Covering the Informal sector

Why it matters 

One of the biggest challenges to achieving Universal Health Coverage  is in providing coverage for people outside the formal employment sector. e.g. those who work in the informal sector, are unemployed or are not economically active.  

Many African countries have large populations who are poor and unable to afford financial contributions to the costs of health care, or who are working for unregistered or small enterprises from whom it is difficult to collect employer or employee insurance contributions. 

For these groups, out-of-pocket payments persist as a way of funding services despite being grossly inequitable and contributing towards household poverty.  

What we did 

We conducted a review of the evidence on approaches to improving financial risk protection and access to health services for those outside the formal employment sector in sub-Saharan Africa. In August 2013, we held a workshop that brought together researchers and policymakers from six countries in Africa and Asia to share country experiences and discuss the merits and disadvantages of different financing approaches. 

What we found 

  • Support for Universal Health Coverage 
    Providing coverage for the informal sector is an essential step in a country’s path to Universal Health Coverage (UHC); countries that have had success in extending coverage (e.g. Rwanda, Thailand), have strong political support for the concept of Universal Health Coverage, and have focused efforts on reaching the informal sector. 
     
  • Contributions from users
    The issue of whether to require contributions from users is complex and unresolved: contributions can bring accountability at local level, but they may carry high administrative costs. Other challenges of using contributory mechanisms include: small and fragmented risk pools, limited package of services, the continuing requirement of out-of-pocket payments. 
     
  • Purchasing is the linchpin of the financing system 
    Strategic purchasing can be used to create accountability from the payer side to complement the accountability mechanisms that operate through the providers.

Implications for policy and practice

Whilst each country will decide on a mix of financing mechanisms to suit their own context, the work has raised several issues worthy of serious consideration by decision-makers who are planning, or reviewing, their health financing strategy for universal coverage. 

  1. The informal sector is highly diverse and its composition varies across and within countries. Approaches to mobilising resources from the informal sector need to take into account local factors including the capacity of specific groups to pay and the availability of organisational structures through which resources can be tapped.
     
  2. Innovative taxes may be one way to generate additional funds for health care from non-contributory sources, and they can be easy to collect, especially if there is a large informal sector. Taxes include levies on large and profitable companies, a financial transaction tax or a tourism tax. 
     
  3. Retaining locally generated funds can be an important means of improving transparency within the financing system, as well as avoiding delays and administrative costs. Providing these funds are supplemented with centrally collected resources to enhance equity, they can be an important means of reinforcing payer-led accountability.