Challenges in Financing Healthcare - Ravi Duggal

COMMENTARY - Economic and Political Weekly Sept 1 2012 vol xlviI no 35

The Third People’s Health Assembly was held in July in Cape Town, South Africa with its theme of “Health for All Now”. Developing countries which transformed public health systems under the structural adjustment policies into insurance-based health models have failed in providing healthcare to the poor. Where does India stand in relation to the ruling United Progressive Alliance’s commitment to take public health spending to 3% of the GDP by 2012?

Ravi Duggal (rduggal57@gmail.com) is an independent health researcher and is associated with the International Budget  Partnership and the People’s Health Movement.

The Third People’s Health Assembly (PHA 3), organised by the People’s Health Movement (PHM), was held in July in Cape Town, South  Africa. The theme of this third edition was “Health for All Now” and the debates were around the issues of universal access and coverage. With over 800 participants from 90 countries a rich repertoire of experiences were shared across 109 sessions of plenary, sub-plenary and workshops spread across six days, ending with a rally on the streets of Cape Town on 11 July 2012 (http://www.phmovement.org/en/pha3).

The assembly discussed a wide range of health and related issues, including the political and economic context of health, comprehensive primary healthcare, social determinants of health, universal coverage, mobilising for health, etc. The universal access and financing of healthcare for such access underpinned the discussions across the various sessions.

Financing for Healthcare

The discussion on financing for healthcare was contextualised within the global architecture of finance capital which dominates the economics and politics of our world. The learning from global experience presented at the PHA 3 showed that to move closer towards universal access to healthcare governments need to spend over 15% of their budget or at least 4% to 5% of their gross domestic product (GDP) for healthcare. The Organisation for Economic Co-operation and Development (OECD) countries, with the sole exception of the US have universal access to healthcare accessible to all at little or no direct cost at the time of accessing the care. These governments spend between 5% and 8% of their GDP on health; the US government spends nearly 9% of its GDP (its total expenditure on health is a whopping 17% of GDP) and yet 50 million people do not have adequate access to healthcare in that country. This is due to the way in which healthcare is financed: it is predominantly insurance-based. In the last two decades a number of middle-income countries and a few low-income countries have also reached near universal access for their respective populations and these include Brazil, Mexico, Venezuela, Costa Rica, Thailand, Malaysia and Sri Lanka among others. Countries like Rwanda, Ghana, Kenya, Uganda, and South Africa are rapidly moving in that direction while India, China and Indonesia are also in queue debating their model and approach.

We were told an interesting story at the assembly of why the two latter groups may not realise universal access to healthcare. Mauricio Torres-Tovar (Colombian Health Model: Exportable, Depending on the Interest of the Market) spoke about the Colombia model that failed. Colombia had a reasonable public health system which under the structural adjustment policy of the World Bank was transformed into an insurance-based health model that privatised the healthcare system in Colombia and destroyed the public health system. The African and Asian countries mentioned above are following precisely the Colombia model and their story is not likely to be very different!

One of the key understandings that emerged from the discussions on financing healthcare was about the fiscal space in public budgets to make adequate budgetary commitments for healthcare. To make this possible the following sets of postulates have to be realised:

• Tax: GDP ratio should be above 25%, preferably at least 30%, because such a volume of revenues makes enough space to strengthen social sector allocations like education, health and welfare.

• The taxation must be progressive, that is, most of it should come from income and corporate tax.

• Financing of healthcare must be predominantly tax based.

• Governments have to commit close to 5% of GDP to realise universal access to comprehensive primary healthcare.

• Healthcare should be recognised as a public or social good, and there should be a constitutional and/or legal mandate guaranteeing right to healthcare.

• The tax base needs to be expanded and collection of taxes should be maximised by strengthening the mechanisms for tax collection.

• Tax evasions, including flow to tax havens, need to be strictly curbed so as to maximise government revenues.

• Tax expenditures (or revenues forgone) should be minimised so that the maximum potential of tax revenues is realised.

• All subsidies to the corporate sector need to be made transparent so that accountability is possible.

• The huge volume of speculative transactions in foreign exchange, commodities, shares and securities should be subject to a financial transaction tax to generate additional revenues for social

sector budgets.

• Budget transparency and access to the entire range of budget information is assured so that all financial transactions of the governments at different levels can be held to account.

• Finally, a social movement to politicise healthcare would have to exert the demand-side pressure for right to healthcare.

All of the above are linked to strong democratic functioning of governments and the latter can only be assured if an active civil society exists and demands accountability.

Most developing countries lack most of the above postulates and many of the above are interdependent. For instance if a country has a tax-GDP ratio of over 25% then it is most likely that it has a strong tax administration, is curbing tax evasion, has a progressive tax regime, and a reasonably large tax base.

Reducing Out-of-Pocket Burdens

Let us take the example of India. The tax-GDP ratio for 2010-11 was 15% (centre and states combined)(1), revenues forgone by the centre for the same year was 81% of the net taxes of the central government(2), the public health expenditure for centre and states combined was just 1.1% of GDP or 3.7% of total government expenditure(3), tax evasions and transfers to tax havens are huge, speculative transactions for securities, shares, commodities, forex, including derivatives, is phenomenal averaging daily more than 2% of annual GDP (just forex and government securities in May 2012 averaged daily 1.8% of GDP – EPW, 23 June 2012), the tax base is very small and the social movement for right to healthcare is weak. The consequence of such a scenario,even though India has one of the highest economic growth rates in the world, is that public commitment to health and healthcare is weak despite the United Progressive Alliance (UPA)’s political commitment of reaching 3% of the GDP for public health spending by 2012.

In the last two years there has been a huge debate in India on universal coverage(4), including the appointment of the High Level Expert Group (HLEG), but both the Ministry of Health and the Planning Commission are chewing over the recommendations of the report and trying to work out “schemes” like universal access to medicines or universal healthcare insurance, etc, instead of politically committing to accept the entire package of recommendations of the HLEG and implementing it. It is precisely this fragmented approach of converting comprehensive primary healthcare into schemes or vertical programmes that has prevented most developing countries from moving towards universal access to healthcare and this was condemned across the board at the PHA 3. To change this scenario, the fi scal space as discussed above has to be expanded and appropriate political will demonstrated to accomplish it.

The PHM has recognised these problems and is presently finalising a call to action emerging from Cape Town which will include the need for this movement to engage with health financing, taxation and budget issues in the struggle for health for all people of this world. Another issue from the resources point of view which was raised at the PHA 3 was the concern about the huge South-North flows of doctors, nurses and other technicians.

A valuation of this shows that often such flows are more than the foreign debt-burden of the concerned country and hence compensation for this or a swap with debt needs to be advocated for. Further, there is also a commitment from the PHM to advocate for changes in the global financial architecture by pushing the international governance institutions to rein in and regulate the transnational corporations and finance capital through regulation of transfer pricing, and the establishment of the financial transaction tax. All these efforts will certainly contribute to moving closer to realise the dream of “Health for All Now”. To conclude, as Suwit Wibulpolprasert, one of

the key persons behind Thailand’s success story for universal coverage, mentioned in one of the plenary sessions that one of the main outcomes of universal access to healthcare is that it reduces out-of-pocket burdens and consequently poverty.

Notes

1 Ministry of Finance 2011: Indian Public Finance Statistics, Government of India, New Delhi.

2 Budget 2012-13: http://indiabudget.nic.in/ub 2012-13/statrevfor/annex12.pdf, accessed on 16 March 2012.

3 http://cbhidghs.nic.in/writereaddata/mainlinkFile/File1134.pdf, accessed on 13 July 2012.

4 See www.mfcindia.org  medico friend circle bulletin issues, 342-50.