Budget 2020 needs a compulsory allocation for health


  • Vital Signs
  • Wednesday, 07 Aug 2019

Here’s how we can ensure that government health services get a predictable increase in their funding annually, allowing them to plan long-term reforms.

GOVERNMENTS should be many things: competent, caring, efficient, responsible, accountable ... and the list goes on.

Let me add another one: boring.

There are many reasons why governments should be predictable in their long-term policies and macro-funding decisions – and therefore, “boring”.

The world is already terrifyingly complex, and governments should therefore be a stable counter-presence.

The predictability of their policies allows citizens and businesses to plan ahead, using a stable fiscal, regulatory and legal framework to make more money.

That will in turn grow our economy and tax revenue, which would subsequently enable a larger allocation to all ministries, including the Health Ministry (MOH).

Even financial allocations to ministries could be made predictable in the long term, in order to allow ultra-long-term planning and capacity-building.

This is more important for the MOH compared with other ministries, as it has much longer planning horizons.

For example, hospitals take three to five years to launch, doctors take four to six years to train, and health systems need reforms that may take five to seven years to complete.

In particular, any reform of the MOH would be a multi-year effort akin to performing surgery while running a marathon.

Executing that will be hard, but predictable multi-year financial allocations make it easier to plan ahead.

Judging from public discourse, there are many generic statements of “we must spend more money”, but without specific numbers.

More money alone isn’t a magic solution without a reformed MOH, and can be very wasteful.

More spending on health is also mathematically impossible without higher taxes or debt, or compromising other aspects of public good.

I would like to propose a realistic mechanism for predictable, generous and gradually increasing federal allocations for the MOH until 2025, to allow for multi-year reform.

This mechanism is one of many possible solutions to finance the ministry.

It’s worth repeating that this predictable multi-year funding mechanism must go hand-in-hand with MOH structural reforms, and not just exist by itself.

We’re already paying lots for health

Before making the proposal, here are the relevant stats again: in 2019 (PDF), we allocated 9.1% of total federal budget to the MOH, amounting to RM29bil.

These two numbers are the highest ever. In 1997 for example, MOH received only 4.8% of the total federal budget, or RM4bil (PDF).

In 2017 (PDF), the RM1 and RM5 government clinic and hospital fees collected were only an ultra-low 2.8% of total MOH expenditure; the rest came from general taxation.

Health was already the third largest allocation in Budget 2019 (PDF). Education was the largest (RM56bil), debt payments second (RM33bil) and pensions fourth (RM27bil).

In 2019, the government took RM53bil of new debt (PDF) just to pay for public services. Nothing is free.

We required that new debt because our government revenues were not sufficient. This contributed to our RM1.1 trillion national debt, which will be passed on to our children.

So you see, it’s not as simple as “the government must pay more for health”; it’s actually “we as taxpayers must pay more for health”.

It’s worth repeating that even after eliminating waste, it’s mathematically impossible to spend more on health without trade-offs like higher taxes, more debt, higher clinic or hospital fees, introducing compulsory insurance, or reducing spending on schools and pensions.

This statement may make many uncomfortable, but it’s necessary for the public discourse.

Two-part law

Given these facts, here is my realistic mechanism: Parliament passes a two-part law in 2019.

The first part should enshrine a 10% allocation of every federal budget to MOH until 2025.

The second part would mandate a “minimum annual allocation” of RM30bil starting in 2020, no matter how the country performs economically.

This should be an easy political case to make as health is non-negotiable.

This mechanism must co-exist with multi-year MOH reform and the ruthless fight against waste.

This law must expire in 2024 and be passed again, depending on results of that reform and our fiscal position.

If all goes well in future, a reformed MOH will be more efficient and effective, and will have additional funding sources.

Then the 10% allocation could be reduced to 7%-8% of the total federal budget.

To elaborate, although the 10% is the “fixed percentage” until 2025, MOH can receive a higher percentage allocation if it makes a highly specific case for it.

However, that should be an exception, perhaps only during economic boom years and only if it doesn’t incur new government debt.

This mechanism can also co-exist with the current zero-based budgeting approach of the government.

If passed, the law will provide predictability.

If the economy shrinks, the minimum RM30bil annual allocation provides a safety net.

If the economy grows, the higher tax revenue means that the annual allocation will grow in real terms.

Indeed, a quick back-of-the-envelope calculation assuming 4% GDP (gross domestic product) growth, government revenue of 20% of GDP and 10% allocation to health shows the MOH allocation growing to RM31.8bil (2021), RM32.9bil (2022), RM34bil (2023), RM35.2bil (2024) and RM36.4bil (2025). These are generous sums.

Conversely, in the worst case scenario of a shrinking economy, MOH continues to receive RM30bil annually.

This is a “safety net” of sorts to ensure that health services continue for the rakyat.

In essence, this predictable mechanism insulates MOH from economic crises, providing the confidence and resources to conduct reform, which is the proverbial “surgery while running a marathon”.

Indeed, the steady state mechanism has two additional advantages that will bring mission discipline into the MOH.

The first advantage is psychological. Whenever organisations are provided with clear boundaries, they will adapt accordingly.

In this case, there are no excuses because the funds are predictably, gradually and meaningfully increasing annually.

The organisational energy of MOH can then go towards solving problems.

The second advantage of a steady state is organisational, in the financial and delivery aspects.

The financial predictability helps MOH’s long-term planning and adaptation, thus reducing uncertainty, confusion and ambiguous guesses.

The delivery aspects will then be clearer too.

Our health allocation is already generous by many standards and appears to be what we can afford for now.

I propose this realistic and predictable mechanism for the public discourse, hoping for a serious discussion about our rights and responsibilities, and the inevitability of trade-offs in the real world.

Next week, we’ll discuss four ways to increase stewardship of this additional money. Stay tuned!

Dr Khor Swee Kheng has postgraduate degrees in internal medicine and public health, and has worked in five health sectors across three continents. He is currently specialising in health systems and policy in a public university and a local think tank. The views expressed here are entirely the writer’s own.

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