Impact of Economic Crises on Health Outcomes

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Impact of Economic Crises on Health Outcomes
Health Financing
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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

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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

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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.
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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)

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How Does the Current Crisis Compare?

• 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

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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
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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.

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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).

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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).

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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).

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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).

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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)

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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)

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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).

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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.

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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).
• Indonesias health utilization rates have yet to
  return to their pre-crisis levels (World Bank
  Indonesia Health Public Expenditure Review 2008).

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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).
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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 healths 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
  healths share of government expenditure and an
  overall GDP decline.

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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)

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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 Argentinas
  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

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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

Quintile I II III IV V Total
Lost all coverage 76.0 61.1 78.6 52.6 33.6 61.4
Changed coverage 24.0 38.9 21.4 47.4 66.4 38.7
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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).

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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).

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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.

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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.

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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.

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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.

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Conclusions

• Fundamental objective of public policy in health
  during a crisis must be to maintain/improve
  access 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.

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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