A Global Village
Issue 5 » The Right to Health

The Financial Burden of Healthcare

Neave O’Clery, Kajaluxy Ananthan & Walaiporn Patcharanarumol, Imperial College London & Thai Ministry of Public Health

Healthcare is expensive. Annual health expenditure globally is $5.3 trillion yet this is uneven with OECD countries representing only 18% of the world’s population yet 86% of the total spend in 20071. However, it is not always true that poorer countries necessarily have poorer health coverage and outcomes.

Thailand has led the way in developing a model for universal healthcare at reasonable cost. With life expectancy of 70 years comparable to many high-income countries, Thailand has successfully expanded health provision and ensured accessibility for all – for a mere $173 annual per capita spend (2008)2. Can lessons from the Thai experience be useful elsewhere?

Traditional infectious diseases such as HIV/AIDS, malaria and TB, together with the emergence of non-communicable diseases such as heart disease and cancer, are the main causes of morbidity and mortality in developing countries. The development and purchase of new medicines and treatments, as well as preventative methods and screening, is very expensive. With an average annual per capita spend of $3,881, the cost of universal treatment afforded by some OECD states is well out of reach of the majority of the world’s nations.

In recent years there has been a concerted attempt by the global health community to examine and quantify the effects of healthcare financing, and understand existing models with a view to establishing what really works, and under which conditions. Two recent major reports from the WHO (2010)3 and the World Bank (2008)4 respectively attempt to draw conclusions about how low and middle income countries might move towards this elusive universal coverage.

Broadly speaking, there are three models of payment for healthcare from a consumer perspective: direct payment, meaning payment at the point of use, some form of insurance and universal coverage, although in practice most countries combine several approaches. Here we ask how we assess a healthcare system in terms of financing and outcomes. We examine the need to avoid direct payment models in favour of pooled funds, and assess the role of the state and private providers in financing, taxation and insurance.

To aid this study, we will look at three upper middle-income countries: Chile, South Africa and Thailand. Thailand mainly runs a National Health Service-type model funded by general taxation while Chile relies primarily on a mixed public/private compulsory insurance model. South Africa, on the other hand, depends on crippling direct payment and expensive private insurance. With comparable per capita GDP, Thailand and Chile have impressive life expectancies in the 70’s compared to South Africa at just 54 years, see Table 1. Yet South Africa spends twice the % GDP on health than Thailand at just 4.3%.

Health, Wealth and Happiness
So what defines the healthcare status of a country? There are many indicators including life expectancy, adult, infant and maternal mortality rates, available hospital beds and number of doctors.

The adult mortality rate is measured as the probability of dying between 15 and 60 years per 1000 population. Both the adult mortality rate and life expectancy at birth health status indicators are a good measure of how treatable and how prevalent diseases are in a country. In contrast, infant mortality (probably of dying by age 1 per 1000 live births) and maternal mortality rate indicate accessibility and use of basic services, for example ante-neonatal care, delivery and immunisation which would reflect functioning primary care services. The number of hospital beds and doctors is indicative of infrastructural and human resources for health capacity in a country. Cumulatively, these variables attempt to measure the quality of healthcare of a country.

Table 2 shows that health outcomes across Chile, South Africa and Thailand vary considerably. Strikingly, both infant and maternal mortality in South Africa are astronomical compared to both Chile and Thailand indicating a crisis in access to pre- and post-natal care despite having a comparable number of both doctors and hospital beds. Indeed, just 56% receive four antenatal care visits in SA compared to more than 80% in Thailand5. Life expectancy and adult mortality are similarly low in SA indicating a lifelong restriction to adequate healthcare. HIV/AIDS rates (per 100,000) are huge at 627, causing 35% of deaths below age 5 in 20091.

Thailand is notable for its relatively low number of doctors, and performs reasonably well against Chile across all indicators despite spending just over half in terms of % GDP. What are the healthcare models that underlie the vast differences in healthcare outcomes?

Money Matters
Although a hugely complex issue, consumer healthcare payments normally fall into one of the following categories: direct payment, some form of insurance or universal coverage with or without co-payment.

Direct payment has serious consequences: it is estimated that 1.3 billion6 people worldwide do not have access to healthcare services as they simply cannot afford it even in times of crisis. The number of people who suffer from financial catastrophe, meaning having to pay equal or more than 40% of the household’s non-subsistence income for health care, amount to about 150 million globally, while 100 million are pushed below the poverty line3. Out of pocket (OOP) private spending, see Table 1, is an indicator for direct payments.

The alternative, either payroll contribution to a public or private insurance scheme or indirect general taxation, avoids direct payment via the creation of pooled funds thus sharing the burden and risk associated with illness or accident. Hence, there are a variety of health financing models that fall loosely into the following categories: National Health Services (NHS) via general taxation, Mandatory Health Insurance (MHI) Funds via compulsory payroll contribution, and private health insurance although in practice most countries combine approaches. All may, or may not, be combined with co-payment that, in effect, results in potentially crippling direct payment as above.

Up to one hundred countries worldwide finance their healthcare system predominantly via general taxation such as Thailand, whilst around 60 have payroll tax-based MHI systems such as Chile. South Africa is among very few countries that rely on direct payment for the poor and/or private health insurance for the wealthy.

South Africa
Health care in South Africa is in dire straits. Many children die every year in South Africa mostly from treatable communicable diseases such as diarrhoea, HIV/ AIDS, malaria, respiratory tract infections and pneumonia. Despite a GDP comparable to both Chile and Thailand, and a population size similar to Thailand, South Africa has a life expectancy of just 54 years.

Relying on patient payments at the point of treatment, research has shown that direct payments have forced 290,000 households below the poverty line in South Africa6. South Africa uses a Uniform Patient Fee Schedule that categorises the payment a patient makes based on their financial situation. Nonetheless, private expenditure makes up a significant 60% (2008) of total expenditure1. Of this, private insurance makes up over two-thirds whereas out of pocket expenditure makes up the remaining 29.6%. Aware of the situation, the current government aims to create a National Health Insurance system to limit inequalities in access to healthcare among the different socio-economic groups.

Chileans however, and the Thai below, have largely eradicated communicable diseases and today primarily suffer from the non-communicable diseases of the developed world – cancer, diabetes and hypertension.

Following a long history of insurance-based health provision biased towards the wealthy, Chile opted in 2000 for a mixed public/private approach to health insurance covering a set of explicitly defined conditions under Plan AUGE7. An extended period of economic growth, a high degree of formality in employment and an efficient tax collection system made this expansion possible. Today, public and private health insurance coexists to provide universal coverage.

Chile’s mandatory health insurance (MHI) system consists of a single nonprofit public insurer (Fondo Nacional de Salud, FONASA) and multiple for-profit or non-profit private insurers (Instituciones de Salud Previsional, ISAPREs), each operating in competition. All formal sector workers, retired workers with a pension or self-employed workers with a retirement fund must enroll with the MHI by making a monthly contribution equal to 7% of their income or pension (up to a monthly ceiling of $2,000).

The public component currently covers two out of three Chileans, including 3 million people considered to be very poor, and is primarily funded by compulsory payroll contributions for workers, small copayments and general taxation. In 2003 Chile introduced a 1% increase in VAT to fund health. With 52.3% private health expenditure of total expenditure in 20091, ISAPRES cover 17.6% of the population7, with providers funding treatments via their own health services, independent private providers and public hospitals. In 2008, ISAPREs offered no less than 8,000 different plans.

Although coverage of the population is near universal, inequalities exist with many private insurers denying enrolment to those who are at higher risk. Co-payment also presents problems to the very poor in a similar manner to direct payment above.

Thailand: Universal Health Coverage Scheme
Strong grassroots support and sustained economic growth saw the Thai Rak Thai party introduce universal coverage for the Thai population in 20014. This universal health coverage scheme replaced previous fragmented schemes including means-tested health care for low-income families; a social welfare scheme for vulnerable groups including children up to 12 years and the elderly; and a voluntary health insurance card, and covered the remaining 30% uninsured. This was funded by national pool formed from general budget revenues and a small copayment of 30 baht (£0.63) per visit. The motto at that time of 30 Baht treats all diseases was so popular that it was embedded in the mind of every Thai.

In 2006 the 30 baht co-payment was abolished and the Universal Coverage Scheme (UCS) became free and solely funded by tax revenue. Today this covers some 74.4% of the population or nearly 50 million people. The scheme is seen as a huge success for healthcare for the whole Thai population, in particular the poor: there has been a 25% increase in outpatient care and a 9% increase in hospitalisations4. The proportion of people facing catastrophic health expenditure was also been reduced significantly from 5.4% in 2000 to 2.0% in 20064. Public and private employees that make up the remaining 25% of the population are covered via the Civil Servant Medical Benefit Scheme and the Social Security Scheme.

Under UCS and other schemes, Thailand offers prescription medicines, ambulatory care, hospitalization, disease prevention and health promotion free of charge to patients, along with more expensive medical services such as radiotherapy and chemotherapy for cancer treatment, surgical operations and critical care for accidents and emergencies. Renal replacement therapy for end-stage renal disease was included in the benefit package in 2007.

Health care financing in Thailand is based on general taxation yet there are no earmarked funds for the UCS, and every year it is vulnerable to budgetary competition. Concerns also persist that it has encouraged an unsustainable increase in demand, resulting in a rapid increase in the workload of health personnel. The source of future funding needed to care for its growing aging population remains a challenging issue.

Spending more on health services does not necessarily mean better outcomes. We have seen that, despite the fact that South Africa spends more than twice the amount on healthcare per capita compared to Thailand, it’s life expectancy is 20 years lower. On the other hand Chile has a similar life expectancy to Thailand but spends over three times more on health provision, see Table 1.

The use of direct payment in the case of South Africa has led to a crippling burden on the poor population, essentially preventing access to healthcare for a large segment. In contrast, Thailand and Chile have moved away from direct payment towards pooled funding of healthcare via general taxation and compulsory insurance.

High levels of formal employment and efficient tax collect have enabled Chile to implement compulsory payroll contributions effectively. Although achieving high levels of health care and health outcomes, Chile spends significantly more than Thailand per capita and also suffers from direct payment forcing out the poorest segment of society.

In contrast, Thailand has high levels of informal workers, yet a popular mandate for universal healthcare backed by strong political commitment, experience and capacity to implement such a large project on a national scale and civil society support. Following a long history of healthcare experience and reform, Thailand successfully expanded healthcare to rural areas with functioning primary care provisions and ensured access to all, achieving what is a utopian vision for many: universal healthcare.

Neave would like to thank Sumana Chaturvedula, Energy and Environment Editor, for her help with background research for this article.

Neave O’Clery is a Doctoral Student in Mathematics, Imperial College London and is both Co-founder and Editor-in-Chief of A Global Village.
Kajaluxy Ananthan is a second year Medical Student at Imperial College London.
Walaiporn Patcharanarumol works at the International Health Policy Program, Thai Ministry of Public Health.

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[1] WHO (2010) National Health Accounts Report.
[2] Working group on Thai NHA (2009) Thai National Health Account 1994-2008. International Health Policy Program.
[3] WHO (2010) Health Systems Financing.
[4] World Bank (2008) Good Practices in Health Financing (Chapter 12, Thailand: Good Practice in Expanding Health Coverage – Lessons from the Thai Health Care Reforms).
[5] Patcharanarumol W. et al. (2011) Good Health at Low Cost (Chapter 7: Why and How Did Thailand Achieve Good Health at Low Cost?).
[6] International Labour Office (2008) Social Health Protection: An ILO Strategy Towards Universal Access to Health Care.
[7] WHO (2010) Towards Universal Health Coverage: The Chilean Experience.