Earmarking — A Safe Bet to Finance Health? Jan 28, 2016

Cross-posted with permission from Results for Development Institute's Unlocking Solutions blog

Click to enlarge imageIn order for governments to ensure that their people have access to quality healthcare, there must be both political and financial commitment. One key question governments often face is how to best mobilize funds for health programs.

The government of Belarus recently earmarked over $14.5bn USD for a health and demographic security program. Their dedication is certainly laudable, but will this injection of earmarked funds — money that has been set aside from general tax revenues for a specific expenditure — help to achieve the government’s social objectives, or will it come at the cost of a less flexible budget overall?

Many countries are grappling with the issue of how to fund health priorities as they take on additional responsibilities for domestic resource mobilization. Some have succeeded in significantly increasing government funding levels for the health sector, even in the face of restrictive macroeconomic and fiscal conditions.  For instance, 26 African governments increased their funding for health in the 10 years since the Abjua Declaration. However, a number of others face challenges in doing so, and in the same subset of countries saw funding levels either decline (11 countries) or stagnate (9 countries).

Searching for new ways to fill health funding gaps

To fill funding gaps, Ministries of Health have begun seeking out non-traditional financing options like lotteries and special funds.  However, not all of these have equal potential to generate revenue, and many come with heavy administrative burden and face political opposition.

One funding option that is used by more than 85 countries globally is earmarking —  the practice of targeting new or existing streams of revenue for health systems, programs, priorities, and/or populations. Earmarked revenues are most often derived from contributions or taxes. For example, a country may decide to use all or a portion of the revenue from a tax on tobacco sales to fund anti-smoking campaigns, or they may use an earmarked payroll tax to fund a social health insurance scheme. Earmarks can also come in the form of donor funds that are targeted to specific programmatic purposes, such as for HIV/AIDS, or maternal and child health care; or they can be targeted at broader economic purposes such as debt relief (learn more about different types of earmarking).

Strong opinions, limited evidence

Mechanisms like earmarking may or may not provide more absolute funding for the health sector. Despite strong opinions and anecdotal evidence on both positive and negative sides of the argument, there is limited convincing evidence on whether earmarking revenues for health actually leads to more stable, predictable, and flexible sources of funding. Additionally, while there has been some sector specific work undertaken, such as a recent WHO examination of tobacco earmarks there is almost no practical evidence on the “how” of earmarking that focuses on real country experience. How do earmarks get on the policy agenda? What are the contextual factors that nurture or hinder success? What systems are in place to facilitate and monitor funding flows? Have there been positive outcomes in terms of creating adequate, stable, and flexible sources of funding, or has the earmark had distortionary consequences for the rest of the budget? These are key questions that must be answered before we can declare earmarking a solution to the challenge of health financing.

Earmarking: A need to understand the “how”

R4D is working with the World Health Organization and other partners to evaluate how earmarked revenues for health are actually being used, and to examine their impacts on health sector budgets and other fiscal consequences. This information will be assembled into a practical guide that can help countries as they consider different types of earmarking.

R4D is building on the experience of the Joint Learning Network for Universal Coverage (JLN) and collecting qualitative country experience in a structured way, so practical lessons can be synthesized and used by all countries.

We are also supporting a crowd-sourced compilation of country experiences with earmarking for health.

The outcomes of Belarus’s earmark for health remains to be seen, and the experiences from other countries remain largely unshared. At this point, what we do know for certain is that countries are facing challenges generating sufficient resources to ensure that comprehensive, accessible, and high-quality services can be provided to their populations without creating financial risk. They need options for generating sufficient, stable, and fiscally sustainable resources for UHC—and they need better information to help make strategic choices among those options.  Earmarking revenues for health is unlikely to be a panacea.  But there is much more to be learned from the more than 60 countries using this instrument about the pros and cons and contextual factors that matter.

Related project: Montreux Collaborative Agenda: Getting Back to the Basics to Make Better Use of Health Budgets for Universal Health Coverage