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Private and public financing

What roles do public and private financing play in achieving Universal Health Coverage, and what financing mix is desirable?
PETER ANNEAR: Hello. We’re going to look much more closely at the government role in health care financing and the health sector. Of course, this is a rather long discussion, long debate, been around for many years now, public versus private financing in the health sector. To begin with, let’s have a look at this, just to understand why government may be so important to health care spending. Two graphs here– both, in fact, are measured against GDP per capita or standards of living, and you can see here with the red line on the left-hand side that there is a very, very close correlation between the level of income, GDP per capita, and the level of total health expenditure.
It’s a particularly close correlation, so the relationship is very, very strong. And then on the right-hand side, the graph shows us that government health expenditure is correlated pretty much in the same way with rising incomes and GDP per capita, although you’ll notice, too, a bit more variation around the mean. So the role of government health spending in the role of total health spending– both are very closely related to our GDP per capita and play a very important role in health financing. As you can see from those two graphs, with rising incomes, government spending rises, total health spending rises. And so, there is very strong reason to pay attention to this particular area and work out how these relationships come together.
Now, in my view, and I think a very commonly accepted view now, there are very strong theoretical reasons in principle for looking at the public role in health financing. A lot of this has to do with the role of health as a public good. Now, that doesn’t mean something that’s morally upright and good. It means something that’s traded. So health is traded as a public good, not a private good. Much of health care just cannot be provided through the private sector– widespread vaccination, a lot of preventive health care, health promotion. Many things you just can’t sell in the private market and are necessary and must be provided by the government through the public sector.
Now, there are various sources of government funding for health care. We look not only at the size of government funding in total health expenditure but also the sources of income for it. And here, we just show that there are various ways of working out the allocation of budget funds through the government. Here is a list of different ways we can measure and allocate funds. Now, public financial management is an increasingly important area in this particular topic, and it really is the method by which budget funds are allocated and monitored in the most effective way. So how and where and with what effect are government funds used through the budget system.
And the public expenditure review, another very common term– it’s the diagnostic instrument. It’s the way in which we monitor and keep track of what’s happening through the public expenditure system. Now, in 2001, the African nations, the nations of the African Union, met in Abuja and discussed this issue of government funding and health care, and the general agreement there was that governments should allocate at least 15% of the government budget to health care. Now this was a measure where it was anticipated the best outcomes for health would come about. And not only in Africa, but several Latin American countries and, I think, too, across Asia have been also committed to this sort of goal.
Now, let’s have a look at the outcomes. So these were the results by 2006. This was about five years after the signing of the declaration, and the Abuja target is there at 15%, and as you can see, most of these countries listed here, including through Asia, Latin America, and Africa have not achieved by 2006 the sorts of priority for health care that is considered necessary to achieve the best outcomes. Now, just take a look at this graph for a moment. So first of all, the vertical bar is in three components. One is general government expenditure on health as a percentage of total health expenditure. Each bar, of course, represents 100% of total health expenditure, and that’s the left-hand axis.
The red is out-of-pocket spending, and you can see there the comparison, particularly on the left-hand side of this graph, where government spending is rather low in some of those countries, especially in Asia. Out-of-pocket expenditure is high. And the green part, of course, is the remainder. We have, also, on this graph a measure of government expenditure as a proportion of GDP, as a proportion of the economy, and there is a correlation here.
So the darker line graph at the top is the level of general government expenditure as a proportion of GDP, and what we can see here clearly is with higher levels of general government expenditure– that is, through the taxation system, larger budgets– the opportunity exists there to spend more through the government on the health system.
But in every country, the private sector also plays a very significant role, and the question for us is not we favour government against private, or we favour one over the other, or for private not government– the question posed now in almost every country is how we as the health sector, as health planners, or through the government can manage and make the best out of the health system as a whole. That is a mixed health system with private and public providers. Where is the supply of services coming from? And who is demanding services? That is, who’s paying for the services to be delivered?
This is here is a summary, really, and I think if you take time to look at this later, perhaps you will be able to see that it’s a fairly good representation of the sorts of issues we need to think about and the way in which we can bring some balance to the mixed health system using both public and private providers.

Mixed health systems (public and private) are the norm, and finding the right balance between public and private service delivery (including support functions) is critical to achieving the best health outcomes.

The government’s role in stewardship and management of the mixed health system is critical; this means that those in government need to recognise the importance of the private sector and understand how this sector can be harnessed to provide benefits to health outcomes of the country, and even strengthen the public sector. Having said this, because health care is a public good, ultimate responsibility for delivery must rest with the government, and given the importance of equity in health systems, most governments should aim to finance most health care through progressive taxation. Other generally agreed aims to promote equity and move to universal health coverage are having a total health expenditure at least 5% of gross domestic product; keeping out-of-pocket spending below 20% of total health expenditure and aiming for 15% of total government expenditure to be on health.

Below, in the “Downloads” section, you will find a PDF titled “Supply and Demand” which contains a graphic from our presentation that lists on one side the “market players” and on the other side “supporting functions”. Consider this graphic and reflect on each of the items listed as they apply in a country with which you are familiar.

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