Financing
Financing is another major challenge facing low- and middle-income countries.4 The challenge is twofold: to mobilize sufficient funds for operating the health system and to apply those funds well. However, mobilizing funds to finance public health interventions is difficult both because some health care is costly and because raising revenues in low- and middle-income countries is not easy.
Financing health expenditures is expensive. In 2001, the world spent about US$3 trillion on health, but these expenditures were not distributed evenly around the globe. Only 12 percent of the total was spent for people in low- and middle-income countries even though they account for 84 percent of the world's population and 92 percent of the disease burden. Low-income countries spent approximately US$25 per capita in 2001, while middle-income countries spent an average of US$176 per capita and high-income countries spent an average of US$1,527 per capita, but these are only averages. The world's poorest countries, such as Ethiopia and Nepal, spend the least on health, some US$2 or US$3 per capita at best, while Canada, Japan, the United States, and Western Europe spend between US$2,000 and US$5,000 per capita.
". . . whereas health insurance finances a substantial share of private health expenditures in high-income countries, such expenditures are overwhelmingly out-of-pocket in low-income countries."
Health spending is strongly correlated with national income. Countries that are wealthier not only spend more on health but also spend a greater proportion of their income on health. Thus, on average, countries in Sub-Saharan Africa spend about 4.5 percent of their national income on health compared with average expenditures of 7.7 percent by high-income countries. In addition, countries that are wealthy finance a larger share of their health expenditure through public mechanisms. Tax revenues and social insurance premiums pay for 70 percent of health expenditures in high-income countries, but account for an average of 50 percent of health expenditures in low-income countries. In addition, whereas health insurance finances a substantial share of private health expenditures in high-income countries, such expenditures are overwhelmingly out-of-pocket in low-income countries.
Raising additional revenues to increase public spending on health is difficult in low- and middle-income countries. Tax revenues account for 14.5 percent of GDP in low-income countries, compared with 26.5 percent in high-income countries. Payroll taxes designated for health and pension benefits, that is, social security taxes, are even more constrained in low-income countries because the share of formal employment tends to be small. Social security taxes represent less than 1 percent of GDP in low-income countries, but amount to 7.2 percent of GDP in high-income countries.
"Tax revenues account for 14.5 percent of GDP in low-income countries, compared with 26.5 percent in high-income countries."
Sales taxes on particular commodities, such as alcohol and tobacco, can be seen both as health interventions and as sources of revenues. DCP2 shows that raising the price of alcohol and tobacco is highly cost-effective for discouraging high-risk drinking and smoking and, consequently, reducing the disease burden associated with these behaviors. At the same time, taxes on alcohol and tobacco can increase government revenues. Some countries earmark these taxes for use in health campaigns to encourage people to stop smoking or to drink more responsibly.
Public financing plays an important role in health services, especially in high-income countries, and even in the United States where public health insurance for the elderly (Medicare), the poor (Medicaid), and the military (Veterans Administration) accounts for more than half of all health expenditures. The rationale for publicly financing health is strong. Economists have shown that markets for health care services do not function well if left to themselves. For example, consumers cannot easily shop around for the best quality and lowest-price health care services as they might do for other kinds of services. Furthermore, private markets are unlikely to allocate sufficient resources to preventive measures that have a large effect on a population's collective health status, such as vaccinating children or controlling environmental risks. Public financing also gives society a public policy tool that can be used to create incentives to improve health care quality, contain costs, redress inequities, or improve access. Notably, public financing is an essential feature of most, if not all, public health successes around the world (see chapter 2 in this volume and DCP2, chapter 8). Public involvement in health care is not a panacea, but it is the main way that many countries have chosen to address health care, and DCP2 argues a case can be made for public financing of at least some health services in all countries.
". . . public financing is an essential feature of most, if not all, public health successes around the world . . ."
In low- and middle-income countries, where public spending is low, access to care often depends on a household's ability to pay for it. This is the case when seeking treatment not only from private health care providers, but also in many cases from public health care providers. Public health services sometimes charge fees to recover a portion of their costs, but even in systems where public services are ostensibly free, patients and their families may be coerced into paying informally for access to services or be required to provide their own food, bedding, and even medical supplies.
". . . where public services are ostensibly free, patients and their families may be coerced into paying informally for access to services or be required to provide their own food, bedding, and even medical supplies."
DCP2 cannot resolve the debate about charging for health care services in low- and middle-income countries. Some chapters argue that the negative consequences of discouraging people from getting treatment offset the benefits of raising revenues through fees. Some chapters even make the case for negative prices, that is, paying people to encourage them to obtain treatment or preventive care and point to a number of successes. For example, in Tajikistan, poor patients with TB were given food supplements if they complied with their drug treatment regimen, resulting in better adherence. In another successful program in Mexico, the government pays a stipend to poor families on the condition that their children are fully immunized, are brought to clinics for regular checkups, and maintain good school attendance. However, fees also have an impact on the productivity of health care services in those places where they work to assure drug availability or reduce absenteeism, and in such cases may help sustain services that the poor use. Overall, DCP2 takes a pragmatic stance, encouraging countries to eliminate financial barriers to care wherever possible and to assure that when fees are charged, they demonstrably improve the productivity and quality of health care available to the poor.
DCP2's prescriptions for financing health vary considerably between low- and middle-income countries. In low-income countries, the absolute levels of income and tax revenues severely constrain the possibilities for financing adequate and universal health care. In the past decade, a variety of studies have estimated the costs of providing basic health care. These exercises have estimated that providing a basket of health care services that could make a substantial difference to a population's health costs between US$12 and US$50 per capita per year. While these sums are within reach of most middle-income countries, they are not feasible in low-income countries without large amounts of external assistance.
". . . providing a basket of health care services that could make a substantial difference to a population's health costs between US$12 and US$50 per capita per year."
Thus the problem low-income countries face is multifaceted. On the one hand, they need to raise domestic revenues, an approach that can at most generate an additional 1 or 2 percent of GDP. On the other hand, low-income countries need to use what resources they have from both domestic and foreign sources as effectively as possible. It is this latter strategy—deriving the greatest health gain from new and current health expenditures—that motivated the Disease Control Priorities Project.
In middle-income countries, the problems of financing are different and the economic and institutional resources for addressing them are stronger. Middle-income countries can finance most of their health expenditures with domestic sources, but they face a range of options for shaping the structure of health care financing, with important implications for equity and productivity. Choices of different financing mechanisms also have important implications for who will bear the costs of health care: the population at large may share spending, thereby providing effective insurance to those unlucky enough to become ill, or it may fall most heavily on those who are sick.
Some countries are choosing to finance health services with general tax revenues, while others are relying on payroll taxes and social insurance schemes. Middle-income countries often use both approaches for different population groups. Initiatives to promote health insurance coverage through voluntary schemes are also under way. Strong arguments can be made in favor of pooling the financial risk associated with paying for health care among the widest population possible, effectively paying for the health care of the poor and the sick with taxes and premiums paid by those who are healthier and wealthier. DCP2, chapter 12, appraises these different approaches.
Development assistance plays a much larger role in the health policy of low-income than of middle-income countries. In low-income countries, development assistance to the health sector accounted for an average of 20 percent of all health spending, compared with about 3 percent in middle-income countries. In 13 Sub-Saharan African countries, external financing represented more than 30 percent of all health spending. Overall, international development assistance declined in the 1990s and represented only 0.25 percent of the gross national income of the world's wealthy countries despite their public commitments to contribute 0.70 percent of their total income to international development assistance.
"In low-income countries, development assistance to the health sector accounted for an average of 20 percent of all health spending, compared with about 3 percent in middle-income countries."
Despite this overall trend, development assistance to the health sector has increased during the past decade, though it is still too low to reach international health targets. International aid to health grew from an estimated US$6.7 billion in 1997-99 to around US$9.3 billion in 2002. This includes funds from bilateral development agencies and multilateral development banks, but also increasingly from private foundations, such as the Bill & Melinda Gates Foundation, and from new global initiatives, such as the Global Fund to Fight AIDS, Tuberculosis and Malaria and GAVI. However, between US$60 billion and US$70 billion of development assistance for health is needed each year to meet the health targets set by the MDGs, significantly more than current levels.
As with domestic resources, much of the debate about international development assistance is how to make it effective. DCP2 discusses a range of initiatives aimed at making development assistance more effective by redirecting it toward cost-effective measures, but also by reducing transaction costs, improving coordination, and increasing country ownership. Some of the more promising innovations involve performance-based programs that disburse funds against results, such as reaching immunization coverage targets. Other initiatives have engaged host country governments with international agencies and domestic stakeholders in developing and following coordinated sectorwide plans tied to poverty reduction and improved health status targets. The new funds created by global initiatives concentrate attention on particular diseases and challenges in low-income countries. Global action is also being taken to encourage research and development of vaccines and drugs not only through direct funding, but also by establishing advance purchase commitments.
Decisions about how to finance health care strongly influence how the health system will function in any country, but low- and middle-income countries can do more with the funds they have by allocating resources to cost-effective interventions and by mobilizing additional funds to support health improvements. In the case of low-income countries, meeting today's health challenges requires wealthy countries to fulfill their commitments to increase international development assistance to health, even as it requires low-income countries to face the challenges of absorbing these funds and using them in ways that will effectively improve the health of their populations.
Notes
1 This section is based on DCP2, chapters 4, 5, 6, 53, and 54.
2 This section is based on DCP2, chapters 70 and 73.
3 This section is based on DCP2, chapters 3, 71, and 73.
4 This section is based on DCP2, chapters 11, 12, and 13.
