Argentina - Health Sector Adjustment Project

Initial Project Information Document (PID) Project Name ARGENTINA Maternal and Child Insurance SECAL Region Latn America and Caribbean Region Sector Human Development Project P072637 Borrower(s) REPUBLIC OF ARGENTINA Implementing Agency(ies) MAinistry of Health Environment Category C Date PID Prepared July 30, 2003 Auth Appr/Negs Date August 21, 2003/September 15, 2003 Bank Approval Date October 30, 2003 1. Country and Sector Background Argentina experienced positive developments in the first months of 2003 and the economy stayed on its recovery path. By March 2003, industrial production was 21.4 % higher than a year earlier, albeit from what may be considered the trough of the economic crisis. Inflation remained moderate, and trade balances exhibited large surpluscs. Fiscal performance improved principally from improved income tax collections, wvith revenues exceeding those expected in the Fund's program. Exchange controls wvere further eased, and banking deposits were liberalized. Commitments to improve fiscal performance in the provinces wcre reached, and the Government launched a program for monetary unification. These achievements, however remain fragile as long as important issues have yet to be resolved. The Argentine banking system has been significantly weakened, first by the massive withdrawal of deposits in 2001, and second by the loss of confidencc resulting from the partial freeze of bank accounts, the forced conversion of dollar deposits, and associated policy decisions (asymmetric "pesificaton", preferential treatment of debtors, etc.). Argentina's prospects for 2003 are for the continuation of the current recovery in output and the maintenance of the fiscal and monetary stabilhty reached over the second half of 2002. The prospects for output recovery reflect the depth of the output decline of the last four years, and the opportunities provided by the sharp devaluation of the currency. The recovery in consumption, and import substituting activities could be leading the recovery, with real GDP growth projected to reach about 4 %. However, significant uncertainty accompanies any such expectations, given the need to address urgently fundamental structural reforms. In the absence of normalization of relations with the international financial community, which would require both a debt restructuring and a sustainable fiscal framework, the reestablishment of a functioning financial system, and renewed credibility to public insttutons, the ongoing economic recovery is unlikely to translate into sustained economic growth. The Social Situation During 2002, poverty trends worsened dramatically. The share of population considered poor grew by roughly 20 percentage points while the number of extreme poor nearly doubled. The economic crisis has had a strong negative impact on the access and use of education and health services and there is growing evidence of the deterioration in service delivery and key imdicators of well-being. While many of the current social problems have existed before in Argentina, 2002 has made the social situation even more difficult for the majority of the population and the need for action has becomc more urgent. Discussions and reform proposals to correct the underlying problems have been ongoing for sevcral years  without reaching a conclusion as a result of insufficient political support and social consensus. The Government now faces a particularly difficult challenge: increasing demands for social assistance in the context of fallng fiscal resources and limited administrative capabilities to innovate and coordinate responses. Nevertheless, recognizing the seriousness of the social situation, the Government has moved decisively to expand key safety net programs, including the Heads of T-Iousehold program, prioritizing spending on them and consolidating social programs around a smaller number of key initiatives. In addition, the recent creation of the National Coordination Council for Social Policies constitutes an important step in the direction of improving the effectiveness of social policies as it allows for better coordination among the various actors at the national level and between different jurisdictions. This proposed loan is also part of the Government-Bank effort to address the dramatic social situation in the country. The Health Sector Situation I Argentina's health system has not performed as needed to maintain good health status or protcct many from the costs of sickness. Health outcomes do not match the historically high spending levels or the country's significant installed capacity. Furthermore, there are 'ide differences m health status between provinces, with the poorest regions in the country experiencing a higher participation of maternal and child pathologies and levels of infectious disease. The low status of maternal and child health presents a particular challenge. Even though infant mortality rates have fallen by 50% over the last 20 years, their levels remains high relative to countries such as Chile, Costa Rica or Uruguay wvith similar levels of economic development that spend less on health. Furthermore, the reduction in infant mortality rates appears to have stopped in the last few years. Similar trends are observed in the case of maternal mortality. Also, disparities between provinces are high and growing: for example, some provinces experience infant mortality rate 3 times higher than the City of Buenos Aires, and variations in maternal mortality may be as much as 5-fold. Strengthening a national program for sexual and reproductive health constitutes another key challenge. Responsibility is currently entirely with provincial level health authorities wvith no current national programs to address the disproportionate burden of disease of women and infants of poor families. National actions are required including: (1) enacting pending resolutions that further specify the reach and implementation of current legislation (ii) coordinating joint efforts across various social ministries (e.g. health and education); (iii) assigning sufficient resources in the budget for its annual action plan (inputs, services and technical assistance); and (iv) defining and implementing a monitoring and evaluation system. The relatively unsatisfactory health indicators are evidence that too many Argentines (with and without insurance coverage) are not receiving the type of health services they need. Two out of four Argentines - mostly poor-- do not have health insurance coverage and rely exclusively on the services provided principally by provincial public health facilities. However, installed public sector capacity (e.g. hospital beds and doctors) is unequally distributed in the territory with a relatively high concentration in richer jurisdictions and those in which the private supply is the largest. At the same time, effective provision of scrvices through the public network is limited by inefficiencies, shortages of budgetary resources and excess demands. Among the insured, co-payments tend to be high. There are significant differences in the package of services (and co-payments) between different insurers, which result in high out of pocket expenses. On average, Argentine households spend 7% of their income on health. This proportion is higher for lower income families who do not have access to insurance. As a result, most of the poor ration their health care expenditures to cover medical crises and life threatening events. Preventive care and interventions such as assisted child birth and managed post l This section draws significantly from the Health ESW and the Policy Note recently finalized and presented to the Government in June 2003.  partum care or vaccination that has longer term benefits, may not be "purchased". Poor health would continue to impoverish households. Although numbers vary from one province to the other, in general no more than 8% of the total spending in health is dedicated to the first level of assistance. The greater fraction of public spending on health is used for covering the labor costs of higher complexity hospitals, independent of the quantity and quality of the services provided. Some key characteristics in the management of public hospitals limit their ability to ensure an effective service delivery to the non-insured population. A lack of performance incentives, a minimum level of autonomy, governance and accountability, weak management and poor articulation with social security appear to be key factors preventing effective delivery systems. Financial resource allocation from the provinces to their providers is mostly done on an historical and input basis rather than on an output basis. Use of service performance indicators is generally weak. The solutions to the health system challenges are made more complex by the federal structure (regarding policies, institutions and administration) \vhich frames action. Although the national level is the official regulator and leader of the health sector, according to their various constitutions, provincial governments are responsible for guaranteeing their citizens' right to health care. Therefore, all efforts for comprehensive and sustainable reforms must begm with the provinces and be set wvithin a framework of effective national- provincial negotiations. Provincial health systems will have to be at the forefront of any new effort to reform the system and improve health care. The development of more inclusive provincial insurance schemes is clearly one potentially powerful approach to respond to the basic health needs of the poor and protect them financially. Effective targeting to provide incentives to seek services wvith longer term health (and income) benefits should be included. There are many different ways to set up those expanded provincial insurance systems: for example, there is a choice between a system based on a single insurer (e.g. the Provincial Obra Sotial--OSP) and one with multiple competing insurers. Under certain conditions a separation of the purchasing and provision functions within the public sector may serve the same purpose, even without being structured as an explicit insurance scheme. Each province needs to find the option that best corresponds to its particular situation with in a coherent national framework.. 2. Objectives The government has launched a strategy aimed at reducing the burden of maternal and child mortality by a minimum of 50% of the "avoidable" child deaths, to reduce the overall rate of maternal and child mortality to levels consistent with economic growth, poverty reduction and social stability. The government wishes to meet world-vide agreed Millennium Development Goals (MDGs) for Health by 2010. It would do this first by establishing a favorable environment for the provinces to act within their constitutional requirements to provide services for the uninsured and second, to initiate a program to assist every province to co-finance services. It wvould focus initially on provinces where the need for improvement is most evident in statistics on mortality and morbidity, which are the least well endowed and show the highest levels of poverty. As they make the necessary internal organizational and budgetary arrangements, all other provinces would be included. 3. Rationale for World Bank Involvement The Bank's strategy is geared to helping Argentina tackle these challenges by (i) assisting efforts focused on the longer-term development agenda and also (ii) engaging on policy dialogue and program development with the new administration. In addition, the Bank has been pro-actively responding to urgent needs to address the social emergency situation, and to requests by the government for technical assistance in areas ranging from financial sector, corporate restructuring, and renegotiations of concession contracts in infrastructure and public services.  This Health Sector Adjustment Loan for US$ 400 million to the Republic of Argentina would support much needed improvements in the efficiency of public expenditures in the health sector at national and provincial level, and, at the same time would address the immedcate needs of the most vulnerable groups in the least well endowed provinces. 4.Program Description The \World Bank would support the first goal through an adjustment program (the proposed SECAL). This program would: support the GOA's effort to affect changes in the relationships between the National and Provincial health systems as incorporated in a "Five Pillar Approach" that would a) Improve National-Provincial coordination of health policy that would be essential to maintain priorities among provinces, regulate through consensus major programs that support mother and child care, and to coordinate national subsidies policies and programs. The focus of improved coordination would be through the Consejo Federal de Salud; COFESA) b) Protect essential priority health programs that are of particular importance in supporting public health environment, vaccinations and containing certain infectous diseases such as 1-IJI, and responding to emergencies, during a period of budgetary stringency. c) Initiate the design and test key elements of a "mother and child insurance system" that would be later scaled up wvith national financial resources. As a basis of this design GOA would prepare and agree with provinces on a service package of approximately 200 interventions that wvould be based on appropriate technology and knowvn to be efficacious in the vast majority of maternal-child prevention and treatment cases. This package would be economically and financially sustainable; d) Introduce the mother and child insurance system through a new system for payment to the providers of the basic package of services for eligible mothers and infants on a per capita basis, modified to reflect the actual levels of service performed. This would provide adequate incentives for assuring good performance at the service delivery level. GAO would adopt an operating manual that will guide how this system nwould function to effectively target benefits and motivate the desired performance; and e) Provide additional protection for the remaining insured population by consolidating recent gains made in improving the regulation of the SNSS and private insurers (obras socials). Key among these protections are consolidating lists of eligible participants in national insurance system and improving payment systems to make efficient use of funds that are available. The proposed loan amount of US$400 million (to be confirmed) forms part of the financing support package by the international coinmunity for Argentina's transition program. It is proposed that the loan be disbursed in three tranches that wvould correspond to the phased implementation of the program. In this way, the government would build provincial and popular ownership of the concept of the insurance system, allow for the negotiation of modifications and the introducuon of necessary regulatory, budgetary and accountability svstems 5. Financing Source (Total (US$m)) IBRD ($400.00) Total Project Cost: US$ 400.00 6. Environmental Aspects  The program is a sector adjustment operation and has been placed in category "C" according to screening guidelines. 7. Project Risks The risks for this program are high. Although the new administration shows a high level of support by the population, as shown by multiple polls, sustainability of the program could be undermined by the political instability of Argentina and by the historically difficult dialogue between the provinces and the national government, which will be determined, in a substantial degree, by the outcome of the upcoming Governor elections. In the past, political pressures did not allow the government to implement some of the expected reforms leaving the program and the supporting Bank operations mostly focusing only on the emergency expenditures and investments. However, a recent national dialog process generated a strong consensus that fundamental changes in the health sector management were needed and that COFESA would be an adequate vehicle for collaboration to make the needed changes. Although the speed of the required reforms envisioned in the proposed program may challenge the new government's ability in building a consensus approach with the provinces most closely involved in the program, the whole strategy and structure of the proposed loan as well as the following investment loan aim at setting the incentives to improve such coordination and dialog. The strategy of addressing the needs of a highly vulnerable group (mothers and infants) in provinces with the poorest populations and are the least well endowed , also presents a significant risk to program success. This risk is considered consistent with a potentially high reward of meeting Millennium Development goals and addressing poverty concerns. The potential for a continued economic slow down, including the impact of the general world economy would also present serious risks to the program. Although the program only requires a relatively modest fiscal effort of the national government at this stage, even that level of effort might prove to be too much and make it difficult for the start up of MCI, the center pillar of the operation.  8. Contact Point: Task Manager Cristian Baeza The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: (202) 458-0314 Fax: (202) 522-0050 9. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. Cleared by: Ariel Fizsben, Sector Leader, LCC7C  \VB148244 L:\ECU PRSL\PID3_26.DOC March 31, 2003 3:51 PM