Towards a transformative framework for health financing in Bangladesh

In Bangladesh, the current health financing landscape is heavily reliant on out-of-pocket expenditures. Government estimates suggest that private spending accounts for approximately 69% of total health expenditures, while the World Health Organisation (WHO) places this figure close to 74%. 

Given the economic realities, the actual share may even reach 80%. A significant portion of these out-of-pocket expenses—around 64%—is spent on medicines, highlighting the financial burden on individuals. Meanwhile, the government's contribution to health financing remains limited, constituting only 23% of the total healthcare budget.

Without urgent reforms, the financial burden on individuals will continue to hinder progress toward equitable healthcare, leaving millions vulnerable to economic hardship and inadequate medical care.

Globally, two major models of health financing exist. One is the general tax-based system, known as the Beveridge Model, pioneered by William Beveridge in the UK after World War II in 1948. The other is the Social Health Insurance system, also known as the Bismarck Model, introduced by German Chancellor Otto von Bismarck in 1883. 

Over time, both models have been adopted in various countries worldwide. In Bangladesh, the public healthcare system follows a tax-based structure, incorporating some characteristics of the Beveridge Model.

Despite these global experiences, policymakers in Bangladesh remain uncertain about the most suitable health financing model for the country. The debate continues over whether the current government financing mechanism should be strengthened or whether a transition toward Social Health Insurance is a more feasible option.

Why does Social Health Insurance not currently fit in Bangladesh?   

An analysis of countries with successful Social Health Insurance (SHI) systems reveals that a large formal workforce is a key factor in their implementation. 

In Bangladesh, however, only 12-13% of workers are in the formal sector, while around 87% are informally employed, making premium collection from this vast informal workforce both challenging and costly. Compounding this issue, the country's low tax-to-GDP ratio (less than 10%) limits the government's ability to subsidise premiums for such a large informal population, raising questions about the feasibility of SHI in the current context.

For SHI to work in Bangladesh, government hospitals would need to be integrated into the system. While these hospitals are widely accessible, their participation would require significant amendments to the Public Financial Management Rules to allow them to receive, retain, and spend reimbursed funds from insurance institutions. 

Despite years of discussion, critical reforms remain unimplemented, leaving government hospitals unable to improve service quality. This risks discouraging enrolment in the Social Health Insurance (SHI) scheme, as paying premiums for subpar services could lead to widespread dissatisfaction, undermining the system's credibility.

An alternative approach could involve using private hospitals for SHI beneficiaries, but challenges persist. Quality private hospitals are unevenly distributed, and over-reliance on them could strain the public healthcare network. 

Widespread distrust in insurance schemes further complicates adoption. Given these barriers, a comprehensive SHI system covering the entire population within 10–15 years seems unfeasible. A more practical solution is to introduce SHI for formal sector employees while gradually expanding group health insurance in viable areas.

A promising opportunity lies in expanding health insurance for university students. With over one million students, this initiative would ease healthcare costs and familiarise future generations with insurance, fostering broader workforce acceptance.

The Institute of Health Economics at Dhaka University pioneered student health insurance in 2018, covering approximately 40,000 students by 2021. Similar schemes were later introduced at Rajshahi University, Jahangirnagar University, and other institutions. Expanding this initiative to all universities and colleges nationwide could serve as a stepping stone toward building a more inclusive health insurance framework in the country.
 

What is the most viable health financing option for Bangladesh?  

For now, enhancing tax-based health financing remains the most viable option for Bangladesh. However, the current budget allocation is grossly inadequate compared to the country's needs. Additionally, allocated funds are often not fully utilised, and even when spent, they are not used efficiently. 

Several bureaucratic and institutional barriers hinder effective health financing, involving multiple ministries such as the Ministry of Finance, the Ministry of Public Administration, and the Ministry of Planning. 

The administrative structures of the Ministry of Health and Family Welfare, including the Secretariat and Directorates, also contribute to inefficiencies. Furthermore, entities within the health sector, such as the Health Engineering Department (HED), Essential Drug Company Ltd (EDCL), Central Medical Store Depot (CMSD); and entities beyond the Public Works Department (PWD), play roles in the system, creating further bureaucratic complexities.
 

What reforms are required?  

Several key reforms are essential to establish a functional healthcare financing framework: integrating Primary Health Care and repurposing to enhance coordination and efficiency; assigning the responsibility of primary health care to a single Directorate (e.g., restructuring Directorate General of Family Planning (DGFP) and assigning the responsibility of primary health care); shifting from implicit benefit package to explicit benefit package; introducing public-private partnership for diagnostic services in the public health facilities; modernising medicine dispensing system: introducing a universal family health card; establishing a National Health Authority (NHA); and establishing a National Health Fund (NHF) under NHA. 
 

A transformative framework for health financing

We propose a transformative health financing framework designed to ensure universal access to healthcare through general tax-based financing, aligned with existing public financial management (PFM) rules. 

Centred on public healthcare facilities, this framework seeks to optimise existing resources while strategically expanding capacity. It is structured around three core functions: revenue collection, resource pooling, and resource allocation, supported by carefully designed provider payment modalities to maximise efficiency and impact. The framework also highlights the institutional reforms necessary for its successful implementation.

Within this framework, health services are categorised into three tiers: (i) Primary care, covering promotive, preventive, and basic curative services (general outpatient care); (ii) Intermediate care, including critical and referred outpatient services, maternal care, general inpatient care, and basic emergency care; and (iii) Advanced care, encompassing referred inpatient services, treatment for critical illnesses, and emergency care (such as trauma, injuries, and clinical emergencies), along with emergency response services. This tiered approach ensures a structured and efficient delivery of healthcare services tailored to the population's needs.
 

Financing primary health care 

The government should fully fund primary healthcare through tax-based financing, optimising existing resources, and allocating additional funds to enhance system readiness. This will ensure comprehensive coverage of promotional, preventive, and basic curative services for both rural and urban populations. 

To strengthen rural healthcare, community clinics, Family Welfare Centres, and Health Sub-centres should be integrated under a unified framework, addressing gaps in trained personnel, essential medicines, and equipment. 

There should be a provision of an attractive output-based performance incentive package with the existing input-based line item allocation, enabling a functional referral network with intermediate care. 

In urban areas, models like the Alo Clinic or strategic purchasing can be applied in city corporations, while an integrated rural model can be adapted for district and upazila municipalities. Primary healthcare should be managed by a single entity, such as a restructured Directorate General of Family Planning (DGFP), to ensure efficiency and coordination.

Financing intermediate care 

To improve access and affordability of referred outpatient care, maternal health services, general inpatient care, and basic emergency care, the government should introduce an explicit benefit package funded through general tax-based financing. 

This package should include an annual ceiling of up to Tk100,000 per household, linked to a Family Health Card, guaranteeing access to essential services. 

Healthcare should primarily be delivered by public facilities, with unavailable services accessed through empaneled private providers via strategic purchasing, using a Diagnosis-Related Group (DRG) payment model. The DRG system would categorise patients based on diagnoses and treatment needs, with bundled pricing applied to public facilities.

Facilities should receive block allocations (lump-sum funding) and output-based performance incentives alongside existing input-based line-item allocations, with flexibility in spending to enhance efficiency. 

This explicit benefit-based health card would empower patients, improve service utilisation, and boost public confidence in government healthcare. It would also help providers understand the value of their services and enable the government to assess the value of public health services, justifying increased investment.

Note: Individuals who can afford it may supplement government-funded services with voluntary private health insurance.

Financing advanced care 

A National Health Fund (NHF) should be established to finance inpatient referrals, critical disease management, emergency healthcare services, and emergency response initiatives. This fund can be sustainably financed through a diversified resource mobilisation strategy, drawing from multiple sources.

The government should allocate 10-25% of the fund from national budgets to ensure a stable public financing base and establish public confidence. A nominal charge of Tk1 per day (or Tk30 per month) on mobile phone subscribers could generate approximately Tk7,000 crore annually, significantly enhancing the fund's financial capacity. 

Additionally, a 10% health tax on tobacco products, sugar-sweetened beverages (SSBs), and high-sodium food items would serve both as a revenue stream and a policy measure to discourage unhealthy consumption patterns.

The private sector should also contribute to the fund, with corporations required to allocate 10-20% of their Corporate Social Responsibility (CSR) funds, reinforcing corporate participation in public health initiatives. Furthermore, contributions from philanthropic organizations and development partners (DPs) will provide additional support, ensuring the fund's sustainability and long-term impact.

Similar to intermediate care, the services in the advanced care package should be delivered through an explicit benefit package that defines and values bundled services using the Diagnosis-Related Group (DRG) system. 

Additionally, an annual ceiling (e.g, Tk3-5 lakh per household) should be established to ensure financial sustainability and equitable access.

A key goal is to reduce dependence on foreign healthcare by restricting National Health Fund benefits to services within Bangladesh, discouraging unnecessary medical tourism. Financial support for treatment abroad should only apply when specific treatments are unavailable locally, retaining healthcare expenditure and encouraging investment in domestic infrastructure.

Payments to public facilities should combine three elements: flexible spending for reallocating funds, block allocations for local priorities, and performance-based incentives tied to measurable outcomes. This blended approach ensures efficiency, flexibility, and accountability while empowering providers to optimise service delivery.
 

Sketch: TBS

Dr Syed Abdul Hamid is a professor at the Institute of Health Economics, University of Dhaka. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.