Opinion: The health financing transition plays a crucial role in meeting UHC

A doctor examines a patient in Afghanistan. Photo by: Raisa Jorge / World Bank / CC BY-NC-ND

Financing the Sustainable Development Goals is a costly enterprise that requires development partners to shift from the funding of individual projects to the financing of transformative change. Estimated additional $274 billion spending on health is needed per year by 2030 to make progress towards the SDG 3 health targets — the equivalent of an additional $41 per person.

The global health context has changed dramatically: Countries spend more on health as the population is aging and the burden of chronic diseases is at an all-time high. Low-middle-income countries face additional challenges, as their economies grow and access to external finance continues to wane. They are a “litmus test” for the success of the 2030 SDG agenda. A rise in total health spending per person, accompanied by a less than proportional increase in out-of-pocket, or OOP, health spending is what experts call a health financing transition. In fact, OOP spending share declines because pooled expenditures grow faster.

Countries at different levels of development move towards universal health coverage at a different pace. Some have already made considerable progress, and health financing transition plays a crucial role in this process, and here is why.

More money available for health allows to increase the coverage of health services. It also leads to the improvement in quality of care. Finally, prepaid revenues for health that are pooled together ensure fewer people will avoid seeking medical care due to fear of impoverishing health expenditures. As a public health professional having worked with both civil society and governments, I’ve pondered whether the economic transition can be painlessly overcome without damaging implications for health and the people.

Countries can make the transition a success. Myanmar and the Kyrgyz Republic have a gross national income per capita of roughly $1,140. At the same time, Kyrgyz’s per capita transfers from government domestic revenue to the health sector are almost three times that of Myanmar — $36 versus $13. Looking at a global picture, the gap between actual and expected government expenditure in LMICs in 2040 is dramatic. The lowest actual government expenditure as percent of total health expenditure, or THE, in LMICs was in Cambodia (14.2 percent), while the highest expected expenditure in 2040 is forecasted for Congo Brazzaville (84.5 percent). Such variation can be ascribed to several factors.

First, health is not always a priority in the government expenses (10 percent of general government expenditure in Georgia; 3 percent in Congo Brazzaville). Second, some health systems are more dependent on development assistance than others (34.7 percent of THE in Laos, 1.7 percent of THE in Congo Brazzaville). Third, government expenditures based on the level of income vary significantly, from 45 percent in Congo Brazzaville to 20 percent in Pakistan. Finally, some economies grow while others slow down. Côte d’Ivoire is estimated to increase its gross domestic product by 7.5 percent a year in the next five years. Swaziland and Kiribati are forecasted to experience a further decline in their GDP due to prices for commodities.

“Transitioning” countries are challenged to raise more funds for health, while external financing flows tail off sharply. Increasingly, development partners debate over the “right” cut-off threshold to determine eligibility for development assistance for health. The World Bank’s International Development Association uses creditworthiness and debt distress, among other criteria ($1,165 in 2018), as its cut-off thresholds. Gavi, the Vaccine Alliance revokes the eligibility status once a country's three-year average GNI per capita falls below the eligibility threshold (set at US$1,580 in 2015). The Millennium Challenge Corporation defines its threshold for LMICs as below $3,955. Where have we been in the past 20 years, pumping countries with development finance? Aid was directed to support vertical programs which largely undermined domestic financing for those programs. The inopportune time of transition comes suddenly and is hard to surmount.

What are the major concerns?

1. Cutting the “umbilical cord” of development finance too soon.

The development community continues to sound the alarm that countries are pushed beyond the transition thresholds early. In other words, the cut-off point for graduation from donor support is low. The variation in eligibility thresholds reflects the current disagreement over the proper role of GNI per capita in aid allocation. However, raising the bar may not be the solution. Martin Ravallion, a celebrated former World Bank economist, suggested that LMICs with GNI per capita below $2,000 (PPP, 2005) cannot raise sufficient domestic resources from tax revenue sufficient to reduce poverty.

2. Battling inefficiencies and undermined planning.

Large flows of development aid remain off-budget and unintegrated with national planning and budgeting procedures. This is partly because of the continuing direct consequences of modalities running in parallel. In Indonesia, external financing for health is 1 percent of total health financing and plays a significant role in funding the communicable diseases program and immunization. Meanwhile, the country is preparing to transition to upper-middle-income status. In Nigeria, expenses associated with human resources exceed health services-related expenses by the factor of 8, while country struggles to fulfil its co-financing obligations (before Gavi) for vaccines.

3. Pressing demand to deliver comprehensive primary care.

The development community is actively pushing to achieve UHC at all costs. An estimated additional $274 billion spending on health is needed per year by 2030 to make progress towards the health-related targets. In the past decade, large investments were made in supply chain management, information systems, training of health workforce. “Exiting” countries at this time leaves these systems at an early, immature stage, which undermines their sustainability. Gavi graduating countries display weaknesses in budgeting, national procurement practices, and technical capacity for vaccine planning and advocacy.

4. Fragmented financing and service delivery.

Finally, countries choose to decentralize their health systems, but severe fragmentation leads to soaring inefficiencies, compounds existing capacity constraints, and decreases the coverage of health services.

What are the solutions?

1. Domestic resource mobilization and allocation of resource to health.

The question facing “transitioning” countries is how to raise pooled prepaid funds for health and sustain priority programs. Ensuring the purchase of health services in an allocatively and technically efficient manner and sustaining health reforms will be critical. Many countries have introduced community-based health insurance schemes and social health insurance, however the effects of the latter may not be as impressive, unless formalization of economy takes place. Fragmented community-based insurance schemes, voluntary and without subsidization for the vulnerable population groups, are limited in supporting progress toward UHC. Some countries earmark a share of taxes for health or choose to introduce sin taxes.

2. Prioritization of services, planning, and budgeting.

National level policymakers in LMICs are challenged by a burden of social and economic problems. Prioritization of one sector over another, and one health service over another is an important decision that may take some learning and active assistance from the development partners or the private sector. Planning and budgeting cannot start without clear priorities and strong financial management information systems. Embarking on a health reform, countries should define a package of services that is feasible and affordable and protect priority interventions, such as immunization, with a guaranteed finance in the case of financial crises.

3. Early engagement at the health system level and donor alignment.

One of the goals of the World Bank’s Global Financing Facility is to coordinate donor engagement and align smart and sustainable investments tailored to specific countries’ needs. Partner assistance should arrive at the early stage of a health reform and be channeled through the health (financing) system and on budget, which will lead to higher relevance of aid and increased pooling of development finance.

4. Building management capacity.

Finally, it is time to acknowledge that this battle cannot be won without the private sector. Global strategy and management consulting firms, technology giants and startups have already left a major footprint in the development of sustainable systems in high-income settings, and many of them are actively marching into our global development space. In the pursuit of better efficiency and higher equity, their advice will be very much appreciated.

Update, Feb. 23, 2018: This article has been updated to clarify the structure of community-based insurance schemes.

About the author

  • Oleg kucheryavenko

    Oleg Kucheryavenko

    Oleg Kucheryavenko is a senior consultant at the World Bank. He is a public health professional with 10 years of experience in global health working in the areas of maternal and child health, domestic resource mobilization, financial protection, and financial instruments, including results-based financing and buydowns. Prior to the World Bank, he coordinated health policy and advocacy efforts in the Oxfam's program on Empowering Civil Society in an Unequal Multipolar World. He is a recipient of the World Bank President's Award for Excellence (2017).