CHAPTER 7: What Role Can Macroeconomists Play?

Peter Heller, and William Hsiao
Published Date:
April 2007
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A. Low- and Lower-Middle-Income Countries

The CMH was initiated by the WHO as a means of providing an evidence base for economic and financial policymakers in low-income countries on why spending on health was more than simply a consumption good. It sought to make the case that higher spending on health could have significant economic benefits—in fostering higher productivity and growth, over both the short and long term; in making greater use of both available labor resources and even natural resources (where disease vectors may be limiting the capacity to utilize land or resources effectively); as a key instrument in addressing high rates of poverty; and in influencing critical demographic variables (in particular fertility rates) that may be a source of low productivity, dissaving, and low human capital formation.

The CMH report was important in its effort to put health forcefully on the agenda of macroeconomic policymakers and in underscoring the importance of health in setting budgetary priorities. For macroeconomists working on low-income countries, the work of drawing on analyses that demonstrate these points will continue to be an important priority, helping to ensure that spending on health care is appropriately valued when budgetary trade-offs are considered relative to potential spending decisions in other sectors.

However, in low-income countries, a fundamental obstacle to macroeconomists and country policymakers seeking to formulate sound health policy, monitor sector performance, or establish a health safety net is the systematic lack of information on many issues relating to the health sector. Currently, an information gap is the major barrier preventing IMF or country macroeconomists from helping country officials function effectively and rationally in situations where they may need to consider the impact of health on macroeconomic policy (or vice versa). Most non-OECD countries have not gathered the basic data on the inputs and outputs of their health system—for example, total health spending, the poor’s access to health care, the efficacy of resources used, operations in the private market, the proportion of households that may be driven into poverty by the need to incur large medical outlays, and consumer satisfaction. This information gap is a major obstacle to the formulation of an appropriate policy for the health sector.

To allocate public resources, we need to know, for example, how much health care contributes, in general, to health or economic growth or well-being, and the relative marginal benefits derived from additional spending on health care compared to spending on education, sanitation, and rural development. This knowledge is largely absent.

The IMF, as a macroeconomic institution, can do little in the short term to improve the health system performance of most low- and middle-income countries. The reason is simple: these countries lack sufficient information, institutional capacity, and human resources to make systemic changes. Also, the IMF staff should be selective in covering this and other social issues, doing so only when these issues have a sizable and direct effect on macroeconomic developments. In the short run, the IMF should support WHO and World Bank efforts to help countries build a better foundation for formulating an appropriate health policy framework. Some actions are, however, possible:

  • Action #1: Ensure the availability and collection of crucial health information. The IMF can play an important supportive role in this regard. Although it is not the role of the IMF to advise countries on what specific health data to compile, the IMF is in a unique position to influence government decisions on what broad information is important to collect for informed public policy decision making. Compared with most other international organizations working on health (with the possible exception of the World Bank), the IMF has a much closer working relationship with countries’ economic decision makers. Health officials are more likely to collect the necessary information if the ministry of finance mandates and finances the collection. Each year, the national health accounts should be compiled and a report issued on the health (and education) outcomes of the poor. These outcome data can be collected with Rapid Field Assessment instruments. Despite intense efforts made by the WHO and the World Bank, most low- and middle-income countries are not compiling national health accounts on a regular basis.
  • Action #2: Warn policymakers of market failures in the health sector. IMF economists should be aware, and when the situation arises, advise economic decision makers, that health care markets have many anomalies. Health policy cannot automatically follow the free-market strategy often used in economic development for economic goods. A health sector consists of more than a dozen markets, most of which are susceptible to serious market failures (Evans, 1984; Massaro and others, 1994; and Hsiao, 1995).
  • Action #3: Promote rational health policies. Health sector development requires a distinctive policy strategy that recognizes that it has to deal with both equity and efficiency of health care, and the existence of serious government and market failures. Sound health policy requires a well-designed combination of regulation and competition, public and private financing, and institutional capacity building. In most low- and middle-income countries, taxes on tobacco, alcohol, and firearms should be increased as a preventive health measure and, as fiscal measures, may be relevant for IMF economists to consider. For other health policies, the IMF can reference the strategy for the health sector14 developed by the World Bank.

B. Upper-Middle-Income, Transition, and Advanced Economies

For macroeconomists working on middle-income and advanced economies, the issue may be less one of inadequate spending on the health sector and more one of reconciling the benefits from higher spending with the costs that may be implied for the macroeconomy. The agenda for macroeconomists with respect to the health sector would appear at least five-fold:

  • To understand better how the organization of health care in a country may be influencing macroeconomic variables: some of the issues described in Chapter 2 may be particularly germane, others not, and seeking greater clarity would help to focus where policy interventions may be necessary;
  • To encourage governments to obtain greater transparency in understanding how health resources are allocated in an economy (through the establishment of national health accounts) and who bears the burden and obtains the benefits of current health spending programs;
  • To achieve a better understanding of how countries may differ both in their spending in the health sector and in the results obtained in terms of various indicators of health status;
  • To encourage ministries of finance to understand the factors influencing health spending in their country, to put pressure on the relevant government agencies involved in spending on health care to clarify major differences that may pertain to their approach to health care provision relative to other countries; and
  • To understand the broad approaches that different countries have used in controlling health care costs, while staying clear of more specific policy proposals (for example, controlling prices or wages or entry into the medical profession) for which macroeconomists may be ill suited in terms of understanding potential unintended consequences.

A larger challenge for macroeconomic policymakers is the enormous gap that exists between the recognition of the need to achieve more effectiveness in the use of resources to achieve quality health outcomes and the knowledge base available to implement good policies to achieve these outcomes. For example, one would think that policymakers in the health care sector of a country would vitally need to understand how their counterparts in other countries are addressing similar problems and the differences in results obtained. Similarly, and perhaps even more powerfully, with rapid technological changes, physicians are confronted with the need to decide which new drugs or medical techniques are best able to effectively treat and improve the quality of life of patients. From a financial perspective, governments or health insurance schemes have an equally germane interest in knowing whether to finance the provision of these new drugs and technologies, and which are likely to prove more expensive than earlier treatment approaches. Is there a sufficient evidence base that allows these decisions—which will have ramifications for cost and ultimately macroeconomic variables—to be sensibly based (see Cutler, 2004)?

Clearly, these are gaps on whose closure macroeconomists are poorly suited to provide guidance. But, ultimately, the better these knowledge gaps are filled, the less need there will be to rely on blunt policy instruments (for example, rationing, limits on wage rates, controlling prices, global budget constraints) to close budgetary financing gaps and the more likely it will be that high-quality outcomes can be obtained for the resources invested in the sector. What is interesting is that all countries face the same challenges in this regard in seeking to answer these questions, and yet all, perforce, are making key financial decisions independently on the same limited evidence base. This suggests that one might be observing the underfunding of the global public good of “evidence-based health care” in a world of rapid technological change in the medical and pharmacological areas. There would be considerable value if there were an agency charged with carrying out such analyses, which could be commonly financed and would benefit all countries.

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