Financing universal coverage : assessing fiscal space for health

September 2010 Policy and Discussion Notes 59474 Indonesia Health Sector Review Financing Universal Coverage: Assessing Fiscal Space for Health1 Introduction In 2004, the Government of Indonesia made a commitment to provide its entire population with health insurance coverage. Attaining universal health insurance coverage in Indonesia is likely to require significant increases in public expenditure outlays for health. For instance, one possible option on the table is the expansion of Jamkesmas-style coverage for some or all of the population that currently does not have any coverage. Most of those without coverage are non-poor informal sector workers (and their dependents). Given the difficulties associated with payroll financing of coverage in the informal sector and the relative lack of local revenue-generating capacity in Indonesia, such an expansion of coverage is likely to require a significant increase in central government financing for health. This note outlines a framework within which options and alternatives to create fiscal space for health in Indonesia can be assessed. Can the Indonesian government increase health spending in the short- to medium-term to meet the needs of universal coverage? If so, what are some options and experiences from other countries that could be considered? Finding additional public resources--fiscal space-- of current sources through efficiency gains in existing requires an assessment of a government's ability to public spending on health. These include: increase spending for a desired purpose without jeopardizing its long-term financial solvency (Heller Favorable macroeconomic conditions such as 2005). Although fiscal space is usually assessed in economic growth and increases in overall aggregate, that is, without regard to a specific sector, government revenue that, in turn, could lead to the analytical framework within which fiscal space increases in government spending for health; is assessed can be adjusted to take into account the A reprioritization of health within the government prospects for increasing public spending specifically for budget; health. One way of assessing fiscal space for health is to An increase in health-specific foreign aid and examine the different options for adding new sources of grants; government financing as well as increasing the impact An increase in other health-specific resources, for  Box 1 Visualizing Fiscal Space for Health: Hypothetical Scenario for Indonesia One useful means of visualizing fiscal space for health is to use a "spider plot." As can be seen in the figure below, there are five different axes, each representing a different means by which government spending on health could potentially increase. The figure shows the percentage increase in real government health spending relative to that in a given base year via each of the different options. The figure shows a hypothetical scenario for Indonesia in which a 4 percent increase in real government health spending can be expected from the favorable macroeconomic conditions (for example, as a result of economic growth). Similarly, a 5 percent increase could come from the reprioritization of government programs and a 1 percent increase from sector- specific sources such as the introduction of earmarked taxes for health. Source: Author. example, through earmarked taxation or the involve general macroeconomic policies and conditions introduction of premiums for mandatory health as well as cross-sectoral political and economic trade- insurance; and offs. Nevertheless, although exogenous to the health An increase in the efficiency of sector, it remains important to analyze the implications government health outlays. for government health spending of changes in the generalized macroeconomic and political environment One useful means of visualizing fiscal space for health within which the sector operates. The remaining three is to use a "spider plot." As can be seen in the figure options are more in the direct domain of the health above, there are five different axes, each representing sector and merit particular attention given that they a different means by which government spending on provide the potential for resources that are sector health could potentially increase. The figure shows specific. See box 1 for a visual representation of the the percentage increase in real government health dimensions of fiscal space. spending relative to that in a given base year via each of the different options. The figure shows a hypothetical scenario for Indonesia in which a 4 percent increase Favorable Macroeconomic in real government health spending can be expected Conditions from the favorable macroeconomic conditions (for example, as a result of economic growth). Similarly, a 5 One of the strongest predictors of fiscal space and of percent increase could come from the reprioritization rising government expenditure (including for health) of government programs and a 1 percent increase is national income. Among other factors, economic from sector-specific sources such as the introduction growth is associated with higher revenue generation-- of earmarked taxes for health. both in levels and as a percentage of the economy-- and this can help finance higher government spending. The first two of the above-mentioned options are largely outside the domain of the health sector itself; they Indonesia's economic growth record has been fairly 2 Indonesia Health Sector Review Figure 1: Economic Growth Rates for Indonesia and Regional Comparators Annual economic growth rates Actual: 2005-2009; Projected: 2010-2015 15 Annual GDP growth rate (%) 10 China Vietnam Indonesia Malaysia 5 Thailand Philippines 0 -5 2004 2006 2008 2010 2012 2014 2016 Year Source: IMF World Economic Outlook Figure 2: Key fiscal indicators for the Indonesia Actual:2004-2008; Projected:2009-2014 Actual:2004-2008; Projected:2009-2014 30 55 25 50 20 Central govt expenditure 15 Percent of GDP (%) Percent of GDP (%) 45 Central govt revenues 10 40 5 Central govt debt 35 0 Central govt balance -5 30 -10 2003 2005 2007 2009 2011 2013 2015 2003 2005 2007 2009 2011 2013 2015 Year Year Source: IMF Article IV (various years) robust. In 2008, Indonesia's GDP grew at a healthy rate Philippines, Malaysia, Vietnam, and China (Figure 1). of 6.0 percent. The financial crisis appears not have had The primary fiscal impact of the crisis in Indonesia has a significant impact on Indonesia's growth prospects: been an increase in the deficit: the central government the economy grew by 4.5 percent in 2009, and is balance increased from -0.2 percent of GDP in 2008 to expected to grow by 6.0 percent in 2010. Indonesia -2.6 percent of GDP in 2009. The deficit is projected to seems have weathered the economic downturn better decline over time and is not expected to interrupt the than some of its regional neighbors such as Thailand, declining trend in central government debt (Figure 2). Financing Universal Coverage: 3 Assessing Fiscal Space for Health  Figure 3: Public expenditure on health vs income, 2008 15 10 Public expenditure on health 5 share of GDP (%) Vietnam Thailand Papua New Guinea China Malaysia Cambodia Philippines Indonesia 1 Lao PDR 250 1000 50001 50005 0000 GDP per capita, US$ Source: WDI & WHO Figure 4: Public Expenditure on health share of GDP in Indonesia