The State of Health Financing in Ethiopia: Q&A with Local MSH Technical Experts

Strong health systems that save lives and promote equity require a comprehensive understanding of how much services cost and a plan for how to pay for them. Management Sciences for Health’s (MSH) Health Economics and Financing (HEF) team helps countries mobilize resources for health and spend them more efficiently. We also help protect people from the impoverishing effects of high out-of-pocket (OOP) spending on health by supporting governments to pool resources through health insurance schemes. Ethiopia, where MSH has had an active presence for the last 21 years, has made impressive strides in this area. By implementing measures such as Community-Based Health Insurance (CBHI), which covers the costs of basic health services for the informal sector, and institutionalizing health technology assessment (HTA)—a priority setting framework that promotes more efficient health spending—Ethiopia is helping its citizens live longer, healthier lives while protecting their income and livelihoods.

Two Ethiopia-based colleagues, Daniel Erku and Lelisa Assebe, recently joined MSH’s global HEF Practice Area as a Senior Technical Advisor and Principal Technical Advisor, respectively. They bring a wealth of experience conducting health systems research in Ethiopia—especially in HTA, equity, and priority setting. Their unique perspectives on HEF issues in Ethiopia will help guide MSH’s ongoing work there and in other countries. In this post, Daniel, Lelisa, and I discuss recent progress and the challenges still facing Ethiopia.

Andrew Carlson (AC): One of the primary objectives of our HEF work is to reduce OOP spending, which is high in Ethiopia at 31% of total health expenditure. What are some of the reasons behind this unfortunate statistic, and how does this impact people’s everyday lives in the country?

Daniel Erku (DE): A while ago, a relative of mine living in a remote rural area was diagnosed with cervical cancer. Basic medicines were unavailable locally, so she had to travel to the nearest town to buy them. The only comprehensive radiotherapy and chemotherapy center at the time was in Addis Ababa, some 700 kilometers away. The cost of travel and treatment was overwhelming; she had to sell her cattle—the main source of her livelihood—to cover these expenses. By the time she raised enough funds to seek better treatment, the cancer had advanced to a late stage. This financial strain was devastating and reflects the daily reality for many Ethiopians facing other conditions like TB, HIV, and malaria. This was around the time when CBHI was being rolled out nationally, and while there has been improvement since then, many families still face significant financial barriers to accessing necessary health care services, as the persistently high OOP expenditure indicates.

Several factors contribute to Ethiopia’s OOP health spending for families like my relative’s. The lack of access to affordable health services forces many to seek more expensive care in private facilities. User fees for health services—except those exempted—and high non-medical costs, such as travel and accommodation, add to this burden. Socioeconomic and demographic factors, such as large family sizes and, in the case of rural residents, long distances to health facilities, make accessing care even more challenging. Interruptions in the supply chain for medicines and medical products in public health facilities, especially in rural areas, further exacerbate OOP expenses.

Lelisa Assebe (LA): Such high OOP healthcare costs pose a significant challenge for patients and families. I led a study looking at the financial burden of an infectious disease like TB in Ethiopia, in which we identified major challenges patients faced. Although Ethiopia offers “free” TB services, the exemption policies often cover limited basic care such as TB diagnosis using microscopy and GeneXpert tests, as well as treatment and follow-up for both drug-susceptible and drug-resistant cases. Costs related to imaging, other laboratory services, ancillary medications, hospitalization, transportation, food/lodging, and lost patient income are not covered. Households must therefore shoulder the burden of these costs, which is of particular concern for TB patients who need months-long treatment and follow-up care. The high OOP spending and lost income associated with TB illness makes it harder for people to follow through with the extensive treatment and often results in poor clinical outcomes and financial hardships.

AC: These are some massive challenges. What are some of the health economics and financing tools and reforms that could be applied to prevent, or at least mitigate, the types of unfortunate situations you both just described?

LA: To address the financial burden in seeking care, particularly for diseases like TB, we propose designing health benefit packages that prioritize the interventions that provide the greatest health benefits while also preventing associated care-seeking costs. This approach, coupled with social protection schemes, should address not only pre- and post-TB diagnostic-related medical costs but also often-overlooked indirect costs, such as transportation, accommodation, and lost income. Extended Cost-Effectiveness Analysis generates evidence on the financial risk protection afforded by health interventions, which can help policymakers decide which of these interventions to include in benefits packages.

DE: You’re right, Andrew; these are massive challenges. First and foremost, raising more funds for health is essential. Without sufficient financing from government budgets and pooled prepayment mechanisms like health insurance, it’s nearly impossible to improve access to quality health care and drive down OOP spending. We need to explore innovative and alternative financing mechanisms and advocate for greater government budget allocations for health.

But it’s not just about raising more money; it’s also about using those funds efficiently. We need to make sure that every Birr is spent where it can make the most impact. Implementing explicit priority-setting approaches, like institutionalizing HTA, can help us do that. HTA provides a systematic way to evaluate the value and impact of health technologies and services—this ensures we allocate our limited resources to interventions that offer the most significant health benefits. These priority-setting practices tie directly to the work of agencies like the Ethiopian Health Insurance Services and the Ethiopian Pharmaceutical Supply Service. For example, it informs what benefits should be covered under health insurance packages and guides sensible, efficient procurement of pharmaceuticals and other health technologies. This exercise—deciding what to buy—is also a core component of strategic purchasing, which is another critical area Ethiopia can explore to reduce OOP spending.

Ethiopia is on a promising path in this regard, with efforts underway to establish HTA processes and pilot innovative provider payment mechanisms, although we still have a long way to go. So, to answer your question, increasing funding and importantly, using those funds more efficiently, could help prevent the hardships that many families have faced and continue to face. No one should have to sell their livelihood to afford health care, and no one should lose a loved one because they couldn’t access treatment in time.

AC: MSH is expanding its HEF portfolio in Ethiopia through our involvement in and work on current projects such as the USAID Ethiopia Health Resilience Activity; USAID-funded Supply Chain Strengthening Activity; and the USAID Eliminate TB Project. After talking with Daniel and Lelisa about these issues, I’m even more grateful to have them on our team and am excited about the unique contributions they can bring to help us continue to partner with the Government of Ethiopia to address the country’s biggest health system challenges.