Health Sector PERS

1. Health Sector PERS PEAM Course March 2005, Washington, D.C. George Schieber Health Policy Advisor Human Development Network

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

3. Health Systems Reform Basics

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. 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

6. 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

7. The Five Control Knobs for Health Sector Reform THE FIVE CONTROL KNOBS FOR HEALTH SECTOR REFORM FINANCING PAYMENT ORGANIZATION REGULATION PERSUASION INTERMEDIATE OUTCOMES HEALTH STATUS FINANCIAL RISK PROTECTION SATISFACTION FINAL OUTCOMES FOR HEALTH SECTOR PERFORMANCE

8. Underlying Health Dynamics

9. Transmission Mechanism Between Health & Income, Growth & Wealth 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

10. Some Empirical Evidence • 10% increase in life expectancy at birth leads to 0.35% increase in the economic growth rate (CMH). • Increases in health status accounted for 17% of the increase in productivity gains (NBER). • Effectiveness of spending in improving health outcomes also depends on the policy and institutional environment with poor policy and institutional environments resulting in little gain, and conversely (WB).

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. Growth Is Not Enough Sources:WDR 2004, Devarajan 2002. Notes: Average annual growth rates of GDP per capita assumed are: EAP 5.4; ECA 3.6; LAC 1.8; MENA 1.4; SA 3.8; AFR 1.2. Elasticity assumed between growth and poverty is –1.5; primary completion is 0.62; under-5 mortality is –0.48.

16. Economic Growth and Poverty ReductionDo we know what works? • Poverty reduction can be achieved by economic growth and/or by changing the distribution of income • While growth in itself is not a sufficient condition for poverty reduction, it is a critical enabling factor for significant reductions over time • Most poverty reduction is in those countries that have experienced sustained periods of economic growth and those with lower initial levels of inequality and poverty • A 1% rate of growth in average household income or consumption drops the poverty rate from between 0.6% to 3.5% • Financial development, trade openness and increases in the size of government are associated with higher growth but increases in inequality, ceteris paribus • Recent studies suggest that policy makers should focus on sectors, regions, and factors of production dominated by the poor; redistributive spending focused on the HD assets of the poor; and gender inequalities as there is evidence that improvements in these areas as well as lower inflation lead to both growth and progressive redistribution Source: WB, PREM, Poverty Reduction Group

17. Region/income group Per capita GDP (2002 $US) Average per capita GDP growth, 1990-2002 (percent) Under-five mortality, 2001 (per 1,000) Life expectancy at birth 2002 Population growth rate, 1990-2002 (percent) Health expenditures per capita, (2000) Public health expenditures (% of total health exp., 2000) Economic indicators Health outcomes Health expenditures Europe & Central Asia Middle East & North Africa East Asia & Pacific 980 6.1 54 65 1.4 44 38 2,384 -0.9 34 70 0.1 108 73 Low income 453 2.2 137 53 2.1 21 25 Latin America & Caribbean 3,176 1.2 32 70 1.4 262 47 2,265 1.3 52 68 2.2 115* 46* South Asia 467 3.2 99 61 2.1 21 20 Sub-Saharan Africa 463 -0.3 153 49 2.2 29 43 High income 26,942 1.6 7 78 1.0 2735 59 Middle income 1,870 1.7 33 70 1.2 115 51 Source: World Bank, WDI 2003 Health Policy Baselines * MENA figures do not include GCC

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. By 2020, Non-communicable Diseases and Injuries Will Account for 78% of the Total Disease Burden in Low- and Middle-Income Countries Source: Mathers, Colin D., Claudia Stein, Doris Ma Fat, Chalapati Rao, Mie Inoue, Niels Tomijima, Christina Bernard, Alan D Lopez, and Christopher J.L. Murray. 2002. Global Burden of Disease 2000: Version 2 methods and results. Global Programme on Evidence for Health Policy Discussion Paper 50. World Health Organization, Geneva.

21. Global Distribution of Health Expenditures

22. Interventions Must Address Inequities in Outcomes (Deaths per 1,000 live births) Source: Analysis of Demographic and Health Survey data, WDR 2004

23. Health Expenditures

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

25. 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)

26. Health Expenditures in Jordan, 1998-2003

27. Higher GDP Means a Higher Share of GDP is Devoted to Health Source: World Bank, WDI, 2003

28. Evolution of Budgetary Expenditures on Health Source: Jordan Public Expenditure Review Health Sector, Health Sector Task Force, World Bank 2004

29. Government Health Financing by Source of Funds Source: Jordan Public Expenditure Review Health Sector, Health Sector Task Force, World Bank 2004

30. Recurrent and Capital Expenditures on Health (million JD) Source: Jordan Public Expenditure Review Health Sector, Health Sector Task Force, World Bank 2004

31. Public Health Expenditures by Program Source: Jordan Public Expenditure Review Health Sector, Health Sector Task Force, World Bank 2004

32. Public Health Spending Varies Widely By Income Level(Per Capita GDP vs. Public Health to GDP Ratio) Source: World Bank,WDI, 2002

33. Child Mortality Varies Widely for Given Income Levels(Per capita GDP vs. Under-5 Mortality Ratio) Source: World Bank,WDI, 2002

34. Child Mortality Varies Widely for Given Public Health Spending Levels(Public Health to GDP Ratio vs. Under-5 Mortality Ratio) Source: World Bank,WDI, 2002

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

36. Higher Public Spending on Health Does Not Necessarily Mean Better Health Outcomes * 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

37. Observations on Current Spending Patterns • There are large global inequities in health spending among countries • There are large variations in health spending among countries at the same income level • There are large variations in health outcomes among countries even for the same health spending and income levels • There are large variations within countries in health spending, access, and outcomes for the poor vs. non-poor • The private share of health spending, which averages 75% for low-income countries, decreases as countries’ incomes increase • There are clearly large differences in the efficiency of health spending related to both allocative (‘doing the right things’) and technical (‘doing things right’) efficiency

38. Fundamentals of Health Financing

39. Health Financing Functions • Revenue Collection • Pooling of Health Risks • Purchasing of Services • Provision of Services

40. Health Financing Objectives • Raising ‘sufficient’, affordable and sustainable revenues in an efficient and equitable manner • Managing these revenues to equitably and efficiently pool health risks among high and low risk individuals, rich and poor, and over individuals’ life cycles • Providing individuals with adequate financial protection against catastrophic financial losses due to illness and injury • Assuring the purchase and provision of health services in the most 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. Public Financing Sources • Taxes • Sales of natural resources • User charges • Mandates • Grant assistance • Borrowing • Efficiency Gains

43. Private Financing Sources • Private insurance • Direct out-of-pocket purchase • Grant assistance • Borrowing • Charitable contributions

44. Issues in Taxation • Economic efficiency • Equity • Administrative simplicity • Revenue generation potential • Flexibility • Transparency

45. How Much Can Developing Countries Afford?(Central Government Revenues and Tax Revenues as a % of GDP, circa 2001) Source: IMF, 2003

46. Future GDP Growth Will Be Modest Source: World Bank, Global Economic Prospects and the Developing Countries, 2004

47. 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

48. 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

49. Adverse selectionoccurs when sicker than average individuals enroll in competing public or private health insurance plans This can destabilize insurance markets through premium spirals if healthier individuals disenroll Insurers react by trying to screen out such high risk individuals by: requiring medical exams examining claims history having waiting periods excluding pre-existing conditions from coverage refusing insurance coverage These instabilities can be offset by: regulation of insurers marketing insurance to groups formed for other purposes (e.g. employment) having a mandatory public insurance program Risk Selection Can Destabilize Insurance Markets

50. Insurance Encourages Overuse of Services • This phenomenon known as moral hazardresults because of the tendency for insurance to increase the probability of the occurrence of the event that is being insured against • It is present in both public and private insurance • Insurance design features to mitigate moral hazard include: • cost sharing • limits on benefits • frequent renewability • utilization management