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Bridging the Health-Finance Gap Bridge Over Troubled Waters

Updated: December 25, 2010 10:29 am

Governments do not have enough tax revenue to pay for planned global health programs. Innovative funding mechanisms attempt to remedy that situation.

TGovernments around the world have been paying closer attention to global health issues in the last few years. International development assistance for health has spiked, with wealthy countries contributing $22.1 billion in 2007, according to a report put out earlier this year by the Center for International and Strategic Studies, compared to $7.2 billion in 2001.

                But even these increased sums fall far short of the resources required to meet global health goals, such as those embodied in the United Nation’s Millennium Development Goals. Reducing child and maternal deaths and battling infectious diseases like AIDS, tuberculosis and malaria in the world’s 49 poorest countries would require additional tens of billions of dollars according to CSIS.

                The Obama administration’s Global Health Initiative will help by kicking in $63 billion over the next six years in an effort that will be focused on health issues facing children and mothers. But that will still leave a substantial shortfall in funding.

                The question becomes how the remaining funds will be raised. Development assistance has traditionally been paid from governments’ general tax revenues, a scheme with obvious limitations. A group of innovative funding mechanisms could play a role in bridging the health development assistance funding gap.

Spending better and smarter

“The big problem in global health finance is that there just isn’t enough money going to key programs,” Robert Hecht, managing director at the Results for Development Institute, a Washington-based nonprofit organization, told ISN Insights. “Money is frequently well used for hiring health workers or buying medicines. But they rarely focus on results, such as saving children’s lives or reducing the incidence of infectious diseases.”

                Innovative finance mechanisms that have been, or could be, put in place, said Hecht, focus not only on raising more money for health aid but on spending money better and smarter.

These innovative approaches include:

The International Financing Facility (IFF), which uses long-term government pledges to guarantee the debt of international health organizations;

                The Advance Market Commitment (AMC), which is being used to stimulate industry investments in research and development for vaccines; and

                UNITAID, an international fund which receives revenues from taxes imposed by eight countries on the purchase of airline tickets and which uses those resources to promote improved access to drugs and other health aids.

                “All of these new funding mechanisms have a longer multi-year time horizon and thus offer greater predictability than traditional aid,” said the CSIS report.

Frontloading access to funds

The IFF was set up a few years ago in the United Kingdom, Italy and several other European countries. “Governments give guarantees that allow international health organizations to raise money in international capital markets by issuing bonds,” said Hecht.

                Under the IFF, bond financing provides frontloaded access to funds to pay for health products such as childhood vaccines. Frontloading of assistance means that “the funds are available to borrowers immediately,” explained a paper published on the subject by the Brookings Institution, “but the countries offering the assistance would be able to pay for it over a longer period. This approach could reduce uncertainty about the flow of aid by capturing the costly, up-front investments that otherwise would be inadequately financed”.

                The International Finance Facility for Immunization (IFFIm), a UK-registered charity, disburses funds for immunizations and systems improvements in countries with annual per capita incomes below $1,000. The organization’s sole assets are payment obligations totaling $1.4 billion from eight countries—Italy, Norway, Spain, Sweden, South Africa, the UK, France and Brazil. The obligations are payable to the IFFIm over 20 years.

                “The IFFIm expects to issue bonds to finance a total of $4 billion in disbursements over the next 10 years, using the pledges as collateral,” noted the Brookings paper.

                The chief drawback of the IFF mechanism is that frontloading reduces the amount of available assistance by incurring interest and commissions. However, “the return to beneficiary countries due to the frontloading is expected to outweigh these additional costs,” Brookings concluded.

A global health tax?

Advance market commitments have been used by European countries to incentivize pharmaceutical manufacturers to develop a vaccine to fight childhood pneumonia. “The promise is that if the companies came up with new or better products, the donor countries would pay a reasonable price for a certain number of doses,” Hecht explained.

                UNITAID has the virtue of developing a new source of funding for health development assistance: revenues generated from airline taxes. France introduced the tax in 2006—which ranges from one-to-four euros for economy and 10-to-40 for first class—on passengers departing from French airports. Since then seven other countries—Chile, Congo, Cote d’Ivoire, Madagascar, Mauritius, Niger and South Korea—have followed suit, generating 200 million euros annually, 90 per cent from France.

                The advantage of such a taxing scheme, according to Brookings, is that it can be introduced using preexisting airport tax systems with relatively low implementation costs. “The argument against the tax is that it could reduce economic activity and incomes. In any event,” Brookings concluded, “elected leaders have determined that the benefits outweigh the costs and that this is an appropriate vehicle to redistribute consumption from airline passengers to poor people suffering from AIDS, tuberculosis and malaria.”

Paying for results

One innovative funding mechanism that is now being tested involves results-based financing (RBF) approaches. “Rather than just paying for inputs, RBF donors contribute to health programs when they see something happening on the ground,” said Hecht. “They pay when a child is immunized or a pregnant woman comes in for prenatal care.”

                ­In one RBF pilot, the World Bank agreed to convert loans to countries for polio vaccination campaigns to grants when the recipient demonstrates progress toward eradicating polio.

                The United States Agency for International Development has supported RBF schemes in Latin America for several years, according to Hecht. “But it has been strictly on an ad hoc basis,” he said. “There have been no formal programs or policies developed.”

                The US, through think tanks and other non-governmental organizations, has provided the intellectual leadership in developing alternative funding mechanisms for international health, said Hecht. Yet it has been European governments that have led in implementation, while the US government has shown little interest.

                Now that the Obama administration professes ambitions in global health, perhaps it is time that Washington finally gets on board.

(ISN)

By Peter A Buxbaum

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