poor. When PHC is financed this way, a household’s ability to pay determines whether or not they use health services, and payment is often incurred exactly when the household is most vulnerable – at the time of sickness. Health systems funded on the basis of a large share of out-of-pocket payments tend to be regressive in who makes financial contributions, requiring a larger percentage of income from low-income earners than from high-income earners, as well as inequitable in who uses care and who experiences better health outcomes. 29 There is a large body of evidence concluding that user fees can negatively impact demand for health care 303132, contribute to household impoverishment, and promote general inequities in health access. 3334
While an individual primary care consultation may not be high-cost in absolute terms, out-of-pocket expenditure for primary care services can be prohibitively expensive for many people when the need for care becomes chronic or when medicines are needed (for instance, treatment for TB or routine care for chronic diseases). Spending on basic services can also sometimes be catastrophic (exceeding a substantial share of a household’s income or consumption, like 10% or 25%) or impoverishing (pushing a family below the poverty line or further into poverty). 353637
As a general guideline, PHC services should be funded by public funds with minimal cost-sharing for beneficiaries. To ensure that a person’s ability to pay does not determine their access to health care, health policymakers can reduce cost-sharing to finance health care (or rely on small fixed cost-sharing payment amounts rather than proportional cost-sharing); services can be offered free of charge to defined population groups with certain easily observable socio-demographic criteria (such as age or poverty status); or high-priority health services such as those at the primary care level can be provided free of charge. 38 See further discussion of targeting in the section below.
Moving towards compulsory prepayment and pooling for health care (including PHC), based on ability to pay
PrepaymentPrepayment refers to persons or households making payments to the health system before they need health care, not when they fall ill. means people are asked to make their financial contributions to the health system before they need health care, not when they fall ill. 1 To protect people from financial hardship associated with health care costs, health care contributions should be collected in advance in a predictable manner, unrelated to when health care is needed. Prepayment should rely on compulsory payments, such as taxes or national health insurance contributions.
Health systems should also strive to ensure that contributions to financing for health are based on households’ ability to pay. This aligns with the UHC objective of fairness in financing. A progressive system implies that those with higher incomes should contribute more, and the poor should contribute very little if anything. Raising revenues through progressive taxation (families with higher incomes or wealth proportionately are taxed more) or health insurance contributions based on a percentage share of income can help achieve this goal. 39
Finally, countries should move towards compulsory (rather than voluntary) prepayments for health care, and these funds should be pooled to purchase health care. Moving toward compulsory payments enhances redistributive capacity and also allows for cross-subsidization across the population. Evidence indicates that no country has achieved UHC based on a system organized around voluntary contributions. 40 Voluntary health insurance can provide some financial protection for those (often few) who are covered, but insurers have an incentive to exclude sicker, higher-risk individuals from coverage, and/or charge them higher premiums. As a result, those most in need of health services and financial protection may be unable to afford voluntary health insurance premiums and remain without adequate health coverage. 29 Moreover, voluntary health insurance creates many risks and potential spill-over effects for the rest of the health system, such as shortages of skilled health workers in government facilities and rising prices and costs across the health system. Therefore, “VHI needs to be managed and regulated in such a way that it contributes to equitable progress towards UHC, or at least does not harm such progress”. 41
There are various ways to pool funds and to address fragmentation (see for instance. 4042PoolingPooling is the accumulation and management of financial resources to ensure that the financial risk of having to pay for health care is borne by all members of the pool and not by the individuals who fall ill. The main purpose of pooling is to spread the financial risk associated with the need to use health services. serves to spread the financial risk associated with the need to use and pay for health services, so that this risk is not fully borne by the individual who falls ill. The desirable attributes of a pool are 1 large size in terms of the number of people covered by the pool, and 2 diversity of health risks within the pool. At best, the country’s pooling arrangement avoids fragmentation, which may be characterized by multiple segmented pools, health insurance coverage for the formal sector employees only, or multiple territorially overlapping pools. 42
Using targeting to ensure access and financial protection for disadvantaged populations
Various geographic, sociocultural, and economic factors limit access to PHC among poor and vulnerable groups, even if they are eligible “on paper” to have coverage. Targeting (actively identifying) those vulnerable groups and funding their coverage can expand access for those groups.
Targeting approaches can include means testing (identifying eligible households by measuring their income, housing characteristics, or assets), geographic targeting (identifying eligible households based on location, such as a malaria-endemic region or highly mountainous area with difficult access to health services), and characteristic targeting (identifying eligibility based on characteristics such as ethnicity, age, gender, education, pregnancy or disease). 43 Targeting can be used to exempt vulnerable groups from user fees at the point of care; this is more feasible if the eligibility criteria are based on easily observable characteristics, such as age, sex, or pregnancy status. Alternatively, the identification process could be handled outside the health facility and individuals could be provided with an exemption card.
Another approach is to enroll eligible groups in a health coverage scheme and have their “contributions” paid on their behalf by the government. 44 Ideally, eligible individuals should be pre-identified through other existing mechanisms 40 to minimize administrative costs. Various countries use a combination of characteristic targeting and means testing under this option.
Significant investments in infrastructure may also be needed to expand coverage to underserved groups. To ensure that targeted free care policies are successful, facilities will likely need increased funding to compensate for the loss of user fees and increased demand for care. New incentives for providing the “free” services and efforts to strengthen providers’ capacity to deliver those services are important. 38 In addition, the targeting process has administrative costs; targeting mechanisms require adequate administrative capacity to be effective and to minimize errors of inclusion or exclusion.