Getting Real on Health Financing

• Author: George Schieber, Lisa Fleisher, and Pablo Gottret
• Position: Health Policy Advisor/Public Health Specialist/Lead Economist in the World Bank's Human Development Network

Will all the hype and money lead to results?

Never before have so much attention and money been devoted to improving the health of the world's poor. Celebrities have been using their star power to shine the spotlight on the grim health statistics of poor countries, and the international community has committed itself to achieving the eight Millennium Development Goals (MDGs) by 2015, three of which directly relate to health. Against this backdrop-and at a time when globalization has increased the risk of having isolated outbreaks of diseases such as SARS and avian influenza explode into global pandemics-funding from both traditional and new sources has increased significantly. Indeed, development assistance for health has risen steadily since 1990 from about $2 billion to close to $12 billion in 2004 (a doubling of the proportionate share of external assistance in developing countries' health spending), with most of this increase occurring over the past five years.

Yet despite the good intentions and new investments, the world's health is still in a dire state. Since 1985, there has been a decline of 10-20 years in life expectancy in some African countries-largely because of the HIV/AIDS pandemic, which has killed 25 million people since it was first recognized in 1981. Globally, 5,000 people die from tuberculosis every day, even though it is treatable and preventable. On top of this tragic human toll, these diseases take a significant economic toll. In the hardest-hit countries, HIV/AIDS is likely to reduce national income by 20 percent by 2020, and illness and death caused by tuberculosis are estimated to cost $1.4-2.8 billion a year in lost economic growth. And the reality is that developing countries continue to face 90 percent of the global disease burden but account for only 12 percent of all global health spending. Unless deficiencies in the global aid architecture are corrected and major reforms occur at the country level, the international community and the countries receiving the aid risk squandering this historic opportunity to improve the health of poor people.

The political economy of aid

What is wrong with the global health picture? To get a better understanding of the problem, it is helpful to examine the motivations and constraints of both donors and recipients.

At the country level, governments want to ensure an effective health system, and to do that, they must collect sufficient revenues in a manner that is sustainable, equitable, and efficient. They must pool health risks and purchase services so that they can provide their citizens with a package of essential services and also ensure financial protection against the costs of catastrophic illness. From a rational point of view, this means that governments should fund or subsidize those health services that qualify as basic public and merit goods. They should also, as a matter of basic equity, finance services for the poor and, ideally, provide their entire population with financial protection. An important element in these efforts is figuring out how to purchase health services efficiently, because efficiency gains constitute an additional source of revenue. External assistance from donor countries is one of many potential sources of revenues that can help finance a basic health system and is an important source of financing in many low-income countries.

At the donor level, a different set of considerations dominates. Donor assistance is provided in many different ways, including through earmarked assistance given directly to specific countries, global health funds (that is, independent entities established by donors to focus increased aid in specific areas), and international organizations. Donor countries choose to provide funds for many different reasons, including a desire to finance global public goods, advance global health security by protecting against pandemics, demonstrate international solidarity, and promote support for domestic policy. Usually, the main obstacle facing donor countries is the need to convince their electorates that tax money spent on foreign aid is worthwhile. For this reason, donors increasingly tie financing to tangible products and results that can be readily measured. This means that health aid is often dedicated to specific diseases or interventions where there is a direct link between spending, the purchasing of services, and, sometimes, outcomes. It is much more difficult to persuade people to support aid for health systems, health financing, and general budget support. These realities of foreign aid and the...