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Health financing is a core function of health systems and a key enabling factor in the ability of countries to achieve universal health coverage. As part of its focus on promoting resilient and sustainable systems for health, UNDP works with partners to support investment strategies, national policies and regulatory frameworks to strengthen financing and public financial management for health.

Despite significant increases in domestic financing to address HIV and other health challenges in the last few years, many countries remain heavily dependent on external funding sources. As countries work to achieve the ambitious targets set by the 2030 Agenda for Sustainable Development, the sustainability of financing for health has gained increasing attention as a priority issue for sustainable development.

Transforming health systems to achieve the SDG 3 targets is estimated to require an additional US$371 billion per year by 2030, for 67 low- and middle-income countries (LMICs), which make up 95 percent of the total population in LMICs.

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The design and implementation of health financing policies influence the extent to which health systems can deliver quality health services, equitable utilization of resources, and financial protection for vulnerable populations. While domestic resource mobilization is one key dimension of sustainable financing, economic growth does not guarantee increased national budget allocations for health, nor do increased health budgets ensure that available resources for health reach the populations who need them most.

Strengthening financing for health calls for a holistic focus that prioritizes improvements to the efficiency and strategic use of existing resources as much as efforts to generate revenue, both domestic and international, in alignment with national development strategies. This includes the integration of health into national budgets for development, innovative financing and co-financing approaches, understanding and addressing co-morbidities, strengthened governance, and ensuring appropriate focus on key populations and synergies with other development objectives.

Global context for health financing

Strong economic growth over the past two decades has resulted in more countries transitioning from low- to middle-income status. Amidst broader trends of declining official development assistance (ODA) flows, development assistance for health has plateaued in recent years, with the increases seen in global health spending (US$9.7 million in 2015, up 4.7 percent from the previous year) largely attributed to government spending.

While countries’ increased share of financial responsibility for financing health services reflects a positive development in terms of country ownership, strained national budgets and contractions in external support hinder government capacities to expand health services towards the achievement of universal coverage.

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Moreover, global HIV/AIDS spending has been on the decline since 2013, compounding challenges for countries previously dependent on development assistance for their disease response. Global health financing analyses by the Institute for Health Metrics and Evaluation point to pooled resources (including development assistance, public and private insurance programs) as an increasingly critical factor for countries to effectively perform on universal health coverage.

Meanwhile, shifting demographic trends, including the socioeconomic impact of ageing societies, in addition to emerging environmental threats, place additional strain on the capacity of public budgets to cover the health needs of the population, while the economic growth produced by globalization continues to be accompanied by increasing income inequality and economic uncertainty. These challenges bring the question of sustainability into the fore of health financing. They furthermore illustrate the multi-directional relationship that exists between processes of globalization, socioeconomic trends at the country level, and the sustainability of health sector financing, underscoring the need for health financing strategies to be addressed as part of broader development strategies.

Equally, the socioeconomic pathways that are affected by health outcomes underline the relationship between investments in systems for health and the possibility for countries to achieve inclusive growth and poverty reduction targets. Between 2000 and 2011, improvements in health and healthcare helped to increase income growth by an estimated 24 percent across some of the world’s low-income and middle-income countries. Conversely, poor health outcomes borne out of weak access to health services contribute to inequality of opportunity and increase households’ vulnerability to economic insecurity. Catastrophic expenditures incurred from making out-of-pocket payments for health, for example, can push households into poverty. Sustainable health financing is closely linked to inclusive social protection.

The multiple channels through which health financing can align with and contribute to SDG implementation is reflected in the measures that countries have prioritized in the Addis Ababa Action Agenda, the global framework for financing sustainable development.

The Agenda highlights, for example, opportunities for health financing strategies to:

  • Support the mobilization and effective use of domestic public resources: leveraging tobacco taxes as an additional revenue source and means of reducing health care costs; increasing public expenditure to ensure universal health coverage; and scaling investments in NCDs;
  • Unlock private investment from domestic and international sources: private investments must protect health standards and be aligned with public health goals;
  • Scale international public finance: more countries need to work towards innovative sources and mechanisms of additional financing, based on models combining public and private resources. Public-private partnerships for health like Gavi and the Global Fund make a significant contribution to financing the SDGs based on this model;
  • Tap into international trade as an engine for development: trade agreements like the WTO Trade, Intellectual Property Rights and Access to Medicines (TRIPS) agreement can be leveraged to facilitate improved access to affordable essential medicines for developing countries.

What does sustainable health financing entail?

Health financing is not merely about generating funds. It concerns the “mobilization, accumulation and allocation of money to cover the health needs of the people, individually and collectively, in the health system…” (WHO, 2000). Beyond ensuring sufficient resources to support the full functioning of the health system, sustainable health financing also refers to the efficacy of such funding in protecting the population from financial risks in accessing the health services they require.

A key role for sustainable health financing is thus to support health systems to achieve universal health coverage by reducing health inequities and minimizing financial hardship on the poor.

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As defined by WHO, health financing consists of a range of functions, including revenue raising, pooling and purchasing, as well as policies relating to service benefits to which some or all of the population is entitled. The entry points to improving the sustainability and impact of health financing are numerous, necessitating a combination of approaches at both the policy and programme level. They entail considerations for, inter alia, budgeting frameworks, the design of benefit packages for health, social protection and health insurance frameworks, including community-based health insurance and free health care policies, resource tracking and revenue raising, fiscal space for health, public health taxes.

Among the key cross-cutting areas for improved health financing is that of public financial management (PFM). While economic growth may generate increased domestic revenue for the health sector, these funds need to be used efficiently and directed to priority populations and services to ensure equitable access to quality health services and financial protection for all.

Given that public funds are the cornerstone of sustainable health financing in most countries, WHO underscores the central role for systems as a key enabling factor to achieve universal health coverage. A strong PFM system – the institutions, policies and processes that govern the use of public funds – can ensure higher and more predictable budget allocations, reduced fragmentation in revenue streams and funding flows, timely budget execution, and better financial accountability and transparency.

What is UNDP’s role?

Among the action areas where UNDP focuses its policy and programme support for health and development, as outlined in its HIV, Health and Development Strategy 2016-2020, sustainable health financing is a priority area through which UNDP promotes effective and inclusive governance for health.

This cross-cutting policy focus complements and reinforces UNDP’s support to national partners in implementing large-scale health programmes in challenging operating environments, through which UNDP provides technical assistance and capacity building to strengthen frameworks and processes for financial management.

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UNDP service offerings for sustainable health financing include policy and programme support on:

  • Improving efficiencies, including allocative efficiencies, for HIV and health;
  • Innovative approaches to sustainable HIV and health financing, including developing investment strategies and national investment cases using a rights-based approach and leveraging other activities such as social contracting of civil society organisations to increase domestic financing for health.

UNDP also engages in global and regional processes and partnerships that contribute to sustainable health financing. In the 2018 UNAIDS Division of Labour, UNDP is co-convenor with the World Bank for the “Investment and Efficiency” thematic area, under which UNDP coordinates joint action towards the goal of increasing HIV investment to US$26 billion by 2020. This action includes investments in prevention and social enablers.

Beyond HIV and health, UNDP plays a lead role in promoting financing solutions for sustainable development, as part of its mandate to support SDG implementation. UNDP provides knowledge leadership to contribute to the evidence base on sustainable financing and help countries identify and implement catalytic approaches. The online platform ‘Financing Solutions for Sustainable development’ discusses UNDP’s tools and broader support to sustainable SDG financing.

Intervention areas

UNDP, together with partners, supports sustainable health financing through a diversity of approaches, including those to generate revenue, avoid future expenditures, deliver better, and realign expenditures. Its aim is to enhance the sustainability and impact of health financing systems.

Within its focus on promoting the mobilization and effective use of domestic public resources, UNDP provides support to countries by:

Modelling optimized investment approaches

Working in close partnership with key partners including WHO, other UN agencies, the World Bank, the Global Fund, and the STRIVE Research Consortium of the London School of Hygiene and Tropical Medicine, UNDP develops investment cases and conducts modeling to help countries identify the most effective investment strategies and efficient use of technical and financial resources.

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This includes:

  • Promoting cross-sectoral co-financing approaches to increase the allocative efficiencies of investments in health and development: UNDP helps to identify investment opportunities in high-value interventions that deliver benefits across multiple development targets simultaneously, with benefiting sectors pooling their resources to finance these opportunities jointly.
  • Promoting increased investments in the prevention and control of non-communicable diseases (NCDs) through the development of national NCD investment cases. Countries have committed to their development through the ‘Political declaration of the third high-level meeting of the General Assembly on the prevention and control of non-communicable diseases.’ The Addis Ababa Action Agenda notes the enormous burden that NCDs place on both developing and developed countries. Increased investments in preventing NCDs, for example through excise taxes on health-harming products, can reduce public and private healthcare costs while raising revenue and delivering wider societal benefits such as reduced poverty and increased productive capacities.
  • Advancing multi-sectoral action for tobacco control, including for raised tobacco excise taxes as part of WHO Framework Convention on Tobacco Control investment cases. These cases provide return on investment evidence for countries to raise tobacco taxes to reduce tobacco consumption and related social and economic costs. They also assess the taxes’ revenue generating potential and provide recommendations on the efficient allocation of those resources to domestic health budgets and pro-poor investments.
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Promoting affordable access to medicines

Ensuring affordable and fair pricing of medicines through effective health financing mechanisms is a key enabling factor for achieving universal health access. UNDP helps countries to review policy options and approaches to pricing of essential medicines, including through the development of a price comparison tool as part of its work under the Access and Delivery Partnership.

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UNDP supports governments to purchase quality medicines at the best price through its health procurement support. In Ukraine and Kazakhstan, for example, UNDP support on pricing negotiations helped the governments to achieve breakthrough price reductions in cost of treatment for hepatitis C, a significant step towards increasing access to medicines. Through the review of legal and regulatory frameworks related to the procurement of antiretroviral medicines, UNDP also helps to optimize efficiencies and ensure access for populations at higher risk of HIV infection.

Trade policy represents another pathway through which countries can improve the cost of medicines to better meet the goal of universal access. UNDP provides advisory services to countries related to the WTO Agreement on Trade Related Aspects of International Property Rights (TRIPS), which includes a number of flexibilities that can be used to reduce the prices of essential medicines.

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Advising on transition processes related to domestic financing of national disease programmes

As more countries assume middle-income status and transition away from externally-funded health programmes, particularly for HIV, it is critical that they develop sustainable financing strategies using domestic resources, taking into account the need to scale up service coverage, as well as service quality and efficiency.

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An important strategy for many countries is social contracting of NGOs as providers of HIV-related and other health services, which can help to facilitate effective service delivery and efficient use of domestic resources.

UNDP helps countries to tap into this mechanism by analyzing legal frameworks and providing policy recommendations to governments on social contracting. UNDP also provides thought leadership and support to countries and partners on better understanding and addressing co-morbidities to increase allocative efficiencies.

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While increased availability and strategic use of domestic public resources is critical to financing universal health coverage, even with projected increases in domestic health spending, a US$20-US$54 billion annual funding gap would remain. UNDP’s support to identify innovative financing for health therefore includes a focus on helping countries unlock private capital and tap into international financial assistance, complementary to domestic public resources. This includes:

  • Supporting the development and operationalization of social impact bonds to leverage private capital for health: UNDP is conducting a feasibility study in Zambia to inform the first ever tobacco-control social impact bond. The study will use a results-based model to examine the social, financial and environmental benefit to countries of their transitioning away from tobacco cultivation toward alternative crops/livelihoods for farmers who want to transition.
  • Tapping into financing opportunities at the nexus of health and environment. UNDP is currently conducting a feasibility study in Namibia, for example, for its Solar for Health initiative, with the aim to increase private sector investment.

Key resources

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