Health Care Financing in Developing Countries: Major Challenges
Ana Riskhatul Fitria
Faculty of Public Health, Universitas Airlangga, Mulyorejo, Surabaya, Indonesia
Keywords: Effective, Efficient, Health financing, Challenges.
Abstract: A basic function of government is to provide an effective and efficient health care service. The elements of
a health care system are resource inputting, management, organisation and financial support. These
elements as a determining factor of good service provision. On the other hand, health care financing is an
issue being faced by development countries. The aim of health care financing is to mobilise resources for
health and to improve access to effective and efficient service. This article has reviewed the available
literature related to health care financing in developing countries. The major challenge of health care
financing includes financial constraints, the inefficient allocation of health sector resources, and a lack of
management capacity. In order to achieve effective and efficient health care financing, this article has
concluded by recommending that there should be developments in health economics, civil service and
public sector reforms, as well as developments in financing the social sector, and managed-market health
care reforms.
1 INTRODUCTION
A basic function of government is to provide
effective and efficient health care service for all
citizens. For an effective and efficient health care
service to work, it must be well-funded. The fund
must be safe and protected from cheating and fraud.
In a developing country, the funding of a health care
service is a challenge. The health sector has an
important role in the development of a country.
Health care financing are the strategies involved
in paying for health care needs. The three functions
of health care financing are revenue collection from
various sources, the pooling of funds and the spread
of risks across larger population groups. This is as
well as the allocation or use of funds to purchase the
health service. The objectives of health care
financing are to make funding available, to ensure
choice when it comes to cost effective interventions,
to set appropriate financial incentives for providers
and to ensure that all individuals have access to
effective public health and personal health care.
As has been mentioned above, the health sector
has an important role in the development of a
country, so there is a relationship between health and
the economy of a country. There must be a balance
of expenditures between the health sector and other
sectors. There are two broad sources of health care
financing; public sources and private sources. Public
sources include general tax revenue, indirect taxes
incorporated into the selling price of goods or
services, taxes on lotteries and betting, domestic and
international deficit financing, external grants, and
social insurance. Private sources include households,
employers, private prepaid health insurance plans,
donations, and voluntary organisations or non-
governmental organisations. The funds are usually
processed by financing agents before reaching the
health service providers. Some of the agents in
health care financing involve the people of the
country as patients, providers like hospitals,
governments as a professional association, and the
purchase of care like that offered by insurance
agencies.
2 METHODS
This article has used a narrative review method. A
narrative review involves selected studies that are
compared and summarised on the basis of the
author’s experience, existing theories and models.
The results on a qualitative rather than a quantitative
level. The method of searching the literature in this
article is by search some keyword in the internet.
Some keyword used are health finance, health
118
Fitria, A.
Health Care Financing in Developing Countries: Major Challenges.
In Proceedings of the 4th Annual Meeting of the Indonesian Health Economics Association (INAHEA 2017), pages 118-122
ISBN: 978-989-758-335-3
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

financing, and health challenges. The objective of
this article is an issue review. An issue review is the
investigation of an issue in a specific field of
research. A narrative review also collects and
analyses data from studies that are included in the
review. The existing data is used as the material to
discuss related issues. In this article, the author
wanted to know about the issues and challenges
faced by developing countries related to health care
financing. This article contains health care
financing, issues, challenges, and solutions in some
developing countries.
3 RESULTS
3.1 Health Care Finance in Nigeria
The main financial sources of health sector in
Nigeria are the three tiers of government (Federal
State and Local Government), public general
revenue accumulated through various forms of
taxation, health insurance institutions, the private
sector, donors, and mutual health organisations.
There are some policies and strategies applied in
Nigeria to ensure that the health care sector have
adequate financial sources. These policies are to
ensure the government allocates and effectively
manages fund in the health care sector. Nigeria’s
policies and plans include the National Health
policy, the Health Financing policy, the National
Health Bill, and the National Strategic Health
Development Plan 2010-2015. The National Health
Policy aimed to strengthen the national health
system that it would be able to provide effective,
efficient, quality, accessible and affordable health
services that will improve the health status of
Nigeria.
There are multiple health care financing options
in Nigeria:
a. Tax Revenue
Tax revenue is a health financing system
where the main source of health care
expenditure cost comes from government
revenues. Public health facilities are financed by
public tax revenue. The Gross Domestic
Product (GDP) in Nigeria is the most important
determinant of health cost allocation. Nigeria
spends less than 5% of their GDP on health and
annual per capita. This health spending is less
than the US$ 35 proposed by the Commission
on Macroeconomics and Health (FRN, 2006).
b. Out of Pocket Payment
Out of pocket payments are payments by the
patients directly to a health care service
provider without reimbursement. The charges
for the health care services are referred to as
user fees. Private health spending accounts for
about 64% of total health expenditures and
could be more than US$ 23 per capita. Out of
pocket payments are the highest proportion of
health expenditure in Nigeria.
c. Donor Funding
Donor funding is external agencies and non-
governmental organisations such as the World
Health Organization, World Bank, and United
Nations Children Fund which provide funding
for health care. The contribution of donor
funding is increasing in the Nigerian health
sector. But, it still accounts for a small
proportion of public expenditures.
d. Health Insurance
Health insurance entitles insured persons and
their dependents the benefit of a prescribed,
good quality and cost effective health service as
set out by the insurance. Capitation is paid
monthly to the health centres from the pooled
funds. Community-based Health Insurance is
referred to as a mechanism whereby households
in a community finance or co-finance the
current or capital costs associated with a given
set of health services, thereby also having some
involvement in the management of the
community financing scheme and the
organisation of the health service. The common
characteristics, however, are that they operate
on a non-profit basis and apply the basic
principles of social health insurance.
e. Exemption
Exemption is a financial strategy where
vulnerable members of the community (mostly
toddlers and pregnant women) are exempt from
paying for health care services.
Nigeria still facing some challenges related to
public health care financing, such as:
a. Inadequate political commitment to health
causing poor funding of health in general, and
primary health care in particular.
b. Gaps in the area of stewardship and governance
caused by the lack of clarity on the role of
government at all levels in relation to health
care financing.
c. Inadequate or the non-implementation of health
policies that clearly spell out how funds are to
be allocated and spent in the health sector.
Health Care Financing in Developing Countries: Major Challenges
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d. Governance issues with the NHIS and poor buy-
in by the states that limits coverage.
e. Dominance of the out of pocket payments
presents the possibility of under or over supply
of services depending on financial abilities.
f. Non-exploitation of other sources of health
financing.
g. Several stakeholders acting independently and
not in accordance with the government’s policy
thrust.
3.2 Health Care Finance in Bangladesh
The Government of Bangladesh vision for the
health, nutrition and population sectors is to create
conditions in which the people of Bangladesh have
the opportunity to achieve and maintain the highest
attainable level of health. The Ministry of Health
and Family Welfare (MOHFW) provides health care
and family planning services through a number of
organisations, such as medical college hospitals,
specialised hospitals, district hospitals, Upazila
Health Complexes (UHC), Union Health and Family
Welfare Centres (UHFWC), rural dispensaries and
community clinics (CCs).
Health financing in Bangladesh is dominated by
private out-of-pocket expenditure. Social and private
insurance and official user fees in public facilities
comprise a very small proportion of total health
expenditure. The total expenditure in Bangladesh is
estimated at Taka 325.1 billion in 2012. Bangladesh
spends too little resources on health care. The total
health expenditure of GDP increased only slightly
from 3.3% to 3.5% between 2007 and 2012, which
increased of less than 1% in a decade.
Households paying fees are the main source of
healthcare financing in Bangladesh which accounts
for 63% of the total health expenditures by 2012.
The expenditure on health varied widely in various
administrative divisions in Bangladesh. It is clear
that there is a significant regional difference in
health expenditure in Bangladesh.
The MOHFW receives funds from the Ministry
of Finance (MoF) and the development partners, and
allocates funds to health facilities at different levels.
In Bangladesh, the government prepares two types
of budget; a revenue budget and a development
budget. The revenue budget is intended to meet
regular expenditures while the development budget
includes project-related allocations for development
spending. The revenue budget is larger, comprising
nearly three-quarters of the total budget. Both
budgets contain capital and recurrent spending.
The challenges faced in health sector are:
a. Ensure universal access to basic healthcare and
provide services of an acceptable quality
b. Improvement in nutritional status, especially of
mothers and children
c. Prevention and control of major communicable
and non-communicable diseases
d. Supply and distribution of essential drugs and
vaccines
e. Survival and healthy development of children
f. The health and welfare of women
g. Reduce the financial burden on households due
to increasing health care costs
3.3 Health Care Finance in Indonesia
Health financing in Indonesia is complicated by
decentralisation because the direct payment of
salaries and capital costs by all levels of
government. This clearly impacts on the hospital
reimbursement schedules used by insurers. Although
the concept at first appears simple, the districts are
responsible for implementing the health services.
The complexity of the flow of funds makes for an
intricate, inequitable, inefficient, and fragmented set
of financial flows. A study indicates that many poor
districts are receiving much higher levels of funding
than previously, but they have been unable to spend
the funds because of local absorptive capacity
constraints.
Indonesia has one of the lowest amounts of total
and government health spending according to the
share of GDP and the GDP spent on health (NHA
report, 2013). Social security and health financing
can be measured by the size of the health
expenditure by the public sector. The development
of the health sector is dependent on the financing
scheme of the universal health coverage system.
On the other hand, health insurance participation
remains low in Indonesia. The government estimated
that in 2008, formal health insurance covered only
48% of the population. At the beginning of BPJS in
January 1, 2014, the coverage under BPJS was a
little more than 112 million people. In the first 60
days, there were an additional 790,000 people
registering to BPJS from the informal sector. BPJS
has set the target that in 2020, all populations must
be covered by BPJS.
4 DISCUSSION
Based on the description of the three countries, the
problems faced are almost same. There are low
levels of health financing, uneven health services,
INAHEA 2017 - 4th Annual Meeting of the Indonesian Health Economics Association
120

corruption, and much more. The three countries are
facing similar problems because the three countries
stated above are developing countries. Developing
countries are countries whose welfare levels are still
low. On other aspects such as economy and
development, they have variation.
The demand for health will increase with time.
People want the best health care services. This is a
big challenge for the governments to create
conditions desired by the community. Health care
services are close to health financing. Each country
has its own financing system and sources of
financing and problems.
In Nigeria, the government must explore and
refine others’ sources of financing that are efficient,
equitable, fair and sustainable. Per capita, health
spending should increase to $60 to provide a
minimum range of services. Better mind-sets and
behaviour, pay-for-performance bonuses, incentive
programs and training will motivate health workers
to deliver high-quality care efficiently. The
implementation of health financing and actions
needs to be monitored and evaluated periodically.
The government of Bangladesh needs to expand
the tax base to generate more revenues and at the
same time explore ways to generate additional
resources for health. Bangladesh should prioritize
health and allocate a much greater proportion of its
budget for health care. Bangladesh also needs to
invest in improving the infrastructural facilities of
the health system. Social health insurance can be
initiated as a financing mechanism with the
objectives to strengthening financial risk protection,
and extending health services and population
coverage with the final goal to achieve universal
coverage.
The largest challenge faced by Indonesia is
uneven when it comes to the funding in many
districts. The government must simplify the funds
flow for them to be evenly distributed. The other
challenge is participations of health insurance
remains low. The Indonesian government is
committed to introducing universal health coverage
(UHC) by 2019 to cover the projected population of
257.5 million. The government needs to focus
greater attention in the design and to strengthen
engagements with local government, civil society
and other stakeholders to better support public trust
in the sustainability of the system.
Developing country also faced the number of
older person. The number of older is expected
increase from 249 million to 690 million between
2000 and 2030. The elderly are at high risk for
disease and disability. So, the developing country
must prepare for urgent demand relate to aging
population. Chronic disease makes up the world’s
burden of disease. The challenge for developing
countries is reorient health sectors toward managing
chronic disease and the special needs of elderly.
These countries should build a prevention way and
some program to delay the chronic disease, enhance
care for the chronic disease that plague elderly
populations, and improve quality of life for the
elderly population.
5 CONCLUSION
The method of health care financing is different for
every country. Health is vital to the development of
the country, so there is a need for adequate funding
for health sector. An overview of the reviewed
literature showed that in developing countries, a
greater percentage of health care financing comes
from out-of-pocket payments. Developing countries’
major challenge to do with health care financing
includes financial constraints, the inefficient
allocation of health sector resources, and a lack of
management capacity. In order to achieve effective
and efficient health care financing, it is
recommended that there should be developments in
health economics, civil service and public sector
reforms, including developments in the financial and
social sector, and managed-market health care
reforms.
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