Health Reform and Drug Financing. Selected Topics - Health Economics and Drugs Series, No. 006
(1998; 49 pages) [French] [Spanish]
Table of Contents
View the documentAcknowledgements
View the documentExecutive summary
Open this folder and view contents1. Introduction
Close this folder2. Financing reforms
View the document2.1 Public financing though general revenues
View the document2.2 Health insurance
View the document2.3 User charges
View the document2.4 Voluntary and other local financing
View the document2.5 Donor financing and drug donations
View the document2.6 Development loans
Open this folder and view contents3. Affordability and efficiency
Open this folder and view contents4. Organizational reforms
View the documentConclusions
View the documentReferences
View the documentBack Cover

2.2 Health insurance

The fundamental concept behind health insurance is the sharing of the risk and burden of paying for illness among a group of people or a society. This group of patients forms a “risk pool” and each individual or household contributes financially to the payment of their joint health care expenses. A third party insurer aggregates these collections and pays, completely or in part, directly or by reimbursement, for the health care treatments of the participants to the scheme. There are different insurance mechanisms which can involve both the public and private sectors [23, 27, 35]. Some are:

• Social health insurance: compulsory insurance for groups such as civil servants, those formally employed and others, funded by income or payroll taxes. Services may be provided through government, insurer-owned, or private facilities.

• Community pre-paid schemes: usually voluntary mechanisms, used to cover health care costs for rural populations, members of cooperatives, and groups in informal employment. These can be viewed as alternatives to user fees for health services, although the existence of user fees may provide the stimulus for the creation of these schemes.

• Private health insurance: voluntary mechanism provided through employers, mutual societies, or private insurance companies. Coverage of preventive services and outpatient drugs may be limited or non-existent.

Universal health insurance is a feature of almost all the health systems of developed market economies (a notable exception is the United States of America) and appears to improve affordability, while promoting equity and solidarity in these systems. In most developing countries, the situation is quite different. The region with the lowest insurance coverage (mean) is Sub-Saharan Africa, 10.3%; this is followed by Asia (excluding China and India), 27.3%; Latin America, 45%; and the Middle East Crescent, 56.7% (see Table 5).

Table 5. Distribution of health insurance coverage by region

Population coverage for countries with insurance

Country distribution of insurance coverage





With insurance

Not known or no insurance

Established market economies



86 - 100



Middle Eastern Crescent



15 - 100



Latin America and Caribbean



6 - 100



Asia and Islands*



1 - 100



Sub-Saharan Africa



1 - 26.5









For the transitional economies, 7 countries have no available data, 11 countries have less than 1% insurance coverage and the Czech Republic has 100% coverage.

Coverage is less than 1%

* Except China and India Source: Ref. [46]

Not all insurance mechanisms - be they public or private - will cover the costs of drugs. However, several arguments can be made for including drugs. First, drugs are an essential and highly cost-effective part of modern health care. Second, drugs make up a large share of household expenses and their inclusion in either a compulsory or a voluntary insurance scheme will make the scheme more acceptable. Finally, effective early treatment of acute illnesses, such as malaria and pneumonia, and routine treatment of chronic illnesses, such as diabetes, not only improves health, but also reduces costly care for complications and hospitalizations.

As illustrated in Box 2, there are both benefits and difficulties associated with various insurance mechanisms.

There are a variety of factors to consider when designing insurance schemes [27]. These include which population will be covered, which drugs will be included, how services will be organized, the mechanisms of payment, and the control of costs.

Insurance coverage for drugs may be provided through private pharmacies, insurer-affiliated pharmacies, “in-house” pharmacies, or pharmaceutical benefits management schemes. Utilization and cost control measures are almost always needed to ensure that the drug benefits do not bankrupt the insurance programme through overprescription, fraud, and abuse.

Insurance coverage is still low in many countries and this requires continued financing from public revenues, user fees, and other sources. The benefits of providing pharmaceutical benefits in transitional and developing countries may not be fully appreciated by either insurance specialists or essential drugs managers. However, it must be recognized that some developing countries will have difficulties implementing widespread insurance coverage. This is due to limited formal employment, difficulties in tracking prescriptions, and weak state mechanisms to oversee and regulate the elements necessary for a universal plan.

Nevertheless, compulsory, universal insurance which includes benefits for drugs, is particularly useful in achieving social goals of equity in health care provision. Policy makers and managers need to be fully informed about the value of insurance coverage, alternative mechanisms for providing pharmaceutical benefits, and methods to ensure quality of care, while controlling costs.

Box 2. Financing through health insurance

Social insurance

Costa Rica: The Costa Rican Social Security Fund, CCSS, now provides nearly universal health insurance coverage to the population. Funds are derived from a variety of sources including employers, employees, the self-employed, and a contribution from the central government. CCSS covers about 80% of health expenditures and includes in this both curative and preventive care. Drug availability at CCSS pharmacies is high and drugs are provided free of charge with no co-payments. They are prescribed and dispensed according to generic name, and are almost always those found in the CCSS formulary (535 drugs and dosage forms). Treatment guidelines and the publication of other information concerning drugs and their use are supported by the CCSS. (Ref. [23], Cha. 40 and Ref. [27]).

Thailand: Roughly 72% of the Thai population receives health coverage through some form of insurance. Both social welfare and social security (providing coverage for 56% of the population) require the use of essential drugs, while coverage for civil servants and voluntary private insurance do not. About 67% of health expenditures are financed privately because patients prefer self-medication and treatment at private clinics, which public insurance does not cover [42].

• Thailand also recognized that providing social security coverage was not enough to ensure equity of access to health, particularly for those in rural areas. Therefore, a separate insurance system - a voluntary health card scheme - was created to insure those in rural areas for the fees associated with services provided by the public sector [39]. Use of essential drugs is mandatory with this public health card [42]. The effectiveness of this form of insurance has yet to be evaluated.

Community-based insurance

• Guinea-Bissau: Pre-payment schemes have been developed in rural communities with community-managed village health posts as a means of ensuring health care and drug provision during the half of the year in which no monetary economy exists. Villages decide both the rates and the methods of pre-payment. For those individuals who contribute, drugs and services are free of charge at the time of provision. Participation is, on average, over 90% of those eligible. Although there were issues with drug restocking due to constraints at the central medical store, drugs had become more available in two-thirds of the villages and, where this was not the case, villagers still perceived the quality of service to have improved. (Ref. [23], Cha. 40, and Ref. [34] p.207-217).

Private insurance

Zaire: Although a national insurance mechanism was not determined to be feasible, several mutual societies in Zaire offer some form of health insurance covering both rural and urban areas. Each of these have different characteristics, and in-depth study of four of them was undertaken to determine their advantages and disadvantages. The insurance plans studied provided some type of basic or essential drugs coverage although some plans covered mostly outpatient services while others covered mostly hospitalizations. Overall, these local insurance mechanisms resulted in improved access and a more reliable source of financing than a system based primarily on user fees. (Ref. [33], p.169-206).

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