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Impact of Economic Crises on Health Outcomes & Health Financing

Impact of Economic Crises on Health Outcomes & Health Financing. Outline. How deep is the current crisis? How does the current crisis compare with previous ones? Impact of previous crises on: Health outcomes Health utilization Health expenditures Response to previous crises by:

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Impact of Economic Crises on Health Outcomes & Health Financing

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  1. Impact of Economic Crises on Health Outcomes & Health Financing

  2. Outline • How deep is the current crisis? • How does the current crisis compare with previous ones? • Impact of previous crises on: • Health outcomes • Health utilization • Health expenditures • Response to previous crises by: • Households • Policymakers & World Bank • Conclusions & Recommendations

  3. How Deep is the Crisis? Latest IMF growth projections for 2009 • World 0.5% • USA -1.5% • Eurozone -2% • UK -2.8% Thai Economy contracted by 3.5% in 4th quarter (Thai Fiscal Policy Office) ILO projection of global job losses = 51m Sharp deterioration in projections as crisis continues

  4. How Deep is the Current Crisis ? • Many currencies have experienced large devaluations • Thai Baht may be “competitively devalued” to prop up exports (Fiscal Policy Office) Source: World Bank (2008), “Weathering the Storm: Economic Policy Responses to the Financial Crisis.”

  5. Timeline of Previous Crises • East Asian Crisis (1997-1998) • Argentine Crisis (2001) • Russian Crisis (1997-1998) • Peruvian Crisis (1988-92) • Mexican Crises (1980s and 1990s)

  6. Current Crisis Originated in developed countries – Contagion effect Countries with better fiscal positions not be spared Importance of FDI has increased in most developing countries. Poor countries, especially in Africa are Aid dependent for financing government expenditure Remittances are important source of foreign exchange and direct support to household Previous Crisis Originated in developing countries Many countries had large fiscal & external deficits How Does the Current Crisis Compare?

  7. Impact of Crisis on Health • Economic • Unemployment • Foreign aid/FDI • Tax Revenue • Demand for exports Household Income Capacity of other actors (NGOs, private sector) Government Resources Demand for health services Supply of health Services / Quality Access to quality health care Health Status

  8. Impact of Current Crisis • Strong link between economic growth, household incomes and poverty rates. • Estimates suggest that a one % decline in developing country growth rates could trap an additional 20 million people into poverty (World Bank, 2008). • In 2009, 1.6 million Indonesians, who otherwise would have escaped poverty, are expected to remain below the national poverty line. • Current crisis may last longer as developed countries are likely to import less from export-dependent developing countries • Global trade is expected to decline by 2.5 % in 2009 (World Bank, 2008). • Importance of FDI in global economy • Developing countries have become more dependent on FDI (which has already declined) in recent times.

  9. Impact of Current Crisis • Reliance on remittances in danger: • Remittance flows into developing countries are expected to decline from 1.8 % of recipient country GDP in 2008 to 1.6 % in 2009 (World Bank, 2008). • Reliance on Health ODA puts poor countries at risk: • In Rwanda and Ethiopia, over 50% of budget total government expenditure is financed by donors and off-budget donor funding for health is more than 100% of government health expenditures. • In 2006, 23 countries had more than 30% of total health expenditure funded from external sources. (based on preliminary WHO Data).

  10. Impact of Current Crisis • Foreign aid may be cut as a result of economic crisis • Existing aid budgets may be at risk (Roodman, 2008). • Finland, Japan, Norway, and Sweden reduced aid during previous financial crises (Roodman, 2008). Exchange fluctuations can also reduce aid. • Ambiguous relationship between economic growth in donor countries and subsequent aid flows (Mold et al, 2008).

  11. Impact of Current Crisis • Compounding effect of food, fuel and financial crisis on the poor: • Over 100 million people may have been driven into poverty as a result of high food and fuel prices (World Bank, 2008). • In 2008, the number of people suffering permanent and irreparable cognitive damage due to early malnutrition increased by 44 million (World Bank, 2008).

  12. Impact on Health Outcomes • Children and women tend to bear the brunt of crises as households economize on food consumption. • Infant Mortality Rates (IMR) and Nutrition levels usually worsen during and after a crisis. • Severe undernourishment increased from 24% from 1990-94 to 27.2% from 1997-98 in East Asia and the Pacific (UNICEF, 2009). • Elasticity of infant mortality with respect to per capita GDP is approximately -0.56 (Schady and Friedman, 2007). • Elasticity of child malnutrition with respect to per capita GDP is between 0.3 to 0.5. (Haddad et al).

  13. Evidence from East Asia • Indonesia • Increased prevalence of micro-nutrient deficiencies (esp. vitamin A) in children and women of reproductive age. (Macfarlane Burnet Centre for Medical Research, 2000) • Increase in the share of women (by 25% in 1998) whose body mass index is below the level at which risks of illness and death increase (World Bank, 2001) • Thailand • 22 % increase in anemia amongst pregnant women (Knowles et al, 1999)

  14. Evidence from Latin America • Latin American crises in the 1980s slowed decline in average Infant Mortality Rates (IMR) (Lustig, 1995) • Peru • 2.5 %age point increase in infant mortality for children born in 1989 and 1990. (Paxson & Schady, 2005) • Mexico • Average of 7-10 % increase in child mortality during crises years. (Ferreira & Schady, 2008)

  15. Impact on Health Outcomes • Over 1 million excess deaths (infants) have occurred in the developing world during 1980-2004 in countries experiencing economic contractions of 10 % or greater (Schady and Friedman, 2007). • Mortality of girls is much more sensitive to changes in economic circumstances than that of boys (Schady and Friedman, 2007).

  16. Impact on Health Utilization • Deterioration of outcomes may be traced to reduced utilization of essential services Crisis reduction of household income and insurance protection decreased utilization of health services • Argentina • 63% of urban households experienced real income falls of 20% or more between October 2001 and October 2002. • 38% of households took their children less frequently to preventive medicine (World Bank Argentina Health Sector Report, 2003) • 57% of the poorest household took their children less frequently to preventive medicine.

  17. Impact on Health Utilization • Costs of drugs and medical devices go up during a financial crisis, making health care less affordable for the poor • Devaluation of local currencies results in an increase in the local currency price of drugs. • Cost of drugs went up by almost 61% in Indonesia; Costs also went up in Thailand, Philippines and Vietnam (UNICEF, 2009). • In Indonesia, prices of drugs rose sharply between 1997-98. Some doubled in price (Institute for Health Sector Development/ World Bank, 1999 and Kashiwagi, 1999). • Utilization rates do not recover for a long time even after economic recovery • Between 1997-2005, utilization of professional health care decreased from about 53 % to about 34 % by those seeking care. (SUSENAS). • Indonesia’s health utilization rates have yet to return to their pre-crisis levels (World Bank Indonesia Health Public Expenditure Review 2008).

  18. Impact on Health Expenditures • Public Expenditures and Social Spending tend to be pro-cyclical in countries with internal imbalances Total Public Spending and Social Spending in Argentina 1980-97 (changes in logs) Elasticity of social spending with respect to total spending is 2.14 Source: M Ravallion (2002), “Are the Poor Protected from Budget Cuts? Evidence from Argentina,” Journal of Applied Economics, V(1).

  19. Impact on Health Expenditures • Government expenditures measured in real per capita terms tended to decline: • Government health spending per capita fell more than out-of-pocket spending per capita. • In 4 countries reviewed (Argentina, Russia, Indonesia, Thailand) government health spending per capita took time to reach pre-crisis levels. • In Argentina and Indonesia despite increases in the health’s share of government expenditure, government health spending per capita declined due to a fall in both GDP and government expenditure as a percentage of GDP. • In Thailand the decline in government health spending per capita was driven by the decrease in health’s share of government expenditure and an overall GDP decline.

  20. Impact on Health Expenditures • Post-crisis measures may require commitments of protecting social expenditures:such as health, specially for the poor and vulnerable, but in reality, governments do not always measure up to their commitments. • Protection of GHE as a proportion of GDP or as a proportion government expenditures may not be sufficient as government expenditures per capita in real terms may still decline substantially. • Government programs and services have been captured by the non-poor (Ravallion, 2002) • Targeting of social programs weakens during crises as the non-poor try to capture them. • Social Spending in many countries is heterogeneous, incorporating services such as pensions, unemployment compensation and higher education and thus may be non pro-poor in the first place. • Evidence from India & Bangladesh (Food-for-Education Program) confirms that aggregate cuts in social programs tend to be associated with worse targeting and deterioration of benefit incidence (Ravallion 2002). • Similar deterioration of benefit incidence is found in Indonesia for health services (Lanjouw, 2001)

  21. Response by Households • Users may switch from private sector to public sector • The public health system struggled to meet the increasing demand for services at Argentina’s public hospitals during the crisis as it was faced with a reduced budget (Iriart and Waitzkin, 2006) • Public health service utilization may increase if real government health expenditure per capita is protected or increased • Thailand experienced an increase in utilization of public health services as the government expanded the national coverage of public health insurance

  22. Response by Households • Coverage in health insurance may decrease • This is specially the case when eligibility is based on formal employment and contributions is based on wages. Decrease in coverage may affect mostly the poor Argentina: Type of changes in health insurance coverage by income quintile

  23. Response to Previous Crises • Conditional Cash Transfers have been an effective instrument in protecting the poor • Expanding the coverage and increasing the benefit levels on CCTs has been one response to crises, particularly in Latin America (Schady, N. & Fiszbein, A., 2008) • Mexico was able to help redress the adverse welfare impacts of the recent rise in food prices by implementing a one-time top up payment to Oportunidades participants. • CCTs have improved the lives of poor people (Schady, N. & Fiszbein, A., 2008). • CCT programs have also had a positive effect on the utilization of preventive health services, although the evidence is less clear-cut than with school enrollment. • Fiscal costs of CCTs need not be unduly high. • Even large and generous CCT programs as those in Mexico and Brazil are only around 0.5 % of GDP (PREM Guidance Note on the Financial Crisis(WB), 2008).

  24. Response to Previous Crises • Responses have worked better when: • Aimed at financing a specific set of services that are used by poor/vulnerable – Including immunization, primary health care, nutrition • Measured on a per capita basis and in real terms – rather than ratios (% GDP, Government expenditure) • Government expanded breadth and depth of coverage of an existing safety net or introduced a sustainable safety net (Bolsa de Familia in Brazil, 30-Baht/UC insurance in Thailand) • Targeting is simple and sustainable • In absence of simple mechanisms for targeting vulnerable individuals or households, Govt has financed essential services for the population likely to be under-consumed by the vulnerable groups ( iron, zinc, vitamin A and micronutrient supplements for mother and child, maternal/child primary care, etc).

  25. Examples of Effective Programs • Brazil • Objective: = maintain expenditures for human capital investment in basic education, medical care and nutritional services. • Indicator for health: Budget protection in health based on floors set on per capita spending at the state and municipal level for a defined benefit package. • Thailand • Objective = Increase public expenditures for protecting the poor. • Indicator: Based on the expansion of existing safety nets based on means testing.

  26. Example of Ineffective Programs • Argentina • Indicator = Safeguard social programs critical to the poor from budget cuts. • Georgia • Indicator = Preserve spending levels at 7.3 % of total budget in 1999.

  27. Conclusions & Recommendations • Experience Asia and LAC shows the negative impact that financial crises can have on health and nutrition outcomes. • In poor economies, the deterioration of outcomes can be the result of sharp reduction in utilization of essential health services. • The impact tends to be more severe in the poorest quintiles of the population.

  28. Conclusions & Recommendations • Faced with reduced income, households in many countries reacted by increasing demand for publically financed (and in many countries provided) health services. However: • Total public expenditures and social spending in many crises countries (those facing high external and internal imbalances) tend to be pro-cyclical. • Government Health Expenditures (GHE) per capita in real terms declined in all countries reviewed immediately after a crisis. This decline occurred even though many countries protected GHE as a proportion of total government expenditures • Capture of government services by the non-poor may increase during crises.

  29. Conclusions • Fundamental objective of public policy in health during a crisis must be to maintain/improveaccess to essential services by the population, especially the poor and vulnerable: • But this is not at odds with the reality of reduction in health expenditure (which tends to happens during financial crisis!) • Protecting government health expenditures is not an objective in itself, rather governments should maintain/improve access to essential services.

  30. Good and Poor Practice • Better practices are those that: • Clearly define the health and nutrition services to be provided • Identify financing for services on a per capita basis in real terms • Are affordable in the economic context • Clearly identify the beneficiary population • Set appropriate monitoring and evaluation mechanisms. • Poor practices are many but the following should be avoided: • General input or commodity subsidies • General conditions that earmark expenditures for whole sector • Conditions that only protect expenditures (for instance as proportion of budget or as proportion of GDP) without identifying the services to be produced and the target population. • Conditions that protect financing or services that are not pro-poor in the first place

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