Financial Services for Health: Treating the Cause

Catastrophic health expenses push 100 million people into extreme poverty each year. This is likely to only worsen as the COVID-19 (coronavirus) pandemic unleashes an unprecedented health and economic crisis worldwide. In fact, the World Bank estimates that the pandemic and its economic effects will cause global poverty rates to rise for the first time since 1998. The pandemic also threatens the achievement of an already ambitious target: universal health coverage by 2030, a crucial part of Sustainable Development Goal 3.

Nurses at Tonga's largest hospital. Photo: Tom Perry, World Bank
Nurses at Tonga's largest hospital. Photo: Tom Perry, World Bank

Universal health coverage remains an ambitious goal, with over half the world’s population lacking access to full coverage of essential health services. And even people who have access to health services often are forced to pay out of pocket for care, which can be financially overwhelming. As part of CGAP’s ongoing research and development work, we conducted a review of literature and business models on financial inclusion and health financing. Our conclusion is that although private sector innovation can play an interim role in financing out-of-pocket expenses, the long-term focus of the financial inclusion community should be on making poor people resilient to health shocks and the associated loss of income.

High out-of-pocket expenses drain household financial resources, especially in lower-income countries

Out-of-pocket expenses are a robust indicator of the financial burden imposed on those seeking care in a health system. Out-of-pocket expenses as a share of median health expenditure have decreased across the world in the past two decades, but 2 billion people live in countries where out-of-pocket spending on health is still at least 50 percent of total health expenditure. There is high variation across income levels of countries: while many people in wealthier countries obtain relatively high-quality health care for free or at highly subsidized rates, people in middle- and low-income countries pay as much as 60 percent of their health expenses out of pocket.

Even among low- and middle-income countries, the financial impacts of health care financing are not equitably distributed. The average Nigerian paid $170 for out-of-pocket health expenses in 2017, compared to $60 in Ghana and $70 in Côte d’Ivoire, according to the World Health Organization's Global Health Expenditure Database. The differences within countries can be equally stark, pushing poorer households to borrow or sell assets to finance the cost of care. A 2019 report in the International Journal for Equity in Health found that the poorest 20 percent of women in India were three-and-a-half times more likely to be forced to sell assets or borrow money to pay for the costs of delivering a child, compared to the richest 20 percent.

Even when national health insurance plans exist, they usually cover only the cost of hospital care, and households are still forced to pay the cost of outpatient care and drugs. Research shows that in South East Asia, Europe and Africa, most out-of-pocket spending is on medicine and outpatient care, not on hospital bills.

Financial innovations can help poor households cope with out-of-pocket health expenses

Our literature review suggests that certain innovations in financial services can help manage out-of-pocket expenses and ease the burden of health care costs for low-income households.

  1. Bundling insurance with other financial products being offered or offering it to people who are already customers can reduce distribution costs and improve scale. Insurance underwriters and intermediaries are working with financial services providers to extend microinsurance coverage to households that need it. Turaco, a microinsurance intermediary, works through partners such as Fenix Uganda and SafeBoda, where they offer bundled insurance products to customers in exchange for a share of revenue. With SafeBoda, Turaco signs up drivers for accident insurance at weekly SafeBoda training academies. Upon registration, monthly premiums of about $2 are deducted from the SafeBoda in-app wallet. Turaco also offers bundled hospital insurance, which provides cashback for any kind of hospital admission that offsets expenses such as transport and lost income. Turaco has insured more than 60,000 customers across Kenya and Uganda. There are similar bundled products for many mobile phone subscribers, such as Tonic, a freemium subscription service available to all Grameenphone clients in Bangladesh.
  2. Using alternative credit data to make credit decisions and structure financial products can unlock financing for health expenses. Credit has emerged as an alternative for financing health care costs when borrowers are uninsured or underinsured. In India, Arogya Finance offers unsecured medical loans targeted at low-income borrowers in the informal sector, using alternative credit data to make assessments. Customers can take out loans ranging from $300 to $7,000 for a variety of medical needs, for tenures up to four years, at lower interest rates than are often available with other types of loans. While traditional banks may take up to a week to make a lending decision, Arogya claims it can do so in as little as three hours, directly paying the provider. Arogya has also built up a partner network of over 650 health care providers across 84 cities, expanding access to affordable health care.
  3. Digital payments make it easier for people to deal with health expenses by helping users to save in advance and tap their social networks for financial support. Digital payments can help people mobilize money and pay for health care expenses, quickly and safely. M-TIBA in Kenya is a mobile money-based health wallet that connects patients, payers and a network of health care providers. It enables users to save digitally for health care needs, access funds from their social networks by receiving remittances and directly pay health care providers, digitally. More recently, M-TIBA has opened its mobile platform to host third-party health care providers, public and private insurers and donor-led health care programs. Since its launch in 2016, M-TIBA has served over 4.32 million users, processed over half-a-million treatment claims and created a network of around 3,000 health care providers across Kenya.

Toward universal health coverage

There is increasing global consensus that health care is a human right — an investment to build human capital and achieve inclusive economic growth. While there is growing innovation around financial services to reduce the attendant costs of health care, the agenda of health care financing is moving away from a reliance on out-of-pocket expenditure and toward universal health coverage. Financial innovations like digital payments can increase the efficiency and integrity of the system, while certain types of insurance and credit can defray or smooth out the potentially catastrophic costs of health care. But these are short-term solutions. They should not obscure the urgent action needed by governments and donors to make affordable, universal health care a reality.

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