3.2 Sources of revenue and financial flows

3.2 Sources of revenue and financial flows

The government sector is predominantly financed through general revenue taxation, while the private sector is financed through OOP spending, private insurance, direct employer payments, employer insurance and contributions from non-profit organizations.

External health financing is small in Sri Lanka in general, though there were large inflows after the tsunami in December 2004. Donor financing is largely channelled through the government sector, though in specific instances it is paid out to nongovernmental organizations (NGOs) working in specific areas related to health. Foreign governments and international NGOs contributed a much smaller proportion of revenue in terms of transfers compared to national government contributions.

Table 3.4 gives the various sources of revenue as a percentage of CHE.

Table 3.4 Source of revenue as a percentage of CHE (2016)

Source of revenue

OOPE Government domestic revenue Employer contribution to the CHE (in the form of health insurance premium and other methods) Private health insurance Rest of the world financing schemes Social health insurance Nongovernmental organizations

Total CHE US$ (million) % of CHE

1598.5 50.1 1361.5 42.7 116.3 3.6

65.2 2.0

27.7 0.9

13.8 0.4

6.3

0.2

3189.3 100.0

Source: Ministry of Health, Nutrition and Indigenous Medicine, 2018d

Figure 3.6 is a schematic representation of the flow of funds in the health system, illustrating that there are two sets of arrangements in the Sri Lankan context – administration and financial linkages. There are three main funding sources: government, individual citizens and donors. General taxes to the government are disbursed to state health institutions (providers) through a chain of financing agents. The treasury collects tax revenue and disburses the funds to hospitals that are directly managed under the Ministry of Health, i.e. teaching, general and specialized hospitals that provide specialized care as well as PHC services,9 and vertical preventive/disease control units.

9 In Sri Lanka, institutions are classified as tertiary-, secondary- and primary-level institutions and, in all of these, outpatient services are provided, which fulfils primary care needs.

Hospitals managed by the Ministry of Defence, i.e. Army, Navy, Air Force and police hospitals and Ministry of Justice, i.e. prison hospitals are funded through their respective ministries. Institutions managed by the provincial governments (base hospitals, divisional hospitals, primary care units and MOH units) and local governments (municipal council and pradeshiya sabha health clinics) and other health-related activities by the local government are funded through the Finance Commission. In addition, the MoH directly channels a considerable amount of funds to provincial-level institutions. Local governments are able to generate and use funds for the provision of health services for institutions under their purview in addition to the funds received through the Finance Commission. There is wide variation in the amount generated through local tax and its contribution is very small, except in the Western Province.

Households in Sri Lanka share a considerable burden of health-care financing as OOP spending. A small proportion of individual citizens and employers purchase private health insurance and only a very small proportion of health-care services are funded by external donors, managed by a financial arrangement recognized as external contribution from foreign governments and development agencies (Rest of the World Financing Scheme).