Health Sector PERS

1. Health Sector PERS PREM Public Expenditure Management Course April 2007, Washington, D.C. George Schieber Consultant Human Development Network

2. Organization of Presentation • Health Systems Reform • Underlying Health Dynamics • Health Expenditures • Basics of Health Financing • Provider Payment • Basic Health Reform Issues • Basic Reform Instruments

3. Health Systems Reform

4. Objectives of Health Systems • Improve health status of population • Assure equity and universal access • Provide financial protection • Be efficient from macroeconomic and microeconomic perspectives • Assure quality of care and consumer satisfaction

5. Complexity of Health Sector • Global governance and policy coherence is a major problem as there are well over a 100 major organizations involved in the health sector, far more than in other sectors (e.g., unstructured plurality). • As the bulk of the funding needed in the health sector is for long term recurrent costs as opposed to the more traditional short term investment costs, countries need to figure out how to create adequate future fiscal space in their budgets for sustainability. • There are numerous non-health related factors that affect health outcomes, necessitating complex cross-sector approaches. • Individual behavior plays a critical role in health outcomes and is very difficult to influence or change. • Measuring health outcomes—other than sentinel events such as births or death—and attributing causality to specific factors is inherently complex. • The private sector plays a substantial, often predominant, role in both the financing and delivery of healthcare services and is often absent from the policy debate. • Market failures in insurance markets and in the health sector more generally require complex regulatory frameworks. • Finally, the costly financial protection element of health financing is largely unique to the health sector (except for a few standard social protection programs) and creates difficult tradeoffs among competing health objectives for resource constrained governments.

6. Achieving Change in HNP Behavior of Individuals/Households Income Education Water Sanitation Nutrition • Performance of Health System • Clinical Effectiveness • Accessibility and Equity • Quality and Consumer Satisfaction • Economic Efficiency • Health Status Outcomes • Fertility • Mortality • Morbidity • Nutritional Status Macro-economic Environment Health Care System • Institutional Capacity • Regulatory & Legal Framework • Expenditure & Finance • Planning & Budgeting Systems • Client & Service Information/Accountability • Incentives • Delivery Structure • Facilities (public & private) • Staff (public & private) • Information, Education, & communication Governance Projects and Policy Advice

7. Why Public Intervention? • Health services with collective benefits (public verses personal health services) • Redistribution/Equity • Health insurance market failures • Other market failures in the direct consumption and provision of health services

8. Nine Criteria for Establishing a BBP for Public Spending on Health Care Catastrophic Cost Poverty Externalities VerticalEquity Cost Effectiveness Public Goods HorizontalEquity Public Demands Rule of Rescue Key: Efficiency criteria Equity or Ethical Criteria Political Criterion Source: P. Musgrove

9. Underlying Health Dynamics

10. Why Invest in Health? Buys more health services Improves life styles Reduces job-related risks Buys more education and other human capital-related services Health Income Wealth Growth Improves political stability, investment climate, and productivity Reduces medical spending Reduces fertility Increases labor supply and female labor force participation Increases saving Increase in the years of healthy life expectancy Source: Salehi, 2004

11. MDG Approach to Investments in Health • Extreme Poverty • Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day. • Halve, between 1990 and 2015, the proportion of people who suffer from hunger. • Safe Water & Sanitation • Halve by 2015 the proportion of people without sustainable access to safe drinking water. • By 2020, achieve significant improvement in the proportion of people with access to sanitation. • Child & Maternal Health • Reduce by two thirds, between 1990 and 2015, the under-five mortality rate. • Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio. • Primary & Girls' Education • By 2015, boys and girls everywhere complete a full course of primary schooling. • Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015. • Communicable Diseases • By 2015, halt and begin to reverse • the spread of: • HIV/AIDS • Malaria & • Other major diseases.

12. Investments are Needed Across Many Sectors to Achieve MDGs Investments are Needed Across Many Sectors to Achieve MDGs Investments are Needed Across Many Sectors to Achieve MDGs % growth government health spending 0% 3% 5% 8% 10% 13% 15% 0% 0% 5% economic growth -10% -10% & 2.5% female education growth & 2.5% roads growth -20% -20% & 2.5% water & sanitary growth -30% -30% & 2.5% growth in all % reduction U5MR 1990-2015 -40% -40% -50% -50% -60% -60% -70% -70%

13. Policies and Institutions Do Matter Elasticities of MDG Outcomes with Respect To Government Health Spending * Statistically significantly different from zero at 90% confidence level Source: World Bank, 2003

14. Cost-effective Interventions Are Key to the MDGs • Which interventions to choose? • How to transfer them to many countries? • How to implement them to scale? • How much will they cost? • What kind of supporting environment is needed? • Can we monitor their impact?

15. Reducing Under-five Mortality How much health will a million dollars buy? Source: Disease Control Priorities in Developing Countries, second edition, 2006, Table 1.3.

16. Preventing and Treating Noncommunicable Diseases How much health will a million dollars buy? *Costs and DALYs are in addition to using inexpensive drugs only. **Incremental to treatment with polypill. Source: Disease Control Priorities in Developing Countries, second edition, 2006, Table 1.3

17. Projected But Economic Growth Will Not Be Enough

18. Underlying Demographics Will Drive Needs/Demands But Also Have Profound Effects on Economies

19. Demographic impact of HIV/AIDS: Botswana Source: U.S. Census Bureau 1999

20. Inequalities in Outcomes Are an Issue Child mortality rates for the poor are often two to three times higher than those for the rich [Source: Asian Development Bank (2006)].

21. Health Expenditures

22. Health Policy BaselineHealth Expenditures, 2004 Source: World Bank, WHO, 2007. All regional and income class aggregated data weighted by the series denominator 1. SSA GDP and health spending data excluding South Africa 2. HICs GDP and health spending data excluding the United States

23. The Global Context:Major Inequities in Disease Burden Developing countries account for 90% of the global disease burden Source: The World Bank. 2005. World Development Indicators. 2006.

24. The Global Context:Inequities in Health Spending …but only 12% of global health spending Source: The World Bank. 2005. World Development Indicators. 2006.

25. But There Are Also Large Inequities in Health Spending Within Countries

26. EXPENDITURE PERFORMANCE Can Be Measured in Many Ways • LOCAL CURRENCY • Point in time or changes over time • Total nominal spending • Share of GDP • Public verses private • Public health share of all public expenditures • Administrative expense share • Type of service • Capital vs. recurrent • Nominal per capita • Real/Volume (health deflator) • Real/Opportunity Cost (general price deflator) • NUMERAIRE CURRENCY--exchange rates/purchasing power parities (GDP, health)

27. Where Do We Start: National Health Accounts Source: OECD

28. Health Expenditures in Ukraine, 1998-2005 Source: WHO National Health Accounts 2007

29. Evolution of Budgetary Expenditures on Health Source: WHO National Health Accounts 2007

30. Recurrent and Capital Expenditures on Health Source: Ukraine Public Expenditure Review Health Sector, Health Sector Task Force, World Bank 2007

31. Public Health Expenditures by Program Source: Ukraine Public Expenditure Review Health Sector, Health Sector Task Force, World Bank 2007

32. U.S. NHA By Type of Service Source: Health Affairs Feb 2007

33. Per Capita Health Expenditure vs. Per Capita GDP Source: World Bank, WDI, 2007, World Health Organization 2007

34. Health Expenditures as Percent of GDP Source: World Bank, WDI, 2007, World Health Organization 2007

35. Public Health Spending Varies Widely By Income Level(Per Capita GDP vs. Public Health to GDP Ratio) Source: World Bank, WDI, 2007, World Health Organization 2007

36. Child Mortality Varies Widely for Given Income Levels(Per capita GDP vs. Under-5 Mortality Ratio) Source: World Bank, WDI, 2007, World Health Organization 2007

37. Child Mortality Varies Widely for Given Public Health Spending Levels(Public Health to GDP Ratio vs. Under-5 Mortality Ratio) Source: World Bank, WDI, 2007, World Health Organization 2007

38. Higher Public Spending on Health Does Not Guarantee Better Access for the Poor Source: WDR 2004

39. Basics of Health Financing

40. Functions Objectives Health Financing Functions and Objectives Revenue Collection raise sufficient and sustainable revenues in an efficient and equitable manner to provide individuals with both a basic package of essential services and financial protection against unpredictable catastrophic financial losses caused by illness and injury Pooling manage these revenues to equitably and efficiently pool health risks Purchasing assure the purchase of health services in an allocatively and technically efficient manner

41. Taxes Government Agency Public Charges/ Resource Sales Public Providers Social Insurance or Sickness Funds Mandates Private Insurance or Community-based Organizations Grants Private Providers Loans Employers Private Insurance Individuals And Households Communities Out-of-Pocket Financing Reforms Need to Deal with Revenues, Risk Pooling, Management and Payment Revenue Pooling Resource Allocation Collection or Purchasing (RAP) Service Provision Public Private

42. Efficiency Gains are Another Source of Financing * Public spending and child mortality rate are shown as the percent deviation from rate predicted by GDP per capita Source: Spending and GDP from World Development Indicators database. Under-5 mortality from Unicef 2002`, WDR 2004

43. Efficiency Defined • Efficiency of financing base -- the economic costs resulting from changes in the production and consumption behavior of firms and households as a result of taxes and other revenue raising efforts • Allocative efficiency – “doing the right things” -- purchasing the most cost-effective mix of outcomes • Technical efficiency -- “doing things right” – producing a specific health outcome, intervention or service at lowest cost

44. Domestic Resource Mobilization is Much More Limited in MICs and LICs

45. Strong Performance in Most Regions Real GDP annual percent change Source: World Bank

46. Increase of Grant Aid in % GDP Improved Expenditure Efficiency in % GDP Improved Revenue Effort in % GDP New Borrowing in % GDP Fiscal Space* is Needed *Budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of its financial position • Estimates of revenue effort may suggest that an additional 4 percent of GDP could be raised through domestic revenue measures. • Negotiations with development partners may elicit indications of an additional 3 percent of GDP in grant aid. • A PER may have identified areas for rationalization that would release 3 percent of GDP in resources for reallocation. • Macroeconomic and debt management may suggest that new borrowing over the period should be limited to 2 percent of GDP. • Seignorage (govt prints money which it loans to itself) is yet another, but generally limited, mechanism for creating fiscal space. Source: PREM: FISCAL POLICY FOR GROWTH AND DEVELOPMENT: AN INTERIM REPORT, 2006

47. The Classic Definition: Self-sufficiency -- over a specific time period, the responsible managing entity will generate sufficient resources to fund the full costs of a particular program, sector, or economy including the incremental service costs associated with new investments and the servicing and repayment of external debt: the level of sustainable deficit that will keep the debt burden constant for feasible rates of growth, real interest rates, and inflation. assumes that a constant ratio of public debt to GDP will ensure public sector solvency and avoid a debt crisis in the future. ignores equity and efficiency issues, e.g., can be fiscally sustainable yet inefficient and highly inequitable. not very useful for countries with large grant financing. Other Definitions: The capacity of the health system to replace withdrawn donor funds with funds from other, usually domestic, sources The sustainability of an individual program is defined as “capacity of the grantee to mobilize the resources to fund the recurrent costs of a project once the investment phase has ended” A softer definition is that the managing entity commits a stable and fixed share of program costs Fiscal Sustainability is a Critical Concomitant of the Creation of Fiscal Space

48. Risk Pooling is Needed to Prevent Health Shocks Which Contribute to Poverty (Loss of income, excess expenditures in medical health services) Source: Baeza

49. Risk Pooling and Prepayment • Risk pooling enables the establishment of ‘insurance’ as large unpredictable risks at the individual level become predictable when pooled over a large number of individuals • Risk pooling enables the averaging of health risks over all pool members and provides the opportunity for redistribution among high and low risk pool members • Prepayment provides protection against unpredictable large losses and redistribution between high and low income individuals: • In risk rated private insurance, the premium reflects the average predicted risk of pool members, thus enabling pool members to face a predictable upfront payment • In a public system, pre-payment whether through social security or general revenue contributions allows the separation of payments from expected medical risks and thus enables redistribution from high to low income individuals

50. Cross subsidy from productive to non-productive part of the life cycle Cross-subsidy fromrich to poor (equity subsidy) Cross-subsidy from low-risk to high-risk (risk subsidy) $ $ $ $ $ $ High risk Non-productive Productive Rich Low risk Poor What do We Mean by Risk Pooling? Resource endowment Resource endowment Resource endowment Health risk Income Age