The economic benefits of investing in universal health coverage in Armenia

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Photo: World Bank Office in Armenia

The Challenge: Access to Care is Limited by Private Health Spending

Armen is worried. He has just left his annual visit with Dr. Hayrumyan, and he received some bad news: his blood pressure is not under control, and his kidneys have started to fail.

He is not entirely surprised. While he tried to adhere to the strict diet and exercise regime that Dr. Hayrumyan prescribed, Armen cannot afford to cover the cost of his daily medicines. He does not have the financial means to purchase private health insurance, nor does he qualify for state coverage. What is he to do?

Unfortunately, Armen's case is far from unique in Armenia. Although life expectancy has risen to 75 years over the past three decades, Armenians are not generally healthier today. Compared to countries with similar socio-demographic profiles, Armenia has a very high instances of heart disease, stroke, and diabetes among its population.

Altogether, chronic illnesses account for over 25,000 lives lost annually in Armenia. These conditions cost the Armenian economy 360 billion AMD due to health care spending and lost productivity.

Underutilization of essential health care services is a key factor behind chronic illness in Armenia. Approximately 2,995 deaths could be prevented with greater access to high-quality care over the course of a year. While the average European visits a family physician about seven times a year, Armenians visit their doctor about four times a year. Two out of three Armenian's report foregoing necessary health care annually. For about one in five Armenians, cost is the main reason they skip necessary health care.

Out-of-pocket health spending in Armenia and comparator countries in 2018

Source: WHO Global Health Expenditure Database

An estimated 85 percent of healthcare spending in Armenia is paid out-of-pocket at the point of care (hospitals, clinics, pharmacies, etc.) - one of the highest rates in the world. Almost one in five Armenian households allocate up to 10 percent of family income toward health care, far above the average in Europe where less than one in ten households allocate 10 percent of their income.

Allocating up to 10 percent of household spending to health is a phenomenon that is six times as common in Armenian households with at least one person living with hypertension. These statistics illustrate the link between chronic illness, underutilization of care, and private health spending in Armenia.

The Trade-Off: Considering the Implications of Universal Coverage for the Economy

A review of global efforts to ensure access to high-quality healthcare indicates that mobilizing pre-paid, pooled revenue through compulsory contributions - with subsidies for the poor - is a necessary condition for Universal Health Coverage (UHC).

When contributions to pre-payment schemes are voluntary, healthier individuals usually opt out. As a result, premiums for health services rise, well above the average cost if risks across groups were pooled. As the poorest in society are more susceptible to ill-health, rising premiums lead to foregone health care and displacement of other essential household needs.

To help address these challenges and improve the overall health of its population, Armenia will need to increase essential health care use. This will require creating health financing reforms that mobilize sufficient, pre-paid, pooled revenue, and which expand health care coverage and reduce household financial burden. As such, the Ministry of Health of Armenia has been advocating for reforms to mobilize additional public funding for health since 2019.

Critically, decisions on how to raise the required revenue will reflect considerations beyond health, with implications for Armenia's broader economic goals. Unsurprisingly, the ongoing discussion on alternative proposals to finance improved health care coverage and quality in Armenia has rightly raised questions about the implications of these proposals for economic growth, employment, and socioeconomic equality.

In partnership with the Ministry of Health, a team at the World Bank has modelled the macroeconomic impact of a range of direct and indirect taxes - including payroll, corporate income, excise, value-added, and other direct taxes - on the growth of Gross Domestic Product (GDP), employment, and household welfare.

The Return: Financing Universal Coverage for Health and Growth

Our analysis worked on the assumption that, under UHC reforms, the state would pay for health care needs from 2021 to 2050, a significantly more ambitious target than the proposal currently under discussion. We also accounted for the improvements in health and productivity in the working-age population that would follow an expansion of coverage.

We found that, in the long-term, the productivity increases that accrued due to expanding access to UHC in Armenia would offset the costs of the reform, regardless of the taxation option. The estimated long-run increases in GDP ranged from 0.05 percent for payroll taxes to 1.36 percent for direct taxes on non-payroll household income. Total employment also rose, with increases ranging from 0.25 percent to 1.34 percent.

Financing UHC under different tax policies, percent change from Business-as-Usual in 2050

Source: Macroeconomic Effects of Financing Universal Health Coverage in Armenia (World Bank)

In general, our study suggests that financing options with a broader tax base would have more positive implications for GDP growth in Armenia. Hence, spreading the burden of financing UHC throughout the economy via a value-added tax increase for all commodities would have relatively positive implications for economic growth. This finding is consistent with the experiences of other emerging economies that have raised public revenue for social spending via broad-based consumption taxes.

Ultimately, the government of Armenia will decide how the country will finance UHC reforms. Our analysis only illustrates the potential implications of the different options under consideration for achieving Armenia's broader economic goals.

Regardless of the option selected, the case for UHC reforms in Armenia is clear. Maintaining the status quo whereby access to essential services is conditioned on the ability to pay rather than the need for care is untenable - not only for the population's health, but also for the economy.

Health care reforms, which will also need to be properly communicated and clarified for the public, will help people like Armen access critical support when faced with medical emergencies and needs.

With contributions from Hasan Dudu, Adanna Chukwuma, Armineh Manookian, Anastas Aghazaryan, and Muhammad Zeshan

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Learn more: Macroeconomic Effects of Financing Universal Health Coverage in Armenia

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