The political economy of user fees with targeting: Developing equitable health financing policy

Since the 1980s user fees for government services have become an accepted financing option for the health and social sectors in developing countries. Even countries which had a tradition of providing health services free of charge have now introduced fees and the focus of debate has shifted from whether or not to introduce them, to when and how they should be introduced. Proponents of user fees stress that equity and efficiency gains can be achieved through the implementation of a cost‐recovery policy package. Within this package user fees are complemented by decentralization and combined with two targeting mechanisms favouring low income groups: exemptions, and the use of fee revenue to improve the services offered to them. The extension and improvement of primary health care, for example, will disproportionately benefit low income groups by addressing their health needs in a cost‐effective way. However, targeting mechanisms, and exemptions in particular, have received little attention in theoretical debates within the health sector and current practices have rarely been reviewed. Relatively little is known about their effectiveness or about the conditions required to ensure and enhance it. This paper seeks to contribute to health financing policy debates by reviewing targeting options and assessing the available evidence concerning these issues. Success in protecting the poor appears to be limited and there are considerable informational, administrative, resource and socio‐political constraints undermining the development of effective targeting mechanisms. The paper, therefore, urges‐caution in developing health care financing policy and identifies a relevant research agenda.