How to Sustainably Finance Universal Health Care

By Mary Suma Cardosa, Chan Chee Khoon, Chee Heng Leng, Jomo Kwame Sundaram

KUALA LUMPUR: To achieve universal health coverage, a country needs a healthcare system that provides equitable access to high quality health care requiring sustainable financing over the long term. Publicly provided healthcare should be on the basis of need, a citizen’s entitlement for all regardless of means.

Health inequalities growing

But recent decades have seen health care trending towards a two-tier system – a perceived higher quality private sector, and lower quality public services. One typical consequence is medical doctors, especially specialists, leaving public service for much more lucrative private practice.

This ‘brain drain’ has led to longer waiting times and complaints of deteriorating public service quality, as more people with means turn to private facilities. As costs in private hospitals are high and increasing, this causes those who can afford private health insurance to turn to it to hedge their bets.

If these trends are not checked, the gap between private and public health sectors in terms of charges and quality will grow, increasing polarisation in access to quality health care between haves and have-nots.

Health care financing

Financing arrangements are key to developing an equitable healthcare system that is financially sustainable in the long run. For universal coverage and equitable access, health financing should be based on social solidarity through cross-subsidisation, with the healthy financing the ill, and the rich subsidising the poor.

Experience the world over shows health markets functioning poorly, both in financing and providing healthcare. Furthermore, heavy reliance on market solutions has contributed to spiralling costs and constrained healthcare access.

Private health insurance

A voluntary private health insurance (PHI) scheme cannot be financially viable in the long term as individuals with lower health risks are less likely to buy insurance from a scheme which they see as primarily benefiting others less healthy.

Since voluntary schemes are usually based on PHI, government support for such schemes would strengthen these companies. There are good reasons to be wary of the growing influence of PHI interests in healthcare financing discussions.

Premiums for PHI are risk-rated, meaning that individuals with pre-existing conditions and higher risks – such as the elderly, or those with family histories of illness – will face un-affordably high premiums or be denied coverage.

‘Moral hazard’ and ‘supplier-induced demand’ in a ‘fee-for-service’ reimbursement system encourage unnecessary investigations and over-treatment, or costly monitoring to limit such abuse. Hence, PHI companies use ‘managed healthcare’ services to contain costs by limiting investigations and treatments.

Voluntary PHI schemes charge high premiums while fee-for-service payments escalate costs which inevitably raise premiums. Thus, the US spends the most on health in the world, but with surprisingly modest health outcomes to show for it.

Much public expenditure is needed to insure the poor, especially those with prior health conditions. Achieving UHC would require costly public subsidisation of such profitable arrangements. This would not be cost-effective, let alone equitable.

Government support for PHI companies would strengthen their growing presence and influence, typically involving transnational insurance conglomerates. PHI companies are likely to try to undermine others threatening their interests.

Social health insurance

Unlike VHI, social health insurance (SHI) is usually mandatory to cover the entire population. Although often proposed and promoted with the best of intentions, the limitations and problems of SHI are also important to consider.

SHI would effectively require collecting an additional ‘payroll tax’ from the public. This could be designed with various distributional consequences, e.g., if flat, it would be regressive. As an additional tax would reduce take-home incomes, SHI schemes have been difficult to introduce.

Like PHI, SHI also has inherent tendencies for over-treatment and cost escalation due to ‘moral hazard’ and ‘supply-induced demand’. These require costly, strong and typically bureaucratic administrative controls.

Surviving SHI schemes owe their ‘success’ to specific reasons, e.g., Germany’s evolved from its long history of union-provided health insurance. But most working people in developing countries are not in formal employment, let alone unionised. Hence, SHI would have difficulty gaining broad acceptance.

In any case, Germany and other countries with successful SHI in the past have been moving to greater revenue funding of healthcare as formal employment and unionisation decline with changing labour arrangements.

With SHI, government revenue would still have to cover the indigent and poor. It is difficult to collect premiums from the self-employed, or the casual and informal workers not on regular payrolls. But universal coverage would not be achieved without including them.

Revenue financed healthcare

Inherited revenue-based healthcare financing is basically sound and should not be replaced due to other healthcare system problems. In most societies, revenue-sourced healthcare financing can be retained, reinforced and improved by:

o increasing government health care allocations.

o reducing ‘leakages’ by eliminating waste, corruption, ‘cronyism’, etc.

o promoting ‘developmental governance’, competitive bidding, etc.

o raising government revenue, especially from more progressive taxation, e.g., wealth, ‘windfall’ and ‘sin’ taxes, especially on activities worsening health risks such as tobacco and sugar consumption.

Revenue financing better

Revenue-financing avoids many administrative costs incurred by PHI and SHI. It has no need for an elaborate parallel system, costly mechanisms and more staff to register, track and pay SHI contributors and beneficiaries, and to deter selfish opportunistic behaviour.

Compared to PHI, SHI seems like a step forward for countries with weak or non-existent public healthcare systems. But moving from revenue-financing to SHI would be a step backwards in terms of both equity and cost-effectiveness.

SHI requires additional layers of health care system administration – to enrol, collect, ascertain coverage, determine benefits and make payments – which incurs unnecessary costs compared to revenue-financing.

Hence, such insurance systems involve much more per capita health spending, raising it by 3-4%. Despite being much more costly than revenue financed systems, they do not have better health outcomes.

As SHI effectively imposes a payroll tax, it discourages employers from hiring employees with ‘proper’ labour contracts. Hence, SHI was estimated to reduce formal contracts by 8-10% and total employment by 5-6% in rich countries.

International evidence clearly shows progressive tax-funded public health systems are more equitable, cost-effective and beneficial than SHI. Public health programmes needing popular participation, e.g., breast or cervical cancer screening, have worse outcomes with SHI compared to revenue-financing.

This can be best achieved by improving or developing a revenue-funded healthcare system, with additional resources deployed to expand and enhance primary health care, and better service conditions for medical personnel.

Strengthening public healthcare services can do much, not only to improve staff work conditions, but also morale and pride in their work.

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Mary Suma CARDOSA is a medical doctor specializing in pain management and past President of the Malaysian Medical Association. CHAN Chee Khoon, ScD, is a health systems and health policy analyst with postgraduate training in epidemiology. CHEE Heng Leng, PhD, is an academic researcher working in the area of health and health care policy. All are members of the Citizens Health Initiative.

Central banks must address pandemic challenges

Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY and KUALA LUMPUR: Hopes for an inclusive global economic recovery are fast fading. As rich countries have done little to ensure poor countries’ access to vaccines and fiscal resources, North-South “fault lines” will certainly widen.

Enhancing relief, recovery, transformation

While the International Monetary Fund (IMF) has revised rich countries’ recovery prospects upward, the United Nations (UN) notes formidable challenges, especially for developing countries, due to the pandemic.

The UN warns of more setbacks for the Sustainable Development Goals (SDGs), already behind schedule before the pandemic. Grim recovery prospects have been worsened by debt distress and dramatic drops in investment and trade.

Designing appropriate relief, recovery and reforms well is necessary. For the IMF, growth-enhancing reforms could significantly improve growth in emerging market and developing economies over the next decade.

Countries must quickly spend much more to contain the pandemic and offset adverse effects of policy responses. This is needed to protect incomes, jobs and businesses, while paying more attention to the most vulnerable. Also, the SDGs still need more financing.

Policy choices now will determine chances of a greener, more inclusive and resilient future. There have to be better synergies among short, medium and long-term policies through improved coordination.

Macroeconomic policy coordination

Although public debt is already high while tax revenue has shrunk, governments need to spend more. Central banks (CBs) must lend more to governments to create more fiscal space. Better monetary policy support for government spending should strengthen relief, recovery and reform, not enable more corporate debt and asset price bubbles.

In turn, fiscal authorities can create monetary policy space by enabling spending on nationally produced goods and services, investing in productive capabilities, enabling new jobs and occupations, and expanding social protection. Policy design should ensure that more liquidity does not generate excessive inflationary pressures or net imports.

Greater CB independence in recent decades has undermined macroeconomic policy coordination, preventing them from lending directly to governments. Keeping inflation low has become paramount, ignoring other policy goals. Supposedly for CB and monetary policy credibility, such priorities actually serve financial investors, especially speculators.

But with ‘unconventional monetary policies’ after the 2008 global financial crisis, CB lending to governments has become more acceptable. Many rich country governments have since turned to CBs for fiscal space and other finance.

With little affordable finance available from both private and official sources, some developing countries, such as Indonesia, have temporarily suspended laws preventing direct borrowing from CBs. Others, e.g., the Philippines, have amended legislation to allow CBs to directly lend to governments.

Thus, how countries emerge from recessions in the short-term, and transform their economies to achieve progress in the longer term, critically depends on effective cooperation between CBs and governments.

Central banks’ developmental role

Historically, CBs have played a developmental role, e.g., financing public investment. Even though many CB statutes are not explicit about such roles, the two oldest CBs – the Bank of England and Sweden’s Riksbank – are not prohibited from vigorously promoting policy priorities, e.g., the latter’s commitment to housing for all.

The Bank of England has even pioneered creating specialised development institutions, e.g., the Industrial and Commercial Finance Corporation, the Finance Corporation for Industry, and the Bankers’ Industrial Development Company.

The US Federal Reserve Act is committed to realise “the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates…in furtherance of the purposes of the Full Employment and Balanced Growth Act of 1948.”

CBs of Italy, Germany, Japan and the Netherlands have used various means to finance activities underserved by credit markets. These include lowering bank reserve requirements and lending for priorities such as housing, agriculture, exports, small business and underdeveloped regions.

Well before independence, the Reserve Bank of India observed, “it may be desirable for Central Bank credit to be made available in a larger number of ways and with less restrictions”. Hence, development objectives are explicit in many developing countries’ CB statutes.

The statutes of some CBs established in the 1970s and 1980s with IMF technical assistance also have specific provisions for developmental roles, e.g., in Bhutan, Botswana, Fiji, Maldives, Solomon Islands, Swaziland and Vanuatu.

This is consistent with IMF Article of Agreement IV, “each member shall endeavor to direct its economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to its circumstances”.

The Bangladesh CB, a financial inclusion pioneer, also adopted a sustainable finance policy in 2011 to promote green investment and sustainable agriculture. Ninety developing country CBs have since signed the Maya Declaration to advance financial inclusion.

Supporting transformation

Borrowing to finance recovery and reform has to promote desirable changes, creating new productive capacities, accelerating digitalisation, revitalising rural and regional economies, conducting business and work in new ways, and making economies more sustainable.

The European Central Bank (ECB) has aligned ‘quantitative easing’ with the European Commission (EC)’s pandemic response. By indicating it would buy newly issued government bonds in the secondary market, the ECB has effectively financed government borrowing despite the ban on directly lending to the government.

Thus, considerable ECB purchase of government bonds has lowered borrowing costs for member States’ pandemic responses. These include the EC’s Next Generation package,including the European Green Deal and its ‘digitalization transition’.

The Bank of Japan is also supporting government efforts for relief, recovery, economic growth, structural change, disaster management and global warming mitigation. It is also encouraging companies to invest in digitalisation and green technologies.

The South Korean CB has also purchased more government bonds. Several measures have provided monetary support for the ‘Korean New Deal’, including pandemic relief, recovery, digital and green investments, and employment safety nets.

China’s CB’s targeted monetary policy tools are also increasingly aligned with the government’s long-term strategic goals. These include supporting key sectors while preventing asset price bubbles and ‘overheating’.

Bolder actions needed

Over the last year, poorer countries have been condemned to protracted recessions and delayed recoveries. Vaccine imperialism and apartheid mean that their vaccination efforts will be delayed and limited, if not worse.

Extended slowdowns not only threaten to become depressions, but also to further set back the modest progress achieved in recent decades. The North-South gap between rich and poor countries is certain to grow again.

Recovery prospects have been set back by poor countries’ lack of ‘fiscal space’. The IMF must help them use monetary policy much more creatively, not only to enhance fiscal space, but also to complement other policies for relief, recovery and transformation.

Related IPS commentaries

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Beware UN Food Systems Summit Trojan Horse

Jomo Kwame Sundaram

KUALA LUMPUR: Undoubtedly, the world needs to reform existing food systems to better serve humanity and sustainable development. But the United Nations World Food Systems Summit(UNFSS) must be consistent with UN-led multilateralism.

For the first time ever, the World Economic Forum (WEF), a partnership of some of the world’s most powerful corporations, is partnering the UN in launching the Summit, now scheduled for September, with its ‘Pre-Summit’ beginning today.

Food insecurity is primarily due to inequalities and deprivations as victims lack the means to obtain the food they need. The UN should not serve those who cynically use hunger, starvation and deprivation to advance private commercial interests.

UN-led multilateralism threatened

The collapse of the Soviet Union, the end of the Cold War and seemingly unchallenged US dominance in the 1990s posed new threats to UN-led multilateralism. The World Trade Organization was set up in 1995 outside the UN system. Later, ‘recalcitrant’ Secretary-General (SG) Boutros-Ghali was blocked from a second term.

The four UN Development Decades from the 1960s ended with the lofty, Secretariat-drafted Millennium Declaration, bypassing Member State involvement. The Millennium Development Goals (MDGs) were then elaborated by the UN Development Programme with scant Member State consultation.

Growing corporate sway in the UN system got a big boost with the UN Global Compact. Such influences have affected governance of UN agencies, now better known as the World Health Organization struggles to contain the pandemic.

Difficult negotiations followed growing developing country disappointment with the MDGs, not delivering on climate finance as promised in 2009, and failure to better address the 2008 global financial crisis and its aftermath.

Hence, the negotiated Sustainable Development Goals (SDGs) compromise enjoys greater legitimacy than the MDGs. However, achieving Agenda 2030 was undermined from the outset as rich countries blocked needed funding at the third UN Financing for Development summit in mid-2015.

Summit bypasses UN processes

In the last dozen years after the 2008 world food price spike, the UN Committee on World Food Security (CFS) has become an inclusive forum for civil society and corporate interests to debate how best to advance food security. Unsurprisingly, CFS has long addressed food systems.

CFS’s High-Level Panel of Experts (HLPE) is widely acknowledged as competent, having prepared balanced and comprehensive reports on matters of current and likely future concern. In the UN system, CFS is now seen as a ‘multistakeholder’ engagement model for emulation. Yet, the Summit bypassed CFS from the outset.

Nominally answering to the UNSG, Summit processes have been largely set by a small, largely unaccountable coterie. UNFSS organisers initially moved ahead without representative stakeholder participation until his intervention led to some consultative processes.

Mainly funded by the WEF and some major partners, they remain mindful of who pays the piper. Hence, they mainly promote supposedly ‘game-changing’, ‘scalable’ and investment-inducing solutions claiming to offer technological fixes.

Agroecology innovation

An HLPE report has approvingly considered agroecology or ‘nature-based solutions’. Many scientists have been working with food producers for decades to increase food productivity, output, diversity and resilience through better agroecological practices, thus cutting costs and enhancing sustainability.

The evidence is unambiguous that agroecology has delivered far better results than ‘Green Revolution’ innovations. A survey of almost 300 large ecological agriculture projects in more than fifty poor countries reported rising farmer incomes due to lower costs and a 79% average productivity increase.

This contrasts with the record of the Alliance for a Green Revolution in Africa (AGRA) launched in 2006. With funding from the Gates and Rockefeller Foundations, it promised to double yields and incomes for 30 million smallholder farm households by 2020. Despite much government spending, yields hardly rose as rural poverty grew.

Agroecological innovations have proved effective against infestations. Thus, safer, more effective biopesticides that do not kill useful insects and microbes, and non-toxic alternatives to agrochemical pesticides have been created.

The UN Food and Agriculture Organization (FAO) hosted its first International Agroecology Symposium in 2014, before committing to ‘Scaling Up Agroecology’. But for Kip Tom, President Trump’s representative, FAO was no longer “science-based”.

Demonising agroecology

The Gates Foundation has been funding the Cornell Alliance for Science, ostensibly to “depolarize the GMO debates” by providing training in “advanced agricultural biotechnology communications”. Why traditional agricultural practices can’t transform African agriculture is only one instance of such sponsored propaganda masquerading as science.

Well-resourced lobbyists are using the UNFSS to secure support and legitimacy for commercial agendas. With abundant means, their advocacy routinely invokes ‘public-private partnerships’ and ‘science, technology and innovation’ rhetoric.

Forced to be more inclusive, Summit organisers are now using ‘solution clusters’ for advocacy. They then build broad ‘multi-stakeholder’ coalitions to advance purported solutions with the UNFSS mark of approval.

With strong and growing evidence of agroecology’s progress and potential, propaganda against it has grown in recent years. Agroecology advocates are caricatured as ‘Luddite eco-imperialists’, ‘Keeping Africa on the Brink of Starvation’, and condemning farmers to ‘poverty, malnutrition and death’.

A public relations consultant has accused agroecology advocates of being “the face of a ‘green’ neocolonialism” “idealizing peasant labour and retrograde subsistence farming” and denying “the Green Revolution’s successes”.

Agroecology solutions are the main, if not only ones consistent with the UN’s overarching commitment to sustainable development. But the propagandists portray them as uninformed barriers to agricultural and social progress. Such deliberate deceptions block needed food system reforms.

UN Special Rapporteur on the Right to Food Michael Fakhri alerted UNFSS Special Envoy Agnes Kalibata that agroecology is being dismissed as backward when it should be central to the Summit. Concurrently President of AGRA, with its particular commitment to needed food system reform, she is in an impossible position.

Best Summit money can buy?

Investing in the Summit is securing legitimacy and more resources from governments, the UN system, private philanthropy and others to further their commercial agendas. Meanwhile, many are working in good faith to make the most of the UN Summit.

Nevertheless, it is setting a dangerous precedent for the UN system. It has rashly opened a back door, allowing corporate-led ‘multi-stakeholderism’ to undermine well-tested, inclusive ‘multi-stakeholder’ arrangements developed over decades under multilateral Member State oversight.

UNFSS Science Days on 8 and 9 July indicated the Summit is being used to push for a new food science panel. This will undercut the HLPE, and ultimately, the CFS. Hence, the UNFSS seems like a Trojan Horse to advance particular corporate interests, inadvertently undermining what UN-led multilateralism has come to mean.

As both CFS and HLPE are successful UN institutions, the Summit will inevitably undermine its own achievements. Hence, for many Member States and civil society, UNFSS represents a step backward, rather than forward.

Related IPS Articles

· Struggle for the Future of Food

· Another False Start in Africa Sold with Green Revolution Myths

· Green Counter-Revolution in Africa?

· Agricultural Trade Liberalization Undermined Food Security

· Big Business Capturing UN SDG Agenda?

· Genetically Engineered Disappointments