June 11, 2008, Indonesia ’s health sector is entering a period of transition. By 2015, Indonesia is expected to have a population of around 250 million. In addition to this major demographic change, epidemiological and nutritional transitions are also occurring. Taken together, all these changes will require a very different Indonesian health system from the one that exists today. But although Indonesians are living longer, too many children continue to die of preventable diseases and too many mothers die in childbirth. While Indonesia still has this heavy, albeit declining, burden of fighting communicable diseases, the number of non-communicable diseases (diabetes, heart diseases, etc) is increasing rapidly. This double burden of high communicable and increasing non-communicable diseases is placing additional pressures on the health system.

In the past few years, Indonesia has introduced some major changes into its health system: decentralization has empowered districts and provinces to manage and finance midwives, nurses and doctors; and the introduction of a health insurance system for the poor (Askeskin) has created the opportunity to protect vulnerable Indonesians against slipping into poverty when they fall ill. However, Indonesia is encountering difficulties in implementing these bold reforms. For example, it still remains unclear to whom health workers are accountable, and one consequence of this lack of accountability is high levels of absenteeism from work. Askeskin has led to a substantial expansion in health spending and raises important questions concerning the financial sustainability of universal health insurance coverage. These difficulties are a reflection of the broader challenges that will face Indonesia’s health sector in the decade ahead.

This Health Public Expenditure Review (Health PER) ‘Investing in Indonesia’s Health: Challenges and Opportunities for Future Public Spending’ is therefore a very timely analysis that supports Indonesia in the development and implementation of its health sector strategy and forms a first important input for the Government’s next Medium-Term National Development Plan (2009-14). This study highlights a number of different facets of public expenditure on health in Indonesia and prompts a series of fundamental questions about the future. These questions include the overall adequacy of funding, the role of public versus private expenditures in the health sector, the roles of central and regional budgets, appropriate mechanisms for mobilizing resources and purchasing services, and the proportion of public expenditure that should be devoted to public health, as opposed to individual medical care. This report provides nine ideas for making the health system more efficient.

The Health PER is a follow-up to the 2007 Indonesia Public Expenditure Review and follows its successful model of collaboration between the Government of Indonesia and the World Bank. The Health PER is also a product of the Initiative for Public Expenditure Analysis (IPEA), which is a consortium of key government ministries, including the Ministry of Finance, State Ministry of Development Planning (Bappenas), the Coordinating Ministry for the Economy, Indonesian universities and the World Bank. The Dutch Government provided substantial financial support. This report was written in close collaboration with the staff from the Ministry of Health and Bappenas.

• An increasing level of public health spending, measured as a percent of GDP as well as a percent of total government expenditures
• A decreasing level of catastrophic expenditures (household health spending exceeding 40% of total household expenditures) among the poor, most likely due to Askeskin
• A double burden of disease, with traditional, communicable diseases as a remaining challenge, and ‘new’ non-communicable diseases rising rapidly
• A mixed picture in terms of health outcomes with remarkable increases in life expectancy and reductions in child mortality, but lagging progress in areas such as maternal mortality and nutrition.
• Limitations in demand for services due to health illiteracy and significant non-medical costs (opportunity and transportation costs, user fees) across regions and socio-economic groups
• Challenges related to decentralization and local public financial management, such as limited capacity for district health accounting and performance budgeting (applying minimum service standards)
• Relatively low levels of government spending on other determinants of health outcomes (improved water and sanitation, and nutrition)

Nine Ideas for Better Health Outcomes in Indonesia

1. Make better use of the existing resources available for health, while also making more resources available in the medium term.
2. In particular, make more resources available for reproductive health and allocate resources for referral and institutional deliveries.
3. Improve the allocation of resources for preventive care and allow for suffi cient resources for operations and maintenance to ensure quality of basic care.
4. Devote additional resources and attention to all major public goods that determine health outcomes.
5. Adjust the general allocation fund (DAU) to provide incentives for local civil service reform and amend PP No.55 to allow operational use of deconcentrated funding.
6. Improved health outcomes and fi nancial protection for the poor may be possible by increasing the coverage of Askeskin.
7. Ensure better financinal sustainability of Askeskin by introducing cost-containment options.
8. Increase efficiency of service provision for publicly insured enrollees by allowing program benefi ciaries to also use private providers.
9. Improve reporting systems and data availability.