Health Financing Issues in LICs
This section discusses the severe challenges LICs face in mobilizing sufficient revenues, both domestically and externally, to meet even the basic health needs of their populations.
The Needs Gap
Since the release of the 1993 World Bank World Development Report: Investing in Health, researchers have undertaken numerous efforts to estimate the costs of a basic package of essential health services. The Commission on Macroeconomics and Health (WHO 2001) estimated that, in 1997, the 48 poorest developing countries were spending on average US$11 per capita (US$6 per year in public funds) and that the level of spending would have to rise to US$34 per capita to ensure delivery of an essential package.4 On the basis of these data, the Commission on Macroeconomics and Health estimated that total DAH should rise to US$27 billion in 2007 and to US$38 billion by 2015 to scale up coverage (WHO 2001).
Within the framework of the MDGs, a number of other studies have been undertaken to determine the financial resources needed to meet the goals. In this book, Wagstaff and others (chapter 9) review the estimates and methodologies from these various studies, finding that the annual cost of scaling up to meet the MDGs is between US$25 billion and US$75 billion. The United Nations Millennium Project (2005) estimates that the additional overall development assistance needed for scaling up to meet all the MDGs will be US$74 billion by 2015. All the studies indicate that most LICs will face enormous constraints in raising additional resources through domestic resource-mobilization efforts and that the international community must essentially finance most of the gap.
New Global Alliances and Funds
Recent years have witnessed a marked increase in the number of global alliances and institutions aimed at alleviating specific health sector deficiencies, a number of which owe their existence to resources made available by philanthropic organizations.5 The GAVI Vaccine Fund and the Global Fund to Fight AIDS, Tuberculosis, and Malaria are perhaps the largest and most well known. While the GAVI Vaccine Fund is both a funder and an implementer, Roll Back Malaria is an example of an alliance that is a global partnership without a funding mechanism. Some entities like the Global Fund are purely financial vehicles with little alliance structure. The effect of these new alliances and funds is significant. Since its inception in 2000, the GAVI Vaccine Fund has raised and spent more than US$1 billion for immunization, and the Global Fund has commitments of more than US$5 billion and has signed grant agreements with more than 70 countries worth in excess of US$3 billion.
Although assessments of global initiatives and alliances are generally positive, some observers have concerns about their effects on health systems and prioritization (Travis and others 2004). Increasing concerns are being expressed about the "verticalization" of DAH and the development of separate health system "silos," each dedicated to specific diseases and activities. This strategy is especially problematic in light of the scarce human resources available for health in many LICs (Global Health Trust 2004; Joint Learning Initiative 2004).
As a result of these concerns, the G-7 countries are currently discussing a number of new, broad-based, global financing mechanisms to mobilize and facilitate the transfer of resources from developed countries to LICs, and significant progress has been made in relation to the International Finance Facility (IFF), a proposal advanced by the U.K. government. The IFF will frontload development assistance by issuing bonds on international markets that would be secured based on legally binding, long-term donor commitments. The IFF would repay bondholders using future donor payments. Depending on the number of donors involved, the IFF could raise an additional US$50 billion a year in development assistance between now and 2015. One of the many advantages of this kind of mechanism is that a portion of funding for international development is effectively taken out of the annual budgetary process in participating countries. In this way, the hope is that the revenue streams available to fund development can be rationalized, both in terms of the total volume of assistance and in terms of the stability of annual flows.
These global funds have added a major new dynamic to global health policy and a new level of influence over LICs. Large grants are approaching the World Bank's financing levels for the health sector. Moreover, such funding is often targeted to specific diseases or interventions, frequently outside the basic broadly based financing instruments required by the World Bank and the IMF. This factor raises important issues of donor coordination and harmonization of procedures and has implications for IMF fiscal ceilings.
Financing Instruments
During the past decade, a new reform instrument known as the SWAp has heavily influenced health financing, particularly for LICs. Concomitantly, the World Bank and the IMF have imposed a series of requirements and instruments to ensure that external assistance is targeted to the poor through PRSPs. These new policy blueprints and requirements are radically different from previous DAH mechanisms, which were largely funded on a bilateral basis through projects.
SWAps
Starting in the mid-1990s, donors and recipient countries established the SWAp to address the limitations of project-based forms of donor assistance, to ensure that overall health reform goals were met, to reduce large transaction costs for countries, and to establish genuine partnerships between donors and countries in which both had rights and responsibilities. The core elements of a SWAp follow (McLaughlin 2003, 2004):
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The government is "in the driver's seat."
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The partnership results in a shared vision and agreed-upon priorities for the sector.
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A comprehensive sector development strategy that reflects all development activities to identify gaps, overlaps, or inconsistencies.
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An expenditure framework that clarifies sectoral priorities and guides all sectoral financing and investment.
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A partnership across development assistance agencies that reduces governments' transaction costs.
SWAps explicitly recognize the need to tie health sector changes to new aid instruments, to macroeconomic and public sector management, to poverty reduction, and to achievement of the MDGs (Cassels 1997). A key aspect of this approach is to improve countries' policy-making processes, including budget and public expenditure management, by capturing all funding sources and expenditures and by putting resource allocation decisions into a medium-term budget and expenditure framework that is based on national priorities (Foster 1999). To date, SWAps are in various stages of development and implementation, and few conform fully to the specifications listed above (Institute for Health Sector Development 2003). At this point in their evolution, SWAps should be viewed as a way of coordinating development assistance and creating country ownership. They should be judged on how well they do these things compared with the previous environment characterized by multiple, stand-alone projects.
PRSPs
Starting in the mid 1990s, the World Bank and the IMF began to radically change both the focus and the tools for providing development assistance to poor countries. In response to criticisms about the ineffectiveness of previous development assistance efforts and the high level of indebtedness in some of the world's poorest countries, the two organizations focused on debt forgiveness for heavily indebted poor counties, poverty reduction, and improved economic growth. Debt forgiveness required countries to reprogram the bulk of the savings from forgiven debt into social sectors such as health and education.
In 1999, the World Bank and the IMF stipulated that all of their concessionary assistance to 81 eligible poor countries would need to be based on a Poverty Reduction Strategy Paper (IMF and World Bank 2002, 2003). This new approach was intended to the following:
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strengthen country ownership
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enhance the poverty focus of country programs
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provide a comprehensive coordination framework for the World Bank, the IMF, and other development partners
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improve public governance and accountability
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improve priority setting.
The PRSP process is country driven, involves broadly based participation, is results oriented and focused on outcomes that benefit the poor, is comprehensive in recognizing the multidimensional nature of poverty, is partnership oriented, and is based on a long-term perspective (IMF 2004a; World Bank 2004d).
The PRSP process has made poverty reduction the priority issue for development (SHC Development Consulting 2001). Because macroeconomic and sectoral strategies need to be formulated around the PRSP, health reform strategies must be included and focus on the poor. As of September 2004, about 42 LICs had developed PRSPs that are serving as the basis for World Bank and IMF financing in those countries. Extensive evaluations of PRSPs by the World Bank and the IMF, by bilateral donors, and by other development partners have painted the following mixed picture of their success (IMF 2004a; IMF and World Bank 2002; IMF and World Bank 2003; World Bank 2004d):
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PRSPs have the potential to encourage the development of country-owned, long-term strategies for poverty reduction and growth, but tensions concerning ownership among countries, the World Bank and the IMF, and other donors remain. External partners have not adapted their assistance programs to PRSP processes in a coordinated manner, and better frameworks for accountability of both countries and partners are needed.
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Country participation has improved; however, greater inclusiveness is still needed. Moreover, the process has not strengthened domestic institutional policy-making processes or accountability.
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PRSPs are an improvement over previous processes in terms of results orientation, poverty reduction focus, and long-term perspective. They have fallen short in terms of being a strategic reform road map, especially in relation to undertaking structural reforms, boosting economic growth, linking with medium-term expenditure frameworks and budgets, integrating sectoral strategies into the macroeconomic framework, assessing the social effects of macroeconomic strategies, understanding links between macroeconomics and microeconomics, integrating strategy components, and linking medium- and long-term operational targets.
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Capacity constraints have been serious impediments to effective implementation, but little attention has focused on capacity building.
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Monitoring and evaluation is still a significant weakness.
Evaluations of the health sector components of PRSPs raise many of these issues (DFID Health Systems Resource Centre 2003; WHO 2004a). As more and more partners buy into this process and as increased amounts of development assistance are funneled through PRSPs, their effectiveness will ultimately depend on country commitment, capacity, and processes; partner flexibility; and funding availability. At this stage, PRSPs still seem to be a work in progress.
Community-based Health Insurance
As noted earlier, private and out-of-pocket spending accounts for almost half of total health spending in LICs. Given LIC governments' limited abilities to mobilize revenues, country and donor attention has turned to informal sector insurance mechanisms as a way to improve financial protection, mobilize revenues, and improve the efficiency of out-of-pocket spending. Community-based health insurance is an umbrella term for the various types of community financing arrangements that have emerged because of high out-of-pocket spending, uncertainty surrounding anticipated financial flows from donors, and large and unregulated private sectors. Here, CBHI refers to prepayment plans that attempt to pool risks to reduce the financial risk an individual faces because of illness (Atim and others 1998; Bennett, Creese, and Monash 1998; Bennett, Kelley, and Silvers 2004).
CBHI is found throughout the world but is particularly prevalent in Sub-Saharan Africa (Bennett, Kelley, and Silvers 2004). CBHI plans are relatively heterogeneous in terms of populations covered, services offered, regulation, management function, and objectives. The Commission on Macroeconomics and Health found that CBHI plans provided significant financial protection and extended access to a large number of rural and low-income populations (WHO 2001), but that affordability impeded access for the very poor. As a result, the commission called for increased support for CBHI and for the establishment of a cofinancing scheme that would match dollar for dollar the premiums individuals paid toward their health insurance with a government or donor dollar (WHO 2001).
One recent review of the CBHI experience found less positive results, noting "no evidence from the documents reviewed that [CBHI schemes] positively impact health status or at least the utilization of services and financial protection for their members and/or for society at large, particularly the poor" (ILO and STEP 2002a, 54). The review finds that most CBHI schemes "tend to be small organizations (70 percent covering less than 200 members) with community participation in key decisions at one point or another in their history but with limited legal or de facto ownership by the community and with significant dependence from other health subsystems or subsidies as reflected by their low market exposure" (ILO and STEP 2002a, 54).
In his assessment of CBHI, Ekman (2004, 249) notes the following:
Overall, the evidence base is limited in scope and questionable in quality. There is strong evidence that community-based health insurance provides some financial protection by reducing out-of-pocket spending. There is evidence of moderate strength that such schemes improve cost-recovery. There is weak or no evidence that schemes have an effect on the quality of care or the efficiency with which care is produced. In absolute terms, the effects are small and schemes serve only a limited section of the population. The main policy implication of this review is that these types of community financing arrangements are, at best, complementary to other more effective systems of health financing.
The evidence from these reviews suggests that, even though CBHI provides financial protection for those enrolled and some degree of resource mobilization, the overall effect is relatively small and schemes are less effective in reaching the very poor. Thus, CBHI is unlikely to be a panacea for substantially improving risk pooling and mobilizing resources in LICs, and for MICs, CBHI is less relevant given higher incomes and levels of formal sector employment. This finding does not suggest that CBHI should not be part of an overall solution to financing health care, but it indicates that CBHI is unlikely to play a major role.
The most critical challenge facing LICs is raising sufficient revenues to meet their basic health needs and the health MDGs. Although increased grant funding is badly needed, the large amounts of funds often targeted to a few countries and for specific diseases and interventions raise questions of country absorptive capacity, potential distortions of health systems' priorities, and interactions with IMF fiscal ceilings. Concomitantly, LICs must improve their institutions in order to increase absorptive capacity and increase the effectiveness of all official development assistance. It is also critical for the international community to reassess the entire official development assistance and DAH structure; to develop country-compatible mechanisms to reinforce promised international redistribution; and to improve the targeting, levels, predictability, and timeliness of external assistance.
