Health and macroeconomic policies

Published May 7, 2021
The writer is a former SAPM Health.
The writer is a former SAPM Health.

LAWRENCE Summers has some credentials to reckon with: chief economist of the World Bank (1991-1993); US treasury secretary (1999-2001); president of Harvard University (2001-2006); director of the National Economic Council for president Obama (2009-2010). He is primarily a macroeconomist who has a deep interest in and has made significant contributions to public finance, international economics, economic history and developmental economics.

In 1993, as a chief economist of the World Bank, he selected health as a topic for the World Development Report, an influential thematic flagship annual publication of the bank that assembles state-of-the-art knowledge and helps shape global thinking on the selected topic for the year. The 1993 WDR titled Investing in Health was an important milestone in global health with the focus on healthcare in developing countries.

Why did he choose health as the 1993 WDR topic? A quarter of a century later, Larry Summers elaborated the reasons in a write-up — mainly three. In his own words, “Why health? First, health and poverty intertwine closely, and having a WDR on health provided an opportunity to provide insight into the World Bank’s central goal of reducing poverty. Second, health represents an area where governments can play a necessary and constructive role. And third, I believed that the potential gains from getting health policy right were enormous.”

The key message of the report was that good health is essential for development and economic growth. It introduced Disability-Adjusted-Life-Year as a measure of burden of disease and highlighted, with the help of data, inequity, inefficiency and exploding cost of healthcare as main issues especially in low- and middle-income countries (LMICs). The report suggested a three-pronged approach to improving health: fostering an environment that enables households to improve health; improve government spending on health, and promote diversity and competition in healthcare delivery between the public and private sectors. On improving government spending on health the report suggested, among other measures, financing and implementing a package of public health interventions to address the externalities of infectious diseases and environmental and behavioural risks to health and finance and implement a package of essential clinical services.

‘Global Health 2035’ is an important report that has four key messages for national governments in LMICs.

Such was the importance of this report that on its 20th anniversary, The Lancet, a prestigious peer-reviewed medical journal, decided to set up a Commission on Investing in Health to reassess health policies in light of two decades of changes in health and drew policy implications for the coming decades. Summers was invited to chair this commission which published its report Global Health 2035: a world converging within a generation in 2013. This report took stock of health challenges, progress on them and emphasised the case for investing in health by proposing a new health investment framework to achieve dramatic gains by 2035. It delivered four key messages for national governments in LMICs. First, evidence suggested that the return on investment in health is enormous and goes much beyond economic productivity. Humans attach enormous value to additional life years (VLYs) and this is beyond any economic calculus. The report estimated that 24 per cent growth in the “full income” (growth in national income plus VLYs) in LMICs between 2000 and 2011 was due to an increase in life expectancy. This provides a strong rationale for ministries of planning and development agencies to improve resource allocation in the health sector.

Second, the commission assessed that with the current financial and technology capacity, it is possible for LMICs by 2035 to reduce infectious diseases and lower child and maternal mortality rates to match those in the best-performing middle-income countries. This they called “grand convergence” in health which is achievable within our lifetime. This would require higher allocation for health which can save 10 million deaths in 2035 across LMICs relative to a scenario of stagnant investments. The economic benefits over 2015-2035 would exceed costs by a factor of about 9 to 20, making the investment highly attractive.

Third, since more than half of the burden of diseases in developing countries is made up of non-communicable diseases, fiscal policies can be leveraged to generate significant revenue by heavily taxing tobacco and other harmful substances and earmarking these resources for NCD control. NCDs’ burden can be significantly reduced by 2035 through inexpensive population-based and medical interventions.

And, fourth, the progressive universal health coverage is an efficient way to achieve healthcare for all and financial protection for those who cannot pay. Also, a prioritised UHC benefit package must be publicly financed.

According to Summers, macroeconomic policy primarily encompasses three major components. First, establishing and enforcing an environment for secure and inclusive economic growth. This involves financing of domestic and international security, enforcement of contracts and property rights, regulation of cross-border flows (goods and services, capital, persons), and establishing the broad structure and regulation of the financial system. He also argued that although the probability is low, potentially devastating pandemics pose a global risk, but particularly a risk to lower-income countries which warrants health emergency preparedness to be included in the macroeconomic policy agenda. Secondly, establishing mechanisms for social insurance that enables income security in old age; that provides a financial safety net against permanent disability, against transitory job loss, and against inadequate earning power; and that provides financial protection against medical expenses. Which medical expenses should be covered through social insurance? Work surrounding Disease Control Priorities starting with WDR 1993 has since evolved into a third edition of DCP that was launched in 2017 — a phenomenal work guiding LMICs to spend public money in a cost-effective manner to provide most-needed health services. And lastly, the allocation of resources within and across those sectors where efficient levels of investment require substantial public finance. These sectors include physical infrastructure, research, education, environmental protection and population health.

Macroeconomic policies are seldom seen through the health policy lens in poor countries. Covid-19 has spotlighted the health sector like never before.

The writer is a former SAPM Health.

Published in Dawn, May 7th, 2021

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