New World Bank Report Warns Of Global Crisis In Health Financing

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In Washington: Phil Hay (202) 473-1796

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Olivia Elee (202) 458-7318

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WASHINGTON, May 25, 2006 – A new World Bank report warns that healthcare systems worldwide are struggling to cope with sharply rising costs, at the same time as countries scramble to deal with the HIV/AIDS crisis and head off the possibility of human bird flu pandemic, while the enormous health gap between rich and poor countries persists.

Despite an unprecedented global focus on health as a humanitarian and national security issue, and dramatic increases in development aid for health, three million people died from HIV/AIDS last year alone. Average life expectancy in Africa is now 47 years of age. Without the ravages of HIV/AIDS, it would now be 62 years. Tuberculosis is curable with low-cost drugs, and yet 5,000 people die from it everyday; the same is also true for malaria which daily takes the lives of 3,000 people, mostly children.

The new report - Health Financing Revisited-A Practitioner's Guide - raises serious concerns about current global efforts to expand the reach of healthcare systems to improve the health of millions of the world's poorest people by 2015, as called for in the Millennium Development Goals. The report says that the international community, for its part, must live up to its promise to substantially increase its development aid at the same time as making it predictable and sustainable. Development assistance for health has increased in recent years but recent findings suggest that donors need to make a more concerted effort to work with national governments to develop action plans and provide long-term consistent financing. A profusion of donor efforts have distorted country spending priorities, increased transaction costs, and fragmented health service delivery.

On the other hand, it is ultimately developing countries which must face the challenges of reforming their health financing systems to create sufficient operating budgets, ensure that all their citizens get access to effective healthcare, while protecting their people against impoverishment due to catastrophic medical expenses and other setbacks such as job loss or natural disasters.

Health spending gaps between rich and poor countries

According to the report, global health spending in 2002 was $3.2 trillion, about 10 percent of global gross domestic product (GDP), but only some 12 percent of that was spent in low- and middle-income countries. On the other hand, high-income countries spend about one hundred times more on health per person than low-income countries, even though poor people in developing countries are under siege from 90 percent of the world's disease burden. Worse still, most of the meager health spending in developing countries is paid by poor people themselves because most poor countries cannot provide their citizens with even the most basic essential health services.

"This report shows us how poor people in their developing countries face almost certain financial ruin in coping with catastrophic diseases without the financial protection that effective health systems in OECD countries routinely offer," says Jean-Louis Sarbib, Senior Vice President for the World Bank's Human Development Network, which produced the new report. "This inequity has tremendous consequences for the health of the world's poor since it means that falling sick to a major disease, and having to pay for a doctor out of their own pockets, is an automatic recipe for poverty."

At the national level, these problems also restrict productivity and economic growth, at the same time as many developing countries are witnessing sustained increases in their populations, and rising life expectancy. The report says that the world's population will grow from 6 billion today, to a projected 7.5 billion by 2020 and to 9 billion by 2050. Virtually all this growth will occur in low and middle-income countries. Populations in 50 of the world's poorest countries will double by 2050. These demographic changes alone over the next 20 years will cause most low- and middle-income countries to face 2-3 percent annual increases in health care expenditures.

Regionally, this will increase total health care spending needs by 14 percent in Europe and Central Asia; 37 percent in East Asia and the Pacific; 45 percent in South Asia; 47 percent in Latin America and the Caribbean; 52 percent in Sub- Saharan Africa; and 62 percent in the Middle East and North Africa. As a result of this population momentum, larger numbers of individuals will enter the work force.

"Whether this will be a "demographic gift" of faster economic growth, or a 'demographic curse' of greater unemployment and social unrest, will depend on government policies that foster economic and labor force growth, says Jacques Baudouy, Director of the World Bank's Health, Nutrition, and Population department, which sponsored the new study.

According to the new report, reforming the health sector anywhere in the world is a complex undertaking, and while international experience shows that there are many models to pick and choose from-whether it be in the form of national health service systems, social health insurance funds, private voluntary health insurance, community-based health insurance, or direct purchases by consumers-there is no single road to take for countries wanting to provide good quality medical care to their citizens at the lowest cost to both households and national economies.

Development aid for specific diseases on the rise….but is it working?

Development aid for health has increased significantly over the past few years, to more than $10 billion in 2003. Most of the recent increases have been focused on Africa and on individual diseases and interventions, raising important questions about how to ensure aid targeted at specific diseases builds up and strengthens the overall health system.

The report says that ear-marking development aid for specific diseases can be effective when developing countries have too little money to finance their health budgets. But as their health systems develop, having separate mini-health systems for each particular disease can lead to waste and inefficiency. Moreover, given the severe shortages of trained health workers in many African countries, these programs compete with each other to hire away the few skilled professionals needed to run public health systems.

"This is an important and timely report," says Joe Cerrell, Director of Global Health Advocacy at the Bill & Melinda Gates Foundation. "It shows how donor and developing countries can save millions of lives by committing sustainable, long term financing to effective health programs."

Learning from high-income countries

The reports says that high-income countries have a rich history of health financing reforms as their systems have evolved from community-based voluntary insurance arrangements to formal public insurance funds to social or national health insurance-based financing systems. Nearly all high-income countries, with the exception of the United States, have achieved universal or near universal health coverage. Tax-financed systems have been in place for a while, with social insurance systems more recently. Political will was critical to achieving universal coverage, along with economic growth.

Although high-income countries operate in very different contexts from low-income countries, their experience nonetheless offers some lessons for lower, and middle-income, countries:

• Economic growth is the most important factor in the move toward universal coverage.
• Improved management and administrative capacity is critical in expanding coverage, as is strong political commitment.
• For low- and middle-income countries transitioning to universal coverage, general public spending and social health insurance contributions are the two principal sources of public funding. Both accumulate public revenues into one or several pools. Because the critical issues are pooling and prepayment, whether a social health insurance, or a national health-service system, is ultimately chosen, is of secondary importance.

"Health is an extremely complex sector, and reformers must not shy away from dealing with these complexities upfront in their health policy reforms," say George Schieber and Pablo Gottret, co-authors of the new report, and World Bank senior health economists. "Buzzwords, flavors of the day, and magic bullets will not provide effective solutions to the health financing challenges faced by countries at all income levels. At this crucial global health crossroads, the report offers policy choices based on international evidence and economic principles for global and country-level decision-makers facing these enormous challenges and opportunities."