As the Financing for Development Conference in Addis Ababa ends, we present the case for financing health care in India. India is losing vast sums of potential tax money that could finance universal health coverage (UHC) while at the same time decreasing the health budget and promoting private finance and delivery of health services. A recent Oxfam India paper explores available evidence around financing healthcare for all in India and offers recommendations.
1. The potential for tax funding
Free services like healthcare and education are vital to fight poverty and inequality yet India is being denied the resources to fund them. The International Monetary Fund (IMF) estimates that developing countries are three times more vulnerable to base erosion and profit shifting activities of multinational companies- they lose 0.84% of GDP in the short run, compared to 0.23% lost by OECD countries. Recent research covering 1500 Multi-National Companies (MNCs) in India showed that those with links to tax havens reported 1.5 % less profit than those with no such links – a strong indication that the former are engaged in profit shifting (a global euphemism for cheating) more intensively than those with no tax haven links.
A study in 2013 showed that according to official sources, the amounts involved in mispricing –manipulation by over-invoicing of imports and under-invoicing of exports- in India ran at US$8.1bn in 2010-11, escalating to US$12.6bn in 2011-12. Corporation tax of 33% on these amounts would have provided US$6.9bn that could have helped fund free quality public services for all in India.
The Indian government can raise funds to invest in public services from a better tax system. The latest report from Global Financial Integrity lists India among the top five countries in the world with almost half a trillion dollars lost in illicit outflows in the past decade alone. Just to compare, India’s annual central expenditure on health and rural housing put together is $ 5.4billion.
India’s tax to GDP ratio is among the lowest of all G20 countries- far below other BRICS countries (Brazil, Russia, India, China and South Africa). Moreover, the revenue foregone due to tax exemptions by the central government is estimated to be 43.2% of total tax revenue for the year 2014-15, or nearly 5% of India’s GDP. This shows that there indeed are alternative sources that can generate more resources for health.
2. Current financing model and the impact on service use
Out of pocket (OOP) expenditures push an estimated 60 million Indians into poverty every year. User charges still remain in the public healthcare system. The overall public spending hovers at about 1% of GDP – the corresponding figures are around 4.5% for Brazil and 8% for the United Kingdom. During 1986-87, about 60% of the hospitalised cases were treated by the government institutions in urban and rural areas. In 2004, this figure fell to about 40%, reflecting the poor public spending on health. Fortunately, the following decade saw focused attention on rural areas through increased health spending on improving infrastructure in rural India, which is slowly yielding results. Most deliveries across urban and rural areas are now taking place in government hospitals as the following chart shows.
This is a remarkable result given that government funded schemes across the country offered incentives to deliveries in private sector facilities. It shows that people’ trust in the public sector has improved.
The shift towards demand side financing was based on a rationale from survey findings during 1987-2004. The argument that even the poor preferred the private sector by 2004 however ignores the fact that this was a period when the public sector was systematically starved of resources and market principles were introduced into the system. Forgone care due to financial reasons had doubled between 1986-87 and 2004, from 15% in rural and 10% in urban areas to 28% and 20% respectively. Data for more recent years will be available by next year.
The spending cuts on public services in the central budget of 2015-16 are deeply concerning. Not only was the total allocations for health cut by about $945 million, but other budget cuts would affect peoples’ health too. For example the allocation to the child nutrition scheme was cut by half. At the same time, according to latest available estimates, 48% of children under the age of five are stunted due to chronic under-nutrition, with 70% being anaemic.
3. Where the money should be spent: The privatisation trend
Unfortunately, there seems to be a trend against expansion of public sector provision of service especially from influential think tanks such as Niti Aayog, which just replaced India’s Planning Commission. A recent book co-authored by Niti Aayog Vice Chairperson advises against any further expansion of free primary, secondary, and tertiary health care services in the public sector. Instead, it advises the government to focus on providing financial resources to the poor so that they can buy services. It even calls for the government to insist on full cost recovery.
Niti Aayog’s latest Working Paper on financing healthcare too veers dangerously towards privatised financing for health care which excludes poor people; unsustainable programs based on Corporate Social Responsibility and Public Private Partnerships (PPPs) without examining the evidence of effectiveness or problems of any of these approaches.
 according to the OECD the term refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ’disappear’ for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low, resulting in little or no overall corporate tax being paid.
 Still, 60% of all people from the bottom 20% were getting hospitalised in the public sector in 2004.
 The Planning Commission was an institution in the Government of India which formulated India’s Five-Year Plans, among other functions.
In its seminal World Health Report of 2010, WHO argued that all countries can make progress towards Universal Health Coverage (UHC) by expanding the number of people covered by effective health services and giving them financial protection from the costs of these services. The report also highlighted the pivotal role of equitable health financing reforms in achieving this objective. These processes ought to be easier in wealthy countries, but even in the world’s biggest economy, due to an inequitable financing system, tens of millions of people still lack effective health coverage.
In Malawi (with a GDP per capita 1/226 of the United States) the health financing situation is particularly challenging. This is especially the case following the suspension of considerable sums of aid financing after the “Cashgate” corruption scandal that brought down the former government. So, faced with a high burden of unmet health needs, a heavily constrained government budget and uncertain levels of external funding, how should Malawi take its next steps towards UHC?
With the public financing situation looking bleak, a knee-jerk reaction might be to look for alternative financing sources and in particular to raise health funds directly from the population – in the form of user fees. But evidence from across the continent over the last thirty years shows that this would be a mistake. Charging patient fees would raise very little revenue, would incur high administration costs and most worryingly would exclude millions of poor Malawians from receiving healthcare. Also with the world looking to build resilient health systems in the aftermath of the Ebola epidemic it would be extremely unwise to suddenly create new access barriers to essential health services.
While concerns around fee-paying wards and bypass fees remain, fortunately, the government recently made clear statements to the effect that the majority of services will remain free at the point of delivery.. Not only is this good news for the health and welfare of the population, it is a smart political move by the Government, who may have remembered the last time they introduced health fees following advice from ex-pat advisers. This was soon after independence when new health charges were met with extensive hostility from the population. This triggered a political crisis and resulted in some ministers losing their jobs. Following this lesson of people power, Malawi was one of the few African countries not to bow to donor pressure to introduce fees in the 1980s, when it continued to provide universal free health care. This undoubtedly contributed to Malawi outperforming some of its neighbours in making progress towards the health-related MDGs. With many other African countries now learning that they too should remove user fees, it would be a tragedy for Malawi to move in the opposite direction.
But if user fees aren’t the answer and with private voluntary insurance also proving an ineffective route to UHC, what steps could the Government of Malawi (GoM) take towards reforming its health financing system? As the 2010 World Health Report and subsequent influential reports have shown, the key to achieving UHC lies in public financing reforms. In particular, it requires increasing levels of pooled public financing and in maximizing the efficiency and equitable allocation of these funds. In terms of raising higher amounts of domestic funding, broader public financing reforms could increase the size of the overall government’ budget and a political choice could be made to increase the health share from 8.6 % towards the Abuja target of 15%. Also, it is to be hoped that aid financing will increase again in the near future because external assistance will be essential for Malawi for at least the medium term if it is to reach adequate levels of public health financing.
But to secure this additional funding, perhaps the best strategy for the health sector will to demonstrate to its domestic and external financing sources that it can deliver rapid results with incremental allocations in funding. This will involve investing additional funds in cost-effective interventions that extend health coverage to more people in Malawi – and especially to the poor and vulnerable.
One immediate “quick-win” along these lines, could be to ensure that people relying on NGO facilities in remote areas also receive free services. This would require increasing government grants to these facilities. In fact this is already a policy priority for the new Government. Fast-tracking this reform would bring health and economic benefits to the communities concerned and political benefits to the government. Looking at UHC success stories in other countries, the government of Malawi and donor partners could also achieve rapid progress by implementing extensive supply-side reforms. For example Rwanda and Ethiopia have made spectacular progress in extending coverage through scaling up services provided through publicly-funded community health workers. Also implementing extensive reforms of medicines supply systems to ensure the provision of free generic medicines and health commodities has proved a very effective way to increase coverage of essential services. Furthermore these types of pro-poor initiatives could prove an attractive proposition for donors wanting to re-engage in Malawi’s health system.
Therefore even though the health financing situation may appear daunting in Malawi, this doesn’t mean that a completely new strategy based on private financing will be the solution. International evidence shows that this would probably result in a deterioration in health coverage – particularly for the poor. Instead Malawi would be better advised to learn from its own history and re-invigorate its publicly financed health system, which as the world has learnt is the proven route to achieve universal health coverage.
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The Ebola crisis exposed the weaknesses of healthcare systems in low- and middle-income countries created mainly by insufficient funding. Given the global community’s commitment to universal health coverage (UHC), the Ebola outbreak has prompted serious reflection among health policy decision-makers. One of the central features of this debate is financing: how can relatively poor countries find the money to pay for universal health coverage? To date, low- and middle-income countries have been growing toward UHC through social health insurance systems funded through employment. Yet, progress has been slow and uneven leaving people in the informal sector, who are the majority of the population, out was insurance schemes. Rather than seeking innovative solutions to this old problem, what is needed is a renewed commitment to an old solution: tax-based financing.
Taxation has sometimes been overlooked in debates around financing UHC. The Lancet’s recent Global Health 2035 commission only discussed taxation in the context of specific consumption taxes on risky behaviours, such as tobacco and alcohol. These so-called “sin taxes” are important public health measures but they are unlikely to generate sufficient revenue to finance UHC. Instead, low- and middle-income countries should look to translate economic growth into healthcare spending through general taxation.
Using data from low- and middle-income countries my colleagues and I examined the association between tax revenues and health spending. We found that tax revenue was a major statistical determinant of progress towards UHC. Each $10 per-capita increase in tax revenue was associated with an additional $1 of public health spending per capita. Whereas each $10 increase in GDP per capita was associated with an increase of $0.10. Crucially, tax revenues sit on the pathway between economic growth and health spending. In short, tax financing is an efficient way of translating economic growth into health spending.
Countries with more tax revenues have also made more progress on other indicators of UHC, even after adjusting for economic activity in the country. Among tax poor countries, greater tax revenues are associated with more women being attended by a skilled healthcare worker during pregnancy and greater access to healthcare for all people.
How taxes are collected is also important. Governments can choose how they collect tax revenues. The IMF and World Bank traditionally split these modes of taxation into three types: 1) Taxes on income, profits, and capital gains, which tend to be progressive because the poor pay a smaller proportion of their income; 2) Taxes on goods and services, which tend to be regressive because the poor pay a larger share of their income; and 3) Other taxes, such as property taxes. In recent years, low- and middle-income countries have tended to rely more heavily on taxes on goods and services because they are easier to collect. However, they can also increase the cost of staple foods and healthcare, unless these specific goods and services are exempt from such taxation. Because taxes on goods and services can increase the cost of food and healthcare they may also reduce access to these necessities among economically deprived households and communities.
With the same tax data described above, we examined whether changes in taxation within a country over time was associated with changes in infant mortality. The results were clear. Where taxes on goods and services increase (thereby increasing the cost of food and healthcare) infant mortality also increased. However, where taxes on income, profits, and capital gains increase (progressive taxation) we do not find this same relationship.
Expanding the tax base in low- and middle-income countries can be difficult, especially if governments are going to rely on income, profits, and capital gains. This is because there is a very large informal economy in many of these countries, tax revenues from income can be unstable. Yet, the UK government has shown how some countries can increase revenues through reducing corporate tax evasion. Under the direction of DFID, tax accountants worked with two developing countries (Ethiopia and Tanzania) to reduce tax evasion, increasing tax revenues by 40% in 3 years. This type of intervention is especially important because before the Ebola outbreak in Sierra Leone, only one in five leading mining companies had paid any corporate income tax. If they had been adopted sooner, such interventions could have strengthened the health systems in Sierra Leona and other Ebola-hit countries.
Tax is not sexy. Tax is not necessarily innovative. But, tax is the cornerstone on which we can achieve UHC.
This post is based on: Reeves A., Gourtsoyannis Y., Basu S., McCoy D., McKee M., Stuckler D., 2015, Financing universal health coverage: effects of alternative tax structures on public health systems in 89 low- and middle-income countries. The Lancet, http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(15)60574-8/abstract
As the Government of Ghana gears up its plans to celebrate the 10th anniversary of its now internationally famed National Health Insurance Scheme, Ghana’s Universal Access to Healthcare Campaign today launch our own assessment of progress to date. Our new paper explains how 65% of the population is still paying out-of-pocket in the old ‘cash and carry’ system and that at the current rate of progress UHC will not be achieved until at least the year 2076. Our campaign argues that progress will continue to stall as long as the NHIS structure excludes the very people it seeks to protect through overly-burdensome and unworkable insurance premiums.
Next week Ghana’s National Health Insurance Authority (NHIA) will host a three day International conference in Accra with the theme: “Towards Universal Health Coverage: Increasing Enrolment whilst Ensuring Sustainability”. The conference will attract Universal Health Coverage (UHC) practitioners, academia, policy makers, NGOs and CSOs in their numbers, and seeks to examine the successes and challenges of the NHIS, and elicit feedback and proposals for reform.
While the Universal Access to Healthcare Campaign (UAHCC ) welcomes the anniversary event, we are concerned that inherent pitfalls of the NHIS have been consistently left on the sideline over the past decade and if unadressed will stifle any prospect the NHIS has of achieving UHC in the near future. The UAHCC will convey this position at the anniversary conference, where we have been invited to participate in a panel discussion, but also in our own civil society forum today to which government officials and donor agency staff have been invited.
The paper launched today acknowledges some strengths of the scheme including its generous benefits package, comprehensive level of care and treatment coverage and relatively broad range of exemption categories. However, these strengths are only relevant to NHIS active members. The UAHCC calls on the Government of Ghana to act on the glaring short falls of the scheme including:
Sidua Hor is coordinator for the Ghana Universal Access to Healthcare Campaign Coalition
“We must be the generation that delivers universal health coverage.” – WBG President Jim Yong Kim in a speech to the World Health Assembly, May 2013
As the World Bank Group’s Annual Meetings come to Washington this weekend, there is much talk of President Jim Yong Kim’s new strategy to achieve the institution’s updated vision: to end extreme poverty by 2030 and promote “shared prosperity,” Bank-speak for reducing inequality.
We would argue that pursuing Universal Health Coverage (UHC) – alongside robust investments in other aspects of human development – must be utterly central to the Bank’s strategy to achieve its two goals. While Dr. Kim’s Annual Meetings opener speech last week touched on the importance of health (and education) in achieving its goals, human development is not articulated as a central component of the Bank’s new strategy to achieve the goals, which its Board will be approving on Saturday.
The Bank says this is because the strategy is meant to describe an overall approach rather than privileging any particular sector. That may be, but it is hard to see how the Bank’s two goals can be met without a clear vision for how the fruits of economic growth can be equitably shared through transformative essential public services. We hope to see this change as the implementation details of the strategy become clearer.
Nevertheless, President Kim’s recent speeches and writing provide clues to his vision of the importance of health in reducing poverty and inequality. In a recent article he wrote that “to free the world from extreme poverty by 2030, countries must ensure that all their citizens have access to quality, affordable health services.” At the World Health Assembly in May, he pointed to a hopeful new direction for the Bank by committing to help countries work towards UHC and stating that point-of-service fees are “both unjust and unnecessary.” But will these high level statements really translate to a change in the way the Bank works in countries?
We hope so. The Bank’s expertise in building health systems can be powerfully harnessed for the cause of UHC, but this means a break from business as usual. Building health systems isn’t enough; they must be the right kinds of systems — systems that are equitable and truly universal.
Oxfam’s new paper, “Universal Health Coverage: Why health insurance schemes are leaving the poor behind,” examines the conditions necessary for health systems to be equitable and universal. The paper looks at four key ingredients to successful financing for UHC: removal of direct payments and other financial barriers, compulsory pre-payment, large risk pools, and financing from general revenues to cover the uncovered. In our analysis, conventional insurance schemes – whether private, community-based or European-style social health insurance – come up short when measured against these criteria.
Since UHC is about access to quality care for everyone regardless of ability to pay, governments must move away from relying on employment-based and contributory insurance models. Instead, health care must become a right of citizenship (or residency), financed in large part through general government revenues. As the diverse but successful UHC experiences of Mexico, Thailand, Sri Lanka, Brazil and Kyrgyzstan show, equity must be designed into the system from the beginning, rather than starting with the easiest to reach in the formal sector.
The World Bank Group has a history of promoting health insurance as a financing mechanism to generate revenues in the health sector in environments of fiscal constraints. Some examples include a recent policy series on private health insurance, previous work in countries such as Ghana, and IFC investments to support insurance schemes in Africa.
But things may be changing at the Bank. In a series of 22 recently released case studies on UHC, the Bank finds that, across countries, the use of financing from general taxation to expand coverage is an important commonality, and that prioritizing equity is a key lesson. We also hear the Bank is playing a more constructive role in certain countries to encourage universal system design. And new leadership in the health sector and from the President should be cause for optimism.
A real test of the potency of the new World Bank strategy will be whether the World Bank Group throws its full weight behind equitable, universal health systems – systems that are financed largely through tax-based general revenues and which include all members of society – through its global knowledge products, its policy advice and technical assistance, and through its lending choices.