By Zahanati

The role of private health financing in low- and middle-income countries is not well understood, with little documentation on what does and does not work. Accordingly, private health markets are often poorly regulated, with high prices and inconsistent quality of care. At the same time, many households pay directly for health services, and visit private health facilities.

This literature review aims to contribute to our understanding of the global private health financing sector, with a particular focus on low-cost private health financing approaches for poor populations in developing countries. We base the scope of our literature review on the international System of Health Accounts methodology and definitions (WHO 2011).

Note that we interested in private health financing mechanisms, rather than private sector delivery of health services.
In general terms, health financing schemes can be defined as “the main types of financing arrangements through which people obtain health services” (WHO 2011). The private health financing schemes analysed, whilst varying in design and implementation, share the characteristic of being based on prepayment funding mechanisms.

We explore the literature on the following private health financing schemes:
1. Risk-rated private health insurance
2. Employer-based health insurance
3. Enterprise financing schemes
4. Community-based health insurance (including health micro insurance)

We pay particular attention to innovative private sector solutions that have successfully boosted the development of these financing schemes. Given the purpose of this review was to review private approaches, we excluded government-run schemes and compulsory contributory schemes (e.g. social health insurance).

Risk-rated private insurance has been much more prevalent in high-income countries, where it has been used to fill gaps in publicly funded systems and to pay for an increasing demand for health services. We find that, in sub-Saharan Africa, whilst risk-based private health insurance schemes may offer relatively comprehensive financial protection for the individual insured, when taken as a whole, risk-based PHI schemes do not constitute a large share of overall health expenditure. For example, in South Africa, private insurance schemes accounted for an estimated 81% of private health expenditure and 42% of total health expenditure in 2011 while covering only 16% of the population (Di McIntyre and Ataguba 2012).

There are a few examples of employer-based health insurance schemes in a few developing countries. In Yemen, they represent the most prevalent source of third-party coverage of health services. We also found an innovative way of delivering employer-based health insurance by DomestiCare in South Africa which caters for domestic workers.

We also found that some companies have enterprise financing schemes as part of their corporate social responsibilities, and/or as extensions of work injury compensation schemes (Biquand and Zittel 2012). AngloGold Ashanti, a mining company, is a good illustration of this. It provides free healthcare for its employees and their dependants, and is subsidized for the local community, at the Obuasi Edwin Cade Memorial Hospital. Just like AngloGold Ashanti, private agricultural plantations in Malaysia are engaged in malaria control efforts in their localities.

Community-based health insurance (CBHI) exists in many low- and middle-income countries, especially in Africa and Asia (Guido Carrin 2003; ILO 2005). In terms of population coverage, these schemes exist within localised communities, most often in rural areas: members make small payments to the scheme, often annually and after harvest time, and the scheme covers the fees charged by local health services” (McIntyre , 2007 p4). Scheme participation, which is linked to cost-recovery, varies considerably across schemes and also within schemes across different sites (Mebratie et al. (2013)). Comparing Kenya’s private health markets with neighbouring markets: A focus on healthcare financing Private Sector Innovation Programme for Health (PSP4H)
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Our review finds that CBHI schemes are often unable to raise significant resources because of the limited income of the community, and the pool is often small, making it difficult to serve a broad risk-spreading and financial protection function. The schemes’ size and resource levels make them vulnerable to failure. They are also placed at risk by the limited management skills available in the community, and they have limited impact on the delivery of health care, because few negotiate with providers on quality or price. At the same time, CBHI has reduced household’s out-of-pocket expenditures on health.

Micro-insurance for health is a particular form of CBHI where micro health insurance is included in microfinance schemes. It has shown promise in providing some financial risk protection for poor families in developing economies. However, they have rarely been able to represent a perfectly balanced portfolio, between risk and return, either because their client volume is too small (either due to enrolment demand or capacity), or because the relatively large risks they cover among low-income populations represents a disproportionate impact on the portfolio as a whole (Dror et al. 2009). The case of Microcare Uganda is instructive in looking at the successes and failures of micro-insurance schemes for health.

Assessing the examples of voluntary private health insurance schemes overall, we find that even from the experiences in high-income countries, it is difficult to draw generic, empirically based, policy lessons. The system-wide impact of voluntary health insurance appears to be influenced by a variety of factors, including its functions, the nature and extent of mandated financing, and the extent to which there are binding (and relatively inelastic) constraints on key inputs (such as the number of doctors practicing in a country). What is more, there is a paucity of data on the experiences of developing countries.

Nevertheless, for all the types of private health financing schemes discussed, the following recommendations could be useful in increasing their scope, effectiveness and impact:

1. Mandating core benefits is important if the various forms of private health insurance are intended to be a primary source of coverage for large segments of the population.
2. If coverage restrictions exclude care for common high-cost conditions in developing countries, like AIDS and cancer, then the financial protection provided will be insufficient.
3. It is important to strike a balance between providing effective financial protection and assuring affordable premiums.
4. Policy-makers need to remember that methods used to calculate premiums have an important effect on equity and affordability.
5. There is scope for donors and other non-state actors to promote and ensure that countries are openly vigilant regarding the potential for fraud, abuse and corruption.

For the PSP4H programme, these findings are important to understand exactly what can and cannot be achieved by private health financing schemes in Kenya context