How can we create innovative financing mechanisms in countries in the BIMSTEC region?
A quest for innovative (non-traditional) mechanisms for financing health is seen at global, national and sub-national levels. This is partly driven by the need to find sustainable ways of financing health and partly by the need to generate additional financing as well as improve the effectiveness of that financing.
Typically, in a developing country, at a lower end of income spectrum, traditional sources of funding health — general budgetary support, out-of-pocket (OOP) payments for healthcare, contributions to health insurance (both social and voluntary) and donor assistance — generate inadequate resources relative to the health needs of its population. Moreover, a high share of OOP health payments, as opposed to some pooling mechanism, implies that health financing burden falls inequitably on its population. A high share of OOP payments is both the cause and the consequence of low government health spending which is limited by its ability to generate sufficient tax revenues. Further, the presence of large informal sector — a characteristic feature of a developing country — not only limits tax generation, but also militates against the development of social insurance. Therefore, innovative financing for health is needed for these countries if they are to continue moving towards Universal Health Coverage.
How can we create innovative financing mechanisms in countries in the BIMSTEC region (that consists of seven of the 12 countries in the WHO-Southeast Asia region and five East African countries)? All these countries are either low income or lower-middle income countries, with the exception of Thailand that is a higher-middle income country. From health financing perspective, these countries display the characteristics typical of any lower income country: low total health spend (both in per-capita terms and as a share in GDP) with a significant share of private OOP health payments as opposed to risk pooling mechanisms, and low shares of government health spend both in country’s total health spend and in government’s total spend.
All the five African countries spend way below their Abuja commitment made in 2001 to raise the share of government health spend to 15% of its total spend. Tanzania government has the highest share (7.4% of total government spending) while Mozambique has the lowest share (paltry 1.2%), with each of the three remaining African countries spending a little more than 6%. In the BIMSTEC region, Thailand government spends the highest share (16.6% of its total spending) while Bangladesh (2.8%) and India (3.4%) have the lowest shares. In terms of per-capita health spend, these countries spend too little to ensure even the basic package of health services to its population.
The discussion on innovative mechanisms for financing health is to be seen against this backdrop. At the global level, some key innovative initiatives include The Global Fund, Vaccine Alliance, and President’s Emergency Plan for AIDS Relief (PEPFAR). These global initiatives have indeed made significant contributions both in mobilising additional funding for health and impacting health in specific areas in which they are focused. However, one major limitation of these donor-driven innovative financing mechanisms is that they adopt traditional vertical strategies targeting specific diseases such as malaria, tuberculosis, and HIV/AIDS. Many lower income countries have benefited from these global initiatives. All five East African countries have benefitted from PEPFAR; however, in BIMSTEC region only India and Thailand benefited from it. Similarly, Vaccine Alliance supported all five East African countries and all BIMSTEC countries, except Thailand.
At the national level too, some countries have innovatively mobilised domestic funding — placing special levies on specific consumption goods or sectors or on population of certain income groups — and earmarked those resources for health. Examples of countries using special levies on products harmful for human health (alcohol and tobacco) are common. But there are examples of other form of taxation too. For example, Chile uses 1% of its VAT to fund health (total VAT rate 19%), Ghana introduced an additional 2.5% on the existing VAT rate to fund its National Health Insurance Scheme (total rate 15%), Gabon applies 1.5% levy on the post-tax profits of companies that handle remittances and a 10% tax on mobile phone operators to use for healthcare for low-income groups.
From among the focused countries, let us discuss three examples, each from India, Rwanda, and Thailand, of innovative financing at the national level and one example of sub-national innovation from one of the Indian States.
Probably in a first of its kind initiative, the Government of India made it mandatory for the corporate sector to partake in nation building activities. For this purpose, the legislative act that came into force from 1 April 2014, makes it mandatory for certain categories of companies to spend a small share of their profits on identified social welfare activities, including healthcare.
Given the recent origin of this act, it is probably too early to talk of the impact of this Corporate Social Responsibility (CSR) legislation which is hailed as progressive. However, one report estimates the CSR spend to be around INR 90,000 million for the fiscal year 2017-18. Even if this entire spend were to be made in the health sector, it would constitute only a small percentage (around 5%) of the total government health spend in the country. India’s National Health Report 2017 refers to the scope of fund mobilisation under the CSR. Though the potential scope of CSR in providing additional financing for health is not well understood, it can at best be only marginal. Even so, it could play a catalytic role in mobilising domestic funding from other sources and improving its effectiveness.
The idea of Community Based Health Insurance (CBHI) is not, new but the manner in which Rwanda has designed, it holds some important lessons on how domestic funding can be innovatively tapped for providing healthcare to the population. Launched in 1999 as a pilot programme, CBHI schemes in Rwanda are regulated now and require that every person uninsured by any other health insurance scheme must join a CBHI, thereby making affiliation to CBHI mandatory. The annual contributions are based on a three-tiered premium scaling system, which further divides members into six categories based on income and assets. While the government fully subsidises the contribution of the two poorest and most vulnerable categories, the other four categories have to make contributions, with the top two categories paying higher than the middle two. These contributions provide more than 60% of the funding and the government accounts for 14% of the funds financed through the national budget. This has seen an increase in coverage, with more than 90% of the population now covered by insurance.
Among the ASEAN countries, Thailand has been one of the frontrunners in utilising dedicated taxation on tobacco and alcohol products for health promotion.
The idea of “sin taxes” — taxes on certain products and activities that are considered socially undesirable — has been around for quite some time. Taxing alcohol and tobacco products at a higher rate has been quite common. Increasingly, many countries, where obesity and non-communicable diseases are a growing problem, are considering imposing “fat tax” — taxing unhealthy foods that are high in salt, fats and sugar too. Such taxes serve a dual purpose: while tending to reduce the consumption of those products, such taxes also generate additional revenues for governments. Some countries like Thailand have earmarked the additional revenues.
In 2001, the Thai government established an autonomous Thai Health Promotion Foundation (also referred to as Thai Health) under the direct control of the Prime Minister and accountable to the Parliament. Thai Health is a strong body, with 21 members appointed by the cabinet. Funding for Thai Health comes from 2% dedicated tax on tobacco products and alcohol beverages, over and above the existing tax structure. The funds thus raised are used to support projects such as community mobilization on tobacco and alcohol control, prevention of road traffic injuries, health promotion for the elderly and so forth. Evidence shows that earmarked taxes have succeeded in reducing the use of health damaging products and raising additional funds for health promotion programmes.
At a sub-national level, a recent example of Development Impact Bond (DIB), Utkrisht, from the State of Rajasthan seems promising.
Utkrisht is an example of how DIB can raise funds from private investors based on donors’ pledge to pay in the future upon achievement of the results. Utkrisht seeks to improve maternal and newborn mortality rates in Rajasthan — a state known to have one of highest mortality rates. The intervention is designed around the government efforts to reduce maternal and newborn deaths by improving access to, and the quality of care in, up to 440 private healthcare facilities in Rajasthan.
The donors (USAID and MSD for mothers) have committed a total of up to USD 8 million in outcome funding, if a set of independently evaluated targets are met. A private investor (UBS Optimus Foundation) is providing up to USD 3.5 million as initial working capital to roll out the intervention. The intervention is designed and managed by Palladium and is being delivered by 2 NGOs. The implementation partners are also co-investors, contributing more than 20% of the capital required. This way, the implementing partners are motivated by both social and financial returns to stay focused on outcomes.
DIB is an innovative way of raising funds from private investors now based on donor pledge to pay in future upon achievement of results. An interesting part of the design of intervention is that the interests of all the implementing partners are well-aligned towards achievement of results. DIBs are likely to appeal to donors and private philanthropy and thereby has the potential to mobilise higher capital into solving some tough development challenges including those in the health sector.
These are just a few examples of how countries in the focused regions have used innovative mechanisms for funding health. While the long-term solution still remains a broad-based tax-funded support for health, there are innovative ways that can work in the short-to-medium term to generate additional funding and/or improve effectiveness of health funding.
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