Why a New Study? Global health has been pushed to top of the international agenda on human rights, national security, and foreign policy grounds, providing countries and the international community with both a tremendous opportunity and a major challenge. The international focus on poverty reduction and the MDGs has resulted in new funding, global players and policy dynamics including the new global funds (GFATM, GAVI) and new financers such as the Gates Foundation. Over the past 10 years a plethora of new financing instruments, such as PRSPs, MTEFs, PRGFs, PRSCs, SWaps, PERs, PETs, have become the basis for planning, funding, and resources tracking; yet, there has been little systematic assessment of these instruments from a health financing perspective.

Health is an Extremely Complex 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.

Purposes of Study Provide an overview of health financing policies in developing countries Serve as primer on major health financing and fiscal issues to assist policy-makers and other stakeholders in the design, implementation, and evaluation of effective health financing reforms Analyze health financing policies from the perspectives of the basic financing functions of revenue collection, pooling resources, and purchasing services. Assess policies in terms of their ability to improve health outcomes, provide financial protection and assure consumer satisfaction in an equitable, efficient, and financially sustainable manner

Global Inequities are Rampant… Developing countries account for 90% of the global disease burden Source: WDI 2005 and Lopez, Mathers, and Murray 2006.

Annual Per Capita Health Spending Low-income countries: $24 Low-middle income countries: $91 Upper-middle income countries: $342 High-income countries: $3810..but only 12% of Global Health Spending Source: WDI 2005 and Lopez, Mathers, and Murray 2006.

There are Large Inequities within Individual Countries Infant mortality rates among poorest and richest 20%: 56 low- and middle-income countries

The Richest also Benefit from Government Health Spending % of All Health Spending% of Primary Health Spending Poorest 20 % Green Richest 20% ORANGE Source: World Development Report 2004

Mortality Patterns are Unique “One-size-fits-all” solutions will not work Source: United Nations 2005.

Cost-effective Interventions do Exist Source: WHO 2004.

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. Service or Intervention Cost Per DALY (US$) Estimated DALYs Averted Per Million US$ Spent Improving care of children under 28 days old (including resuscitation of newborns) , ,000 Expanding immunization coverage with standard child vaccines2-2050, ,000 Adding vaccines to the standard child immunizations (particularly Hib and HepB) ,000-24,000 Switching to combination drugs (ACTs) against malaria where resistance exists (Sub-Saharan Africa)8-2050, ,000

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 Service or Intervention Cost Per DALY (US$) Estimated DALYs Averted Per Million US$ Spent Taxing tobacco products3-5024, ,000 Treating heart attacks with inexpensive drugs , ,000 Treating heart attacks with inexpensive drugs plus streptokinase* ,300-1,600 Treating heart attack and stroke survivors for life with a daily polypill700-1,0001,000-1,400 Performing coronary artery bypass surgery in high risk cases**>25,000<40 Using bypass surgery for less severe coronary artery disease**Very highVery small

† This change is the difference in poverty head count before and after health-care payments are subtracted. All results are significantly different from zero at the 5% significance level, except for that of Malaysia at $1·08. ‡Percentage point change multiplied by the total population. §Percentage point change as a proportion of the prepayment head count. Source: Doorslaer, Lancet, Oct 14, 2006 Impoverishment Due to Catastrophic Medical Expenses is a Problem and Another Reason for Formalized Health Financing Arrangements

Health Financing Functions and Objectives FunctionsObjectives Revenue Collection Pooling Purchasing 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 manage these revenues to equitably and efficiently pool health risks assure the purchase of health services in an allocatively and technically efficient manner Source: Gottret and Schieber, Health Financing Revisited, World Bank, 2006.

Major Health Financing Models Model Revenue Source Groups Covered Pooling Organization Care Provision National Health Service General revenues Entire population Central government Public providers Social Health Insurance Payroll taxesSpecific groups Semi- autonomous organizations Own, public, or private facilities Community- based Health Insurance Private voluntary contributions Contributing members Non-profit plansNGOs or private facilities Voluntary Health Insurance Private voluntary contributions Contributing members For- and non- profit insurance organizations Private and public facilities Out-of-Pocket Payments (including public user fees) Individual payments to providers NonePublic and private facilities (public facilities)

Global Health Policy Baseline Health Expenditures, 2004 (population-weighted) Source: World Bank, WHO, 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 :

Key Expenditure Facts Public spending accounts for less than 25% percent of total health spending in LICs, some 50% in MICs but over 60% in HICs: →Policy-makers need to focus on private spending as well as public. Public spending on health is some $10 per capita in LICs, over $100 in MICs, and $2000 in HICs: →Policy-makers in LICs will be challenged to provide an essential package of basic services. Out-of-pocket payments account for 70 percent of health spending in LICs, 40 percent in MICs and 15 percent in HICs: →Policy-makers need to focus on improving formal risk pooling mechanisms in order to provide financial protection and protect the poor. Social health insurance accounts for some 1% of all health spending in LICs, 20% in MICs, and 30% in HICs: →Policy-makers in LICs need to carefully evaluate whether they have the enabling conditions in place for SHI to succeed. While external sources on average account for only some 6 percent of total health spending in LICs, in over 20 African countries, it accounts for more than 30 percent: →Policy-makers in LICs and MICs need to keep focused on internal sources of finance, as these sources account for the bulk of their health revenues.

Domestic Resource Mobilization is Limited in LICs and MICs

More Money is Not Enough * 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

Source: World Bank, PREM:, Estimates of revenue effort may suggest that an additional several percent of GDP could be raised through domestic revenue measures. Additional grants from donors are unlikely. Spending efficiency can be improved. Macroeconomic and debt management may suggest that new borrowing over the period should be limited. Seignorage (govt prints money which it loans to itself) is yet another, but generally limited, mechanism for creating fiscal space. Fiscal Space* is Needed In Order to Expand Coverage *Budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of its financial position

More Money Alone Will Not Achieve Results Unless Countries Deal with Their Major Constraints Including: Macroeconomic issues (e.g. capacity to raise more money domestically, fiscal space) Institutional issues (e.g. administrative capacity, level of corruption) Health staffing issues (e.g. skills and number of administrative, managerial & medical staff) Social/cultural/political issues (e.g. political and social stability, cultural norms, etc)

External Aid is an Important Source of Health Spending in Some Countries Source: WHO, WDI. SSA excludes South Africa. Data are for 2004

Development Aid is Increasing but Falls Far Short of What is Needed and Promised to Meet the MDG (0.54) and Monterrey Commitments (0.70) To meet 2010 commitments (ODA of US$130 billion per year), need an average increase of about 8% per year Source: OECD DAC database. Source: World Bank, Global Monitoring Report 2007

Donor Aid for Health has Increased Significantly Source: Michaud 2006 Most of the recent increases: Focus on Africa Focus on specific diseases Come from bilaterals and ‘other’ multilaterals (GAVI, Global Fund)

However, Donor Commitments for Health are Volatile and Unpredictable Try managing this…

MOH MOEC MOF PMO PRIVATE SECTORCIVIL SOCIETYLOCALGVT NACP CTU CCAIDS INT NGO PEPFAR Norad CIDA RNE GTZ Sida WB UNICEF UNAIDS WHO CF GFATM USAID NCTP HSSP GFCCP DAC CCM T-MAP 3/5 SWAP UNTG PRSP Donor collaboration is a challenge Source: Mbewe, WHO

Bilateral Donor Support to Tanzania, Source: Foreign Policy, Ranking the Rich 2004

Vertical Aid Distorts Priorities Drug Use Malaria Nutrition HIV/AIDS Health system PMTCT Maternal health New born care Safe and Supportive Environment Skilled birth attendance Case management Community Management Source: Mbewe, WHO

Fragmentation in international effort …. Source; Don De Savigny & COHRED

Donor Funding in Rwanda

Donors Distort Salary Structures Source: Global Health Partnerships: Assessing Country Consequences, McKinsey and Co, November 2005

Global Health Reforms Will Fail Unless The global community lives up to its aid commitments and improves donor harmonization Countries base decisions on sound policy and global evidence bases tailored to individual country circumstances Countries improve their capacity to absorb more aid and to spend it effectively and wisely Donors and countries better align their preferences, political expectations, and processes Monitoring and evaluation efforts are given higher priority in development

Contents Foreword xiii Acknowledgments xvii Acronyms and Abbreviations xviii Overview 1 The numbers 2 Patterns and effectiveness of current health spending 3 Health financing functions and sources of revenues 4 Risk pooling mechanisms 7 Development assistance for health 12 Realities of government spending and policy levers 14 Health financing challenges in low-income countries 15 Health financing challenges in middle-income countries 18 Learning from high-income countries 20 1 Health transitions, disease burdens, and health expenditure patterns 23 Demographic dynamics 24 The epidemiological transition and health spending 28 Implications of demographic and epidemiological transitions for health financing 32 Global distribution of health expenditures 34 Sources of health spending 36 Annex 1.1 Population pyramids and global health expenditures by region and income group 39

2 Collecting revenue, pooling risk, and purchasing services 45 Health financing functions: definitions and implications 46 Revenue collection and government financing of health services 49 Risk pooling, financial protection, and equality 54 Risk pooling and prepayment 58 Purchasing 61 Health financing policies and fiscal space to increase health spending 63 Annex 2.1 Classifications of health financing systems 66 3 Risk pooling mechanisms 73 State-funded health care systems 75 Social health insurance 82 Community-based health insurance 96 Voluntary health insurance 103 Annex 3.1 The four types of financial risk in voluntary/private health insurance External assistance for health 123 Trends in official development assistance 125 Trends in private financial flows 131 Trends in health aid 133 The effectiveness of aid 138 Recent efforts to revamp aid Improving health outcomes 161 Government health expenditures 163 Reaching the Millennium Development Goals for health 164 Annex 5.1 Government health expenditures, donor funding, and health outcomes: data and methods 170

6 Increasing the efficiency of government spending 185 Institutions and policies at the country level 187 Policy instruments to improve public sector management 189 Targeting health expenditures 198 Decentralizing health care Financing health in low-income countries 209 Health spending by region 211 The cost of the Millennium Development Goals 214 Public sources of revenue for health 218 Private sources of revenue for health 227 Equity and efficiency of health spending in low-income countries 236 Annex 7.1 Four models to estimate the cost of the Millennium Development Goals for health at the country level Financing health in middle-income countries 249 Commonality and variations in health systems 250 Common health financing challenges 252 Revenue mobilization 254 Risk pooling 259 Purchasing services 265 Other considerations 272 Annex 8.1 Summary of recent health reforms in middle-income countries Financing health in high-income countries 279 Main reform trends in high-income countries 280 Coverage decisions and benefit entitlements 282 Collection of funds 290 Pooling of funds 298 Purchasing and remuneration of providers 302 Index 311

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