6

Health Financing in sub-Saharan Africa

An important issue that came up repeatedly throughout the workshop was how the epidemiological transition will affect health-financing systems and attempts to achieve universal coverage. Riko Elovainio presented a conceptual framework for addressing this question, based on the World Health Report 2010: Health Systems Financing: The Path to Universal Coverage (World Health Organization, 2010), which outlines the types of health-financing levers available to policy makers in three broad areas: raising funds for health, reducing financial barriers to access through prepayment, and pooling of resources (spreading the financial risks of paying for care across the population) and efficiency.

In 2009 low-income countries around the world spent an average of 6.1 percent of their gross domestic products (GDPs) on health in 2009, lower-middle-income countries spent 6.2 percent, and upper-middle-income countries spent 7.0 percent. The region of sub-Saharan Africa spent 6.1 percent of its total GDP on health, far less than the 9.5 percent of GDP that the countries of the OECD spend on health.

In terms of U.S. dollars, low-income countries spent $25 per person on health in 2009 versus the more than $4,600 per person spent in high-income countries. In the Africa region of the World Health Organization (which includes all countries of Africa, not just the low-income countries), per capita health spending was $83, less than 2 percent of the average spending in high-income countries.

Elovainio commented that economic growth will facilitate additional spending on health in the low-income countries. The International Monetary Fund projects that, beginning in 2012, economic growth across the whole of sub-Saharan Africa should average 5 percent per year, which corresponds to a per capita GDP growth rate of around 3.5 percent per year (International Monetary Fund, 2011). This suggests that even if health receives the same share of GDP as it does now, health expenditures will grow, but it is likely that health spending will receive an increasing share of GDP and thus grow at an even greater rate.

All of the countries of sub-Saharan Africa have ways in which they can raise more funds domestically for health spending if they chose to do so. The pressure to find new funding sources is especially high in countries in which large informal economic sectors make it difficult to collect revenues, either in the form of taxes or in the form of health insurance contributions. This situation is often accompanied by tax collection systems that are inefficient and inequitable. Wage-based deductions are generally the easiest to administer and collect, and thus they offer the greatest potential for achieving an equitable system in which people earning more would pay more. However, in those low-income countries in which a relatively low (although usually growing) percentage of the workforce has formal paid employment, other options also need to be pursued. These other options might include “sin taxes,” that is, taxes on harmful products such as alcohol



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6 Health Financing in sub-Saharan Africa An important issue that came up repeatedly throughout the workshop was how the epidemiological transition will affect health-financing systems and attempts to achieve universal coverage. Riko Elovainio presented a conceptual framework for addressing this question, based on the World Health Report 2010: Health Systems Financing: The Path to Universal Coverage (World Health Organization, 2010), which outlines the types of health-financing levers available to policy makers in three broad areas: raising funds for health, reducing financial barriers to access through prepayment, and pooling of resources (spreading the financial risks of paying for care across the population) and efficiency. In 2009 low-income countries around the world spent an average of 6.1 percent of their gross domestic products (GDPs) on health in 2009, lower-middle-income countries spent 6.2 percent, and upper-middle-income countries spent 7.0 percent. The region of sub-Saharan Africa spent 6.1 percent of its total GDP on health, far less than the 9.5 percent of GDP that the countries of the OECD spend on health. In terms of U.S. dollars, low-income countries spent $25 per person on health in 2009 versus the more than $4,600 per person spent in high-income countries. In the Africa region of the World Health Organization (which includes all countries of Africa, not just the low-income countries), per capita health spending was $83, less than 2 percent of the average spending in high-income countries. Elovainio commented that economic growth will facilitate additional spending on health in the low-income countries. The International Monetary Fund projects that, beginning in 2012, economic growth across the whole of sub-Saharan Africa should average 5 percent per year, which corresponds to a per capita GDP growth rate of around 3.5 percent per year (International Monetary Fund, 2011). This suggests that even if health receives the same share of GDP as it does now, health expenditures will grow, but it is likely that health spending will receive an increasing share of GDP and thus grow at an even greater rate. All of the countries of sub-Saharan Africa have ways in which they can raise more funds domestically for health spending if they chose to do so. The pressure to find new funding sources is especially high in countries in which large informal economic sectors make it difficult to collect revenues, either in the form of taxes or in the form of health insurance contributions. This situation is often accompanied by tax collection systems that are inefficient and inequitable. Wage-based deductions are generally the easiest to administer and collect, and thus they offer the greatest potential for achieving an equitable system in which people earning more would pay more. However, in those low-income countries in which a relatively low (although usually growing) percentage of the workforce has formal paid employment, other options also need to be pursued. These other options might include "sin taxes," that is, taxes on harmful products such as alcohol 12

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and tobacco, which have repeatedly been shown to be effective in reducing consumption and improving health (see, e.g., Chaloupka, 1999; Wagenaar, Salois, and Komro, 2009). Data from 22 low-income countries suggest that a 50 percent increase in the excise tax on tobacco would bring in $1.4 billion of additional revenue to those countries (Stenberg et al., 2010). Such taxes are now also being explored for use in discouraging the use of foods high in sugar or salt. The share of the resources from sin taxes allocated to health spending--that are, in economics terms, hypothecated for health spending--will be, of course, one of the main issues from the health financing point of view. Intuitively, the case for allocating a large percentage of sin taxes to health spending seems compelling. From the point of view of national ministries of finance, however, this is not always the case, and ministries of health will need to be persuasive in order to receive at least a part of the revenue. Furthermore, ministries of health need to ensure that the eventual hypothecation of sin taxes to health spending will not lead to cuts elsewhere in the health budget. The same questions concerning hypothecation are, of course, equally relevant to other earmarked taxation mechanisms that do not fall under the "sin tax" category. Judging from the examples of countries that have already introduced them, a variety of other direct or indirect taxation mechanisms are also feasible. Ghana, for example, increased its value added tax by 2.5 percentage points; these revenues that go directly to the National Health Insurance System. Gabon introduced a specific tax on certain profitable economic sectors, such as agencies that receive and transfer money overseas; revenue from this tax is hypothecated to cover the insurance contributions of people who are financially unable to contribute to the national health insurance fund. In 2009 Gabon collected the equivalent of $25 million with this levy on highly profitable corporations (Musango and Aboubacar, 2010). 13