I had a chance this week to speak virtually with Paola Barbarino, the Chief Executive Officer of Alzheimer’s Disease International and Elizabeth Mutunga, the organization’s Kenyan representative. Alzheimer’s disease International (ADI) is an international federation of 105 Alzheimer and dementia associations around the world.
Our conversation was centered on the recently released report by the organization in which it spoke to the question of post-diagnosis care among people living with dementia. In its report titled “Life after diagnosis: Navigating treatment, care and support”, which was co-authored by McGill University, the organisation notes that up to 85 per cent of the over 55 million people living with dementia may not receive post-diagnosis care.
“We don’t question whether people with cancer need treatment, so why is it that when people receive a dementia diagnosis, they’re often not offered treatment or care? Repeatedly, they’re just told to get their end-of-life affairs in order,” Paola said during the launch of the report.
I asked her to weigh in on the disturbing fact that majority of people globally don’t have access to primary health care leave alone the post-diagnosis bit. The heart of our conversation was thus the global expenditure on healthcare as a share of world income and the inherent inequality.
We noted that while global expenditure on healthcare has been increasing, steadily but slowly over the course of the last couple of decades, majority of the people still lack primary access to healthcare.
That said, there has been substantial cross-country heterogeneity, both in levels and trends. Regionally, high-income countries spend – and have been spending – a much larger share of their income on healthcare than low-income countries (about twice as much). Moreover, in contrast to high-income countries, in low and middle-income countries the public share of healthcare funding is much lower – although it has been catching up – and the role of out-of-pocket expenditures is much higher (above 50% of total expenditure in many countries).
“Healthcare financing in developing countries in the 21st century has been largely shaped by the flow of resources channeled through development assistance. These flows – which saw a steep increase after the introduction of the Millennium Development Goals – account for around 0.7 per cent of the resources spent by high-income countries on healthcare. Although this may seem small in proportion to the national commitments of rich countries, for low-income countries at the receiving end of the transfers, these resources are substantial; in Sub-Saharan Africa they finance more than 25 per cent of total expenditure on healthcare,” Esteban Ortiz-Ospina and Max Roser, researchers at Our World in Data observe.
This implies that development assistance for health, if suitably targeted and managed, has the potential of drastically reducing inequality in health outcomes: the robust empirically observed relationship between health outcomes and healthcare spending is indicative of large returns to healthcare investments, particularly at low levels of baseline expenditure.
As most researchers have observed, nowadays, healthcare is commonly considered a ‘merit good’ – a commodity which is judged that an individual or society should have on the basis of need rather than ability and willingness to pay. This view, partly grounded on the recognised positive externalities of healthcare consumption, is perhaps most visibly materialized in the fact that access to healthcare is currently a constitutional right in many countries.
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However, just a few generations ago the situation was very different. In fact, during the Middle Ages, health was considered a matter of destiny across most of Western Europe; it was only afterwards, under the influence of Mercantilism and the Enlightenment that this view started changing and public authorities increased their ambitions concerning the promotion of public health. Before the era of the Enlightenment, it was thought that health was God’s gift and disease and death was His punishment for the sins of an individual, the congregation, the whole nation or its rulers. Hence, to live a decent life in accordance with His will and repenting one’s sins were considered the most effective preventive measures against illnesses”.
For instance, in 1880 government health spending was below 1 per cent of GDP in all countries; but this started changing quickly in the first half of the 20th century and by 1970 government spending on healthcare was above 2 per cent of GDP in all these countries.
The steeper increase in public expenditure on healthcare observed in European countries after the Second World War is largely due to the fact that medicine had major breakthroughs during the second half of the 20th century – beginning, notably, with the discovery and use of penicillin and other antibiotics. Before these scientific developments took place, the main component of healthcare was not treatment but income insurance, an insurance paying benefits to those who were unable to work due to poor health. In fact, public health insurance for workers was already substantial in a number of European countries before the Second World War. Having introduced universal access to healthcare in 1948 through the National Health Service, the United Kingdom is a particularly interesting instance to study in detail, The visualization shows that the costs of this universal-access system grew more in the first decade of the 21st century, than they did in the first two decades immediately after its inception.
The fact that insurance coverage remained stable while healthcare spending was increasing rapidly due to major improvements in treatment possibilities during the 20th century, implied that healthcare expenditure in the U.S., for example, grew highly concentrated.
European countries pioneered the expansion of healthcare insurance coverage in the first half of the twentieth century. Data from the Human Development Report (2014) places the achievements of these countries in perspective., France, Austria and Germany increased healthcare coverage in the years 1920-1960, while Spain, Portugal and Greece did it later, in the years 1960-1980. Interestingly, some notable examples of countries that expanded healthcare coverage much later, but much more quickly include China, Rwanda and Vietnam that built health protection systems in the 21st century, almost from scratch, achieving near universal coverage in only a decade. These examples show that healthcare protection can be expanded very quickly, and not only at low baseline levels of coverage.
The Millennium Development Goals have been associated with major increases in global health financing flows, particularly for the health focus areas explicitly targeted (fight against child mortality, maternal mortality, HIV/AIDS, malaria, and tuberculosis). An important part of these financing flows occurs under the label of development assistance. The Institute for Health Metrics and Evaluation (IHME) defines development assistance for health as all financial and in-kind contributions provided by global health channels to improve health in developing countries (including grants, as well as concessionary loans, provided with no interest or at a rate significantly lower than the going market rate).
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The IHME reports that since the formation of the Millennium Development Goals, $227.9 billion in development assistance has targeted these health focus areas. These flows account for around 0.7 per cent of the resources spent by high-income countries on healthcare. Although this may seem small in proportion to the national commitments of rich countries, for low-income countries at the receiving end of the transfers, these resources are substantial; in sub-Saharan Africa they finance more than 25 per cent of total expenditure on healthcare.
The report Financing Global Health 2014, produced by the IHME, provides a detailed account of this source of funding for healthcare, and how it has changed over the last two decades. The data shows the evolution of development assistance for health by source, over the last fifteen years. These funds increased sharply in the period 2000-2010 but have plateaued since. Considering that this source of funding has a larger weight in those countries with the lowest income, the recent change in trend is particularly problematic for the poorest.
In many countries an important part of the private funding for healthcare takes the form of ‘out-of-pocket’ spending. This refers to direct outlays made by households, including gratuities and in-kind payments, to healthcare providers. In high-income countries, these outlays tend to account for only a small fraction of expenditure on healthcare (e.g. France, where the share was always below 8 per cent in the entire series 1995-2013); while in low-income countries, they account for the majority of funding (e.g. Afghanistan, where the share of out-of-pocket expenditure reached 87.7 per cent in 2002).
“Many countries have followed a clear path in the direction of reducing this type of expenditures (particularly in the developing world), yet some countries have moved in the opposite direction (Russia is a notable case in point, with a threefold increase in the share of out-of-pocket expenditure in the last decade),” Esteban Ortiz-Ospina and Max Roser observe.
Instructively, levels of income can affect two aspects of healthcare financing: the magnitude of total health expenditure, in addition to the source of such funding.
Out-of-pocket and external funding contributions decline at different rates. On average, external donor funding decreases at a lower income level than out-of-pocket outlays and shows a significantly steeper decline. External donor funding is often the dominant source of healthcare spending for the poorest but is quickly replaced by other sources as those on very low incomes move towards low- and lower-middle incomes.
For poor countries with a per capita GDP of less than 500 US$ per year, donor funding accounts for approximately 45 per cent of health expenditure, on average. This drops to 34 per cent for countries up to 1000 US$; just under 30 per cent when extended to 1500 US$; and below 25 per cent up to 3000 US$ per capita per year. For most countries with a GDP per capita of more than 3000 US$ per year, donor funding makes up a very small share of total expenditure—typically less than five percent (with a few exceptions).
At a cross-country level, the strongest predictor of healthcare spending is national income. The correlation is striking: countries with a higher per capita income are much more likely to spend a larger share of their income on healthcare. In a seminal paper, Newhouse showed that aggregate income explains almost all of the variance in the level of healthcare expenditure. Other studies have confirmed that this strong positive relationship remains after accounting for additional factors, such as country-specific demographic characteristics.
Although in strict sense this result cannot be interpreted causally – since countries differ in many unobservable aspects that relate both to income and healthcare spending –, more sophisticated econometric models dealing with the issue of ‘omitted variables’ seem to confirm that the effect of per capita GDP on expenditure is clearly positive and significant.
Developing countries with higher tax revenues tend to spend more on healthcare. In fact, researchers estimate the relationship between tax revenue and access to healthcare in developing countries and find that tax revenue is an important statistical determinant of progress towards universal health coverage – and this remains true after controlling for country-specific time-invariant factors.
In most countries with market economies, the market for healthcare is only one of many markets competing for the same resources; because of this the prices for healthcare services are affected by productivity changes in other markets. Economic theory suggests that, if the productivity of the healthcare industry increases slower than that of other industries (a probable scenario given that healthcare provision is particularly labour-intensive), then prices in the healthcare sector are likely to grow faster than inflation, and expenditure as a share of income is thus likely to grow.
In the U.S., over the course of the 20th century the growth in the consumer price index for all goods and services (CPI) was lower than the growth in the medical consumer price index (MCPI). Countries with higher expenditure on healthcare per person tend to have a higher life expectancy. And looking at the change over time, we see that as countries spend more money on health, life expectancy of the population increases.
Additional increase in life expectancy associated with an increase in healthcare expenditure decreases as expenditure increases. This means the proportional highest gains are achieved in countries with low baseline levels of spending. This pattern is similar to that observed between life expectancy and per capita income.
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Many of the African countries (in purple) achieved remarkable progress over the last two decades: health spending often increased substantially and life expectancy in many African countries increased by more than 10 years. The most extreme case is Rwanda, where life expectancy has increased from 32 to 64 years since 1995, a key additional reason is that this was just one year after the brutal genocide in the country. African countries that suffered the most under the HIV/AIDS epidemic — Lesotho, Eswatini, and South Africa — experienced a decline of life expectancy from which they have not yet recovered.
The association between health spending and increasing life expectancy also holds for rich countries in Europe, Asia, and North America in the upper right corner of the chart. The US is an outlier that achieves only a comparatively short life expectancy considering the fact that the country has by far the highest health expenditure of any country in the world.
While it is important to address the issue of post-diagnosis care among people living with dementia, the success of such a process must start with addressing the inequality inherent in the global health care system.
