Health Care Financing For rural and Low income population

The most urgent and vexing problem around the world is how to finance and provide health care for the more than 1.3 billion poor in rural areas and informal sector of low and middle-income countries.

Their occupations range from farmers, peddlers, day labor, taxi drivers, employees of the informal sector to shop owners and self employed professionals. Most are poor and live in the rural communities there has been a recent shift to urban areas in many countries.

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This article focuses on mobilizing resources for the residents of rural communities, which make-up more than seventy percent and fifty percent of the population in low income and middle-income nations respectively. The article also gives some attention to mobilizing resources for the urban poor areas.

Today, these two billion people do not have adequate health care to meet their basic needs. Most countries try to serve this population by directly operating public clinics in rural areas, but it’s often difficult to get qualified practitioners to staff them. Staffs who accept to be posted to these clinics often work sporadically and/or they provide poor customer service, and the facilities lack drugs and supplies.

Sadly, when individuals become ill, they are frequently first forced to rely on home remedies of herbal medicines and/or self-medication with Western drugs. Where self-treatment is unsuccessful patients are compelled to seek and pay for expensive outpatient services from traditional halers, private practitioners and pharmacists.

For serious illness episodes the majority ultimately seeks care from the few public and charity hospitals located in the rural areas and consequently these secondary facilities are overcrowded.

In many countries, the patients have to pay for the inpatient hospital services, many patients have to bankrupt their family to pay for the services or forgo the treatment and die. Studies found higher proportion of women and children have to forgo medical treatments. Also, studies consistently found that the poor households pay a significant part of their income for health care, even when the government theoretically providing free or nearly free services.

Often more than 50 percent of the total national health expenditure for most low-income nations come from direct out-of-pocket payment by patients. Studies in several countries, including China found large medical expenditure (e.g. inpatient hospital services and costly outpatient drugs) is the major cause of poverty. These facts raise at least three serious questions.

First, is a nation spending a reasonable amount for its health? Many countries are not providing adequate funds for health care of the rural residents and urban poor. Can the governments spend more? It depends. Most low-income nations have narrow tax base and ineffective tax collection to yield large sums of general revenue. In deciding the share of the scarce general revenue spent on health, the political economy of most nations results in the inadequate public funding for the basic health care for the rural and ghetto households.

The industrialized nations (other than the United States) use general revenue or compulsory social insurance to pay and provide health care for their citizens working in the non-formal sector. Private insurance is not a viable option to cover them.

And, user fees are inequitable and create high barrier of access to health care for the poor. Whether foreign sources and domestic governments can allocate additional funds to support the health care of this population is being addressed.

Second, does a nation have the capacity to transform money into effective services for the rural and poor population? In many countries where the government is funding and providing free or nearly free services for the rural residents and the poor, the target population is not utilizing the health services publicly provided. This households use their mega income to pay for the services and drugs from the private sector. Why?

Detailed country studies in low income countries shows that governments are inefficient in their funding for public provision of primary health care at the village and township (sub-district) levels.

Public funds usually support the salaries of health workers, regardless of whether or not they are delivering satisfactory services, while funds allocated to the purchase of drugs and supply are inadequate. De facto, this practice creates a public employment program rather a health delivery program to meet patient’s need and demand.

And governments, in general, do not manage or monitor these public services adequately at the local level and therefore the services that are demanded and valued by the people are not produced. As a result, when people become ill, they pay to see the private practitioners and buy drugs.

Third, we know the amounts spent directly by the households have not purchased the most cost effective services. Can these resources be mobilized organized so they will be used in a more efficient and effective way? Out-of-pocket payment for private sector providers has some serious drawbacks.

First, there is no risk pooling. Second, patients have to pay whatever private practitioners and drug peddlers charge. At the village level, the prices can be high since the population size would not likely to be able to have a few providers competing with each other. At the sub-district (township) level, the competition is also limited because of population size.

Also, the health service market suffers from well documented market failures that can result in price gouging, poor medical quality, and induced demand for drugs sold at a high profit. It’s self-evident that if the households are willing to prepay the amount that they are paying out-of-pocket now into an organized financing scheme, collective gains can be obtained. The organized fund could pool risks and improve the quality and quantity of health care that amount of money have brought before.

Combinations of the above three problems cause the unmet health needs around the world. We must identify the different combination that causes the problem since they need very different policies remedies. For many very low-income countries in Africa, the causes for their unmet health needs are clear: under-funding as well as the inability of their health systems to transform their money into effective health care for the rural and poor population.

Meanwhile, India, China, Egypt and Kenya spend reasonable amount but their health systems are not able to transform the money into effective services for the rural and poor population. In contrast, Sri Lanka spends a modest amount and has produced enviable results in health status and risk protection. As a result, we have some confidence that additional public spending by Sri Lanka could yield significant gains while we cannot say that about India.

Throughout the world, community financing has been used to mobilize resources to fund and deliver quality health care for the rural and ghetto communities. Some types of community financing schemes have been successful to address all the three issues discussed above while others are primarily income-generating schemes for providers.

In recent years, community financing has become a term that is used loosely by health financing specialists to label any financing scheme that may involve some community contribution or participation.

It ranges from Drug Revolving Funds that rely on user fees to fund a continuous availability of drugs, and government managed prepayment schemes that require residents of a community to contribute to fund public facilities, to hospital sponsored and manage insurance schemes that principally covers only that hospital’s services. These schemes are very different in nature and purpose, population covered, benefit structure, extend of risk pooling, and management.

Labeling any scheme that involves the community as a community financing scheme has confused health policy leaders about which type of schemes are viable and how they can alleviate the health needs of two billion. It has also impaired researchers from investigating the key common characteristics of community financing that explain the success or failure of these schemes so that countries around the world can learn from this experience and try to take such successful experiences to scale.


How to finance and provide health care for the more than 1.3 billion rural and urban poor in low and middle-income countries is one of the greatest challenges facing the international development community. The underlying causes of many of today’s health problems in lower income countries are often well known, and effective and affordable drugs, surgical procedures and other interventions often exist.

But, because of a number of problems related to resource mobilization, revenue pooling, resource allocation/purchasing arrangements, as well as problems in the provision of goods and services to rural and low income populations potentially effective policies and programs often fail to reach households and communities that need them the most.

It also emphasized on the importance of general tax revenues and payroll tax-based contributions to the financing of health care at higher income levels in terms of equity and efficiency of both mobilizing financial resources and getting good value for money in terms of spending patters.

Most community financing schemes have evolved in settings with severe economic constraints, political instability, lack of good public sector governance, and impoverishing out-of-pocket user charges. These conditions are very different from those of enjoyed in higher income levels where public financing instruments have been successful to finance health care.

For years many low-and middle-income countries – with assistance from the international development community – have tried to leapfrog from no organized financing instruments to full reliance on similar taxation instruments. In the context of large rural populations, low formal labor market participation rates, and government taxation systems, few have succeeded on this “big bang” reform path.


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4.The Global Expenditure Gap in Securing Financial Protection and Access to Health Care for the

Poor (Preker AS, Langenbrunner J, Suzuki E)

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