Staying Healthy and Happy in Bhutan
Bhutan is using an innovative financing system to ensure its citizens have access to quality affordable health care.
Bhutan was the first country in the world to pursue happiness as a state policy. The country recognized early that good health is the most critical determinant of happiness. With 5.73 billion Bhutanese ngultrum (approximately $80 million) budgeted for the health sector, it has received the third-largest allocation this year.
The provision of quality health services has long been Bhutan’s key development priority. As far back as 1978, Bhutan signed the Alma Ata Declaration and adopted a primary health care approach a year later. However, early on, the system faced several challenges, including the overcrowding of hospitals and lack of drugs and vaccinations. Rising expectations in the delivery of health services, including keeping pace with rapid technological advancements, resulted in escalating costs. Compounding the situation was the increasing burden of non-communicable diseases which required prolonged treatment.
Thus the expenditure on curative services has dominated the total health spending. Also, the cost of referring patients abroad due to lack of available speciality services is another significant cost driver. The overall fiscal position was precarious due to fluctuations in aggregate demand and inflation associated with construction and commission of hydropower projects and, to a lesser extent, foreign aid. Nonetheless, the health share of the budget is consistently maintained between 3-4%.
To ensure essential health expenses for necessary drugs and vaccinations, and to mitigate risks, the Bhutan Health Trust Fund was established in May 1998 and operationalized in 2003.
The fund is an innovative model for sustainable financing in addressing basic health needs as well as meet emerging health priorities. It helps eliminate fiscal uncertainties and ensures fiscal self-reliance on providing primary health care services to 736,000 Bhutanese citizens. With the initial target of a capital fund of $24 million, the contributions to the fund now stand at $34 million. The fund ensures long term fiscal sustainability of the health financing of comprehensive primary healthcare services.
It also aids in fiscal planning by saving during high revenue inflows and rationalizing the health expenditure during downturns. The proceeds are used strategically for continued and uninterrupted supply of drugs, vaccines, and health-related equipment. Even as donor support is phased out, the Bhutan Health Trust Fund's sustained and full financing to procure all vaccines, as well as drugs, has alleviated Bhutan's previous problems in ensuring the timeliness and adequateness of these fundamental supplies.
Setting up the fund was a prudent move that has helped improve the health of the country. For example, from 1960 to 2018, the average life expectancy in Bhutan more than doubled from 34.5 to 70.6 years, and the country now has the lowest household out-of-pocket health expenditure. More than 95% of the population lives within a three-hour walk from a health facility, a considerable feat given Bhutan's mountainous terrain.
The fund supports 543 essential drugs and vaccines resulting in sustained immunization coverage over 95% for all the 11 basic antigens since 2003.
Despite impressive gains, Bhutan faces considerable challenges in improving the equity, efficiency, and economic sustainability of its health care system. Rising expenditures, withdrawal of donor resources, and possible lower investment returns could impose financial strain in the form of revenue deficits resulting in higher annual health expenditure than the yearly revenue. These risks could stem from several factors.
First, the Bhutan Health Trust Fund’s spending on vaccines is expected to rise over the next eight years. For example, the annual cost of introducing three new vaccines planned by the Ministry of Health (pneumococcal, rotavirus, and influenza) is estimated to be approximately $1.8 million.
Second, expenditure on essential drugs has increased by 7.5% annually from 2015 to 2017. A rise in non-communicable diseases is expected to increase stress on the health care system, and more resources will be needed to expand health infrastructure.
Third, drugs account for 93% of the fund’s procurement expenses. Due to pegging of the Bhutanese ngultrum at par with the Indian rupee, there is no currency mismatch or no risk on currency conversion. However, vaccines are bought using United States dollars and are mostly supported by donor contributions. These donors are expected to gradually withdraw their grant support as Bhutan is scheduled to graduate from being on the United Nations list of lower-income countries by 2023. In this case, the returns from domestic investments in Bhutan currency will not be able to match or replace existing donor contributions in dollars. And if the Bhutanese ngultrum keeps fluctuating against the dollar, a currency mismatch could result.
Fourth, the domestic investment return is likely to decline over the next decade due to decreasing fixed interest rates and increasing inflation rates. For example, the fixed interest rates on bonds are already decreased from 10% in 2016 to 7% in 2018. The expected income from reinvestment of current capital funds is most likely to witness a decline.
Several options are available to address these risks. The highest priority must be given to the mobilization of resources for the Bhutan Health Trust Fund's core funding to sustain the delivery of accessible and high-quality primary health care services. The guiding approach of the fund’s spending policy must be to meet its expenditures out of inflation-adjusted domestic and foreign investment income.
Some innovative mechanisms can strengthen financial sustainability. From an accounting perspective, the difference between contributions and expenditure can be treated as revenue instead of the health contribution from the government. Spending decisions can also be based on the continuous monitoring of the funding gap and projections.
Further, the fund should also gradually implement a performance-based budget allocation which would entail allocation of funds and resources based on specific goals previously agreed upon. A systematic review of the progress of the fund can help in rationalizing the expenditure, rescaling fund mobilization, and ensuring efficient portfolio management.
Last, a United States dollar account would protect against any fall in the investment value of the fund’s investments as a result of any depreciation of the Bhutan ngultrum.
The Bhutan Health Trust Fund exemplifies how to mobilize, blend, and oversee the collection and allocation of financial resources for health purposes. Its structure allows for estimating resource requirements over time, assess risks associated with the investment policy, and build up reserves to reinforce the purchasing power against the effects of inflation and currency fluctuations.
However, to ensure sustainability, greater importance needs to be given to enhancing its strategic focus, rigorous financial management, reliable monitoring and evaluation, and achieving high levels of transparency and accountability.