Getting Real on Health Financing and the Global Aid Quagmire

In the latest issue of Finance & Development, George Schieber, Lisa Fleisher and Pablo Gottret argue - correctly, in my view - that low government spending is only the tip of the iceberg when it comes to financing basic health services and social protection in low-income countries: it's not just a question of "how much money," but also of who pays and how it's spent. Right now, out-of-pocket spending still accounts for over 60 percent of health spending in the developing world despite being relatively ineffective and highly regressive, and social health insurance - one of the most important sources of financing in wealthier countries - accounts for only 2 percent of health expenditures and is unlikely to become a viable mechanism to pool risk in the foreseeable future.

That leaves government spending and foreign aid to pick up a larger share of the bill for better health. But as the authors point out, money alone will be insufficient. First and foremost, countries need to spend their own money more efficiently. Equally important, though, are the necessary changes to the international aid architecture for health, which now suffers from overlapping mandates and a lack of global governance. More than 100 major organizations are involved in distributing health aid, without any clear delineation of their roles and objectives, and a plethora of aid instruments and modalities makes it difficult for countries to budget and plan. This is further complicated by the challenge of reconciling the unpredictable and short-term nature of aid funds with the predominantly long-term, recurrent costs of the health sector.

The donor community has done a particularly poor job of helping countries prioritize their efforts to achieve the Millennium Development Goals. Aid is often earmarked for specific diseases and interventions that aren't always aligned with national needs, while the program-specific nature of much aid encourages separate delivery and financing "silos" rather than an integrated approach to strengthening health systems. For all of the recent hype about country ownership, the donor community has a long way to go to ensure that they're not just giving more development assistance for health, but also providing better aid by improving the efficiency, predictability, and longevity of their funding so that countries can leverage it effectively towards achieving their health priorities while meeting their budgetary needs.