From Double Shock To Double Recovery - Implications And Options For Health Financing In The Time Of Covid-19

Abstract

The COVID-19 pandemic has resulted in a double shock - health and economic. As of March 1, 2021, COVID-19 has cost more than 2.5 million lives and triggered an economic recession surpassing any economic downturn since World War II. Almost all countries responded with rapid increases in government spending during 2020 to control the pandemic and protect people, jobs, and businesses. Despite an expected return to economic growth, the International Monetary Fund (IMF) projects government per capita spending to fall across all country income groups in 2021 and 2022. This drop primarily reflects a reduction in the capacity of many governments to further accumulate and service public debt. Part I of this paper explores the impact of this current macro-fiscal outlook on the three primary sources of health spending. Drawing on experiences from previous economic crises, scenario analyses suggest a fall in government per capita spending on health in 2021 and 2022 unless governments make bold choices to increase the share of health in general government spending. The projected drop in per capita government spending on health is expected to coincide with lower levels of household out-of-pocket spending on health and a possible decline in development assistance for health (DAH). The projected decline in government per capita health spending will threaten a recovery from the health and economic shocks. An end to the pandemic can only come through enhanced disease surveillance, strengthened delivery platforms, and the roll out of COVID-19 vaccines. Reclaiming losses in progress toward universal health coverage (UHC) due to disruptions in the supply and demand for essential non-COVID-19 health services during the pandemic is vital for a sustainable and inclusive longer-term economic recovery. Part II of the paper discusses policy options to meet the spending needs in health. These options encompass strategies to make fiscal adjustments work and channel funds where they are most needed, as well as policies to stabilize the balance sheets of social health insurance (SHI) schemes. The paper explains how the health sector can play an active role in expanding fiscal space, contributing to tax reforms, most importantly pro-health taxes, and mobilizing and absorbing external financing, including debt relief. Recognizing that the quality of spending has implications for its quantity, Part II also discusses the challenges and opportunities of the crisis to increase the equity and efficiency of health spending. These include which expenditures to cut and which to protect, which emergency measure to roll back and which to roll out, as well as some of the most controversial trade-offs in health financing underscored by the crisis. Countries did not choose COVID-19, but their leaders have policy choices to make in health financing that will impact the response to the pandemic, the capacity to get back on the path to UHC, and ultimately the strength of the recovery.