Health Sector Financing


Rwanda has a modern health system, with autonomous facilities that are funded by the government on the basis of their performance. The country moved from a faith-based service delivery model in the colonial period to a model guided by the WHO, the Bamako Initiative with the development of local models of primary health care that are managed and financed by communities (Sekabaraga et al., 2009). Health care facilities in the public health system are financed through funds allocated by central and district governments.

To improve financing of health care, the government pioneered a micro-insurance scheme (CBHIs) in 2003. CBHI schemes have evolved in response to low levels of utilization of health services. In addition, the Government introduced a mechanism of performance-based financing to provide incentives to health facilities to ensure quality of services. CBHIs and performance-based financing are two complementary schemes. Both aim to shift health


financing mechanisms from inputs-based towards output or results-based mechanisms (Sekabaraga et al., 2009).

Table 2.2 shows the main sources of financing health care between 1998 and 2010 in Rwanda. There is an increasing trend of the public sources of health financing between 1998 and 2003 followed by a rise and fall between 2003 and 2010. The main source of health care funds was from donors through the budget support which contributed 43.7% of the total health expenditure in 2010. The second largest source of funding is the OOPE by households, which also shows an increasing trend from 25 percent in 2006 to 32.2 percent in 2010. The share of domestic resources to public health expenditure increased to reach 24.1 percent 2010 while external funding increased from 42 percent to 43.7 percent between 2002 and 2010 (Republic of Rwanda, MOH report 2008).

Although Government funding has increased over years, funding of health care in Rwanda is still highly dependent on external funding. Donors’ share of financing in Rwanda exceeds 40 percent of total health expenditure (THE) and is among the largest in African countries when considering external resources flowing to the health sector (Dhillon et al., 2011). High dependence on external funding raises some concerns about the sustainability of health financing in the country. External aid flows were to support Rwanda reconstruction after the 1994 war and genocide, but these might not continue because the country is supposed to have built the necessary domestic funding capacity. In the absence of external funding, the OOPE would be the main source of financing, and this would negatively affect utilization of health care because of increased financial barrier.

26 Table 2.2: Sources of Health Financing, 1998-2010

Sources 1998 2000 2002 2003 2006 2008 2009 2010

Total Health Expenditure (THE) per capita in USD

10.4 9.5 9.9 16.9 33.9 34.1 36.5 44.1 THE as percent of nominal


5 4 4 9 11 13.9 9.5 9.4

Public Financing (%) 10 18 25 32 22 28 20.1 24.1

Private Financing (%) 40 30 42 21 25 36 34.1 32.2

Donors Financing (%) 50 52 33 42 53 36 45.6 43.7

Health budget as National budget (%)

6.9 5.9 6.3 8.2 12.6 9.1 10.2 11.5 Source: MOH, annual report 2010; WB, 2011 and Dhillon et al., 2011.

Health insurance is also increasingly becoming an important source of financing health care in the country. However, the co-payments from RAMA, CBHIs and other insurance providers’ account for less than 5 percent of total health care expenditure in Rwanda (MOH, 2008a). Table 2.3 shows that in 2010, 91 percent of the population was covered by CBHs. The coverage by CBHIs rose from 44 percent in 2005 to 91 in 2010, but fell to 73 percent in 2013. The decline was largely due to the increase in premium rate. The growth in CBHIs coverage benefited from the support by policy-makers to make it an integral part of the country’s health program. The system was designed as a policy instrument in order to enhance affordability, accessibility and equitable financing of health sector (MOH, 2009).


Table 2.3: Trends in CBHIs Coverage Rate, 2003 to 2013

Source: MOH (2008a; 2009-2013); WHO, 2011).

If majority of people in Rwanda are covered by the CBHIs, the programme was not enough to increase health care utilization. The programme might even further alienate the extreme poor from utilizing health services for at least two main reasons. First, the level of premium; $ 4.5 per year and per person is considered to be too high for the very poor and large size households so that given a choice they would rather defer seeking treatment until it becomes unavoidable. Second, even if people become members of CBHIs, they might not utilize health services since they are not entirely free because there are other costs met by patients that include co-payment, transportation cost and drugs (Shimeles, 2010). In addition, CBHIs members do not have a free choice of provider based on the perceived quality of health care because the system imposes on them to first seek medical treatment from their local public health center and request for referrals, which are very often not easy to get. This suggests that despite the sustained efforts by the government, health financing remains a major

Year CBHs coverage rate

2001 - 2002 - 2003 7 2004 27 2005 44 2006 73 2007 75 2008 85 2009 86 2010 91 2011 90.7 2012 80.7 2013 73


challenge and can be accounted for among the factors that hinder utilization of health care in Rwanda.



3.1 Introduction

This chapter reviews the literature in the area of health care demand. To justify the different approaches used in the methodology, we first discuss the main theories that inform health care demand modeling: consumer theory, asymmetric information theory and choice theory. This is followed by the relevant empirical literature on demand for health care and choice of service providers. The chapter concludes with an overview of the literature that highlights the gaps the study intends to address.

Specifically, section 3.2 presents a review of theoretical literature while section 3.3 presents the empirical review of literature on demand for health services. Section 3.4 reviews empirical studies on choice of service providers while section 3.5 provides an overview of the literature and highlights the gaps in the literature.