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p. 17 of 27 BACK | NEXT Executive summary Introduction Regional health context The Bank’s involvementin the health sector Issues and options The health of the poor, women, and indigenous peoples Setting clear priorities Mobilizing resources for the public health sector Building managerial capacity Testing innovative approaches Introducing effective, new, and affordable technologies Focusing on functions which constitute public goods Increasing collaboration between public and private sectors The Bank’s health policy

Policy for the Health Sector : Issues and options

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Mobilizing resources for the public health sector

The level of financing of public health activities in almost all the Bank’s DMCs is insufficient to address major problems and make substantial improvements in the health of the population. Much of the problem lies in the low level of investments in health being made by DMC governments. Even before the onset of the current economic and financial difficulties, government expenditure on health from 1990 to 1996 was lower in the region than in any other region of the world. Expressed as a percentage of total government budgets, allocations for health in the DMCs was only half of the average for all developing countries (see Table 3). The lack of financial resources is evident in the shortage of drugs and equipment in public health facilities; the low, demotivating salaries paid (often late) to health workers; the inadequate maintenance of buildings and equipment; and the failure to deliver all the high-impact, low-cost services listed in Appendix 3. With technological advances, the gap between what is being achieved and what could be achieved at low cost will likely widen.

In increasing the funds available for public health services, policymakers in the Bank’s DMCs face choices in the mechanisms they employ. These mechanisms need to be assessed in terms of the ability to raise substantial revenues, ease of implementation, and equity considerations, including the potential to pool risks. Governments can generate additional funds for public health activities through (i) increased allocations in government budgets; (ii) external borrowings and grants; (iii) social insurance; and (iv) user charges. In addition, governments can encourage or mandate increased private expenditures on health services.

Increased budgetary allocation. Budgetary allocations make up by far the largest component of the public health budget and typically account for 70 to 80 percent of the funds available for public health activities. Because revenue collection systems already exist, increasing the allocations for health is administratively simple. Taxes on tobacco and alcohol provide governments with an opportunity to generate more revenues and can also reduce consumption, particularly by the poor. Government budgets provide a means for pooling risks.

As demonstrated by the current crisis in the region, when serious economic troubles occur, governments may be tempted to decrease budgetary allocations for health even as the poor find themselves worse off. Decreasing budgets, especially for PHC, will rob the poor of an important aspect of the social safety net. There are a number of reasons to believe that DMC governments can increase their health budgets in the medium term, including (i) developing countries in other parts of the world spend roughly twice as much on health as a proportion of total

External assistance. The proportion of public sector health expenditures accounted for by external borrowings and grants varies considerably, but averages about 10 percent. Smaller countries and those with low incomes tend to exhibit greater reliance on external sources. While it accounts for a relatively small proportion of the total, external assistance can have a disproportionate effect because it provides (i) a large proportion of new capital investments; (ii) additional, nonsalary resources that are often used for essential inputs such as in-service training, drugs, and vaccines; (iii) advice on technical and managerial issues; and (iv) the impetus and opportunity to test new approaches on a pilot basis. External assistance generally has a beneficial financial impact on the poor. As discussed earlier, the trend in bilateral and multilateral assistance for health originating from OECD countries is unclear but is unlikely to increase substantially in the next few years.

Social insurance. Based on the experience of most OECD countries, social health insurance provides the DMCs with an opportunity, in the medium, to increase financing for health, ensure more equitable access to services, and improve outcomes. However, such insurance schemes are complex to design and challenging to administer and should be introduced gradually. Social insurance for formally employed workers is generally financed through an earmarked payroll deduction from both the employee and the employer, supplemented by general tax revenues. Since, in most DMCs the pool of formal sector workers is small, social insurance has been implemented in only a few countries. Among the DMCs, excluding the newly industrialized economies, only the PRC, Indonesia, Philippines, Thailand, and Viet Nam have thus far established sizable social insurance schemes, and they cover from 17 to 38 percent of the population. Hence, across the region, social insurance provides about 10 to 15 percent of public financing. While the collection of funds is relatively simple, payment of benefits can be complex and is open to fraud and abuse. (New computer software may be able to diminish this problem.) The equity implications of social insurance can be complicated and depend on the particular design. Because most benefits are captured by the wage-earning middle class and well-off health care providers, any government subsidy will be inequitable. In addition, almost all the schemes implemented thus far put a cap on benefits and therefore do not offer risk pooling against catastrophic illnesses. The difficulties encountered with implementing social health insurance in developing countries point out the need to introduce these schemes cautiously and gradually. Careful evaluation of initial efforts based on both quantitative and qualitative information will allow the identification and correction of problems as the coverage of insurance widens. While it may take some time to establish effective social health insurance schemes, if carefully designed, they can provide an equitable means for increasing health care financing and ensuring risk pooling.

User charges. Charging patients for services provided, or otherwise financed, by the government has been promoted as a means to increase revenues for the public health system. However, when applied to PHC facilities intended to serve the poor, such charges have distinct disadvantages. For outpatient services particularly in rural health centers, user charges have not been able to raise more than 15 or 20 percent of operating costs. Thus, discussions of user charges in the PHC setting need to be tempered by the fact that they account for a small proportion of total revenues. User charges for PHC also suffer from some serious difficulties. First, they tend to be difficult to administer and have high administrative costs relative to the amount collected. Second, user charges are inequitable as they decrease utilization by the poor, the young, and the elderly. Unfortunately, there does not appear to be a simple way of means testing to allow the poor to be exempted. Third, implement-ing user charges in the public sector leads the private sector to raise their prices, further reducing options for the poor. Fourth, user charges for services that have positive externalities, such as the treatment of TB and STDs, can endanger disease control efforts in the community.

Instituting user charges in hospitals, which disproportionately serve the better off, can contribute to increased efficiency and is a sensible approach to cost recovery. User charges in hospitals may be one means to decrease the inequitable capture of subsidies. For example, high fees on private rooms in public hospitals may be used to have the wealthy cross-subsidize services used by the poor. (This attractive approach has not yet been implemented on a broad scale in the Bank’s DMCs although Papua New Guinea has started doing this with Bank assistance.) In addition, formal user charges in public hospitals are preferable to the informal charges that have become ubiquitous. The administration of user charges in hospitals is usually easier than in health centers because financial and accounting sys-tems already exist. The major challenge in introducing user charges for hospital care is ensuring that they do not further diminish use by the poor. In the long-term, this issue can be dealt with through social insurance, but in the short term other approaches will be required. These may include emergency loans and postpayment schemes.

Facilitating or mandating private expenditures. Where governments can facilitate or mandate expenditure of private resources on health, they may be able to increase total health expenditures. If designed carefully, such policies may also allow governments to decrease the subsidies captured by the rich, thereby allowing more public resources to be focused on the poor. The mechanisms available to governments to increase private health expenditures include (i) mandating the purchase of private insurance by identified groups; (ii) establishing a system of medical savings accounts under which individuals are forced to save a certain percentage of their wages in special accounts earmarked to meet future medical expenses; and (iii) setting up a system of emergency loans to meet the immediate costs of catastrophic illnesses. Using private expenditures to allow allocation of more public funds to the health of the poor is clearly very attractive. However, these approaches suffer from a number of problems. First, enforcing mandates and managing the required systems is administratively complex and open to waste and fraud. Second, they reduce the extent of risk pooling and the opportunities for cross-subsidization of the poor by the wealthy. Third, they reduce social solidarity and create multiple tiers of health care based on ability to pay. A related problem is that by removing the wealthy and politically influential from the public health system, government budgetary allocations for the sector may decline from their already low levels. Fourth, all these approaches are virtually untried in developing countries.

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