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HEALTH FINANCING REFORM IN UKRAINE
by the PMG central allocation, undermining incentives for facilities to be more efficient. Inefficient management of the PMG allocation leading to a financial gap is a fiduciary risk, and there is no clarity about which government level is expected to deal with it. For example, while the central government has no direct obligation to address facility-level losses, in 2019 and 2020, the central government provided grants to cover subnational losses arising from the transition to new financing and payment arrangements. As long as the PMG continues to be developed, budgeted, and costed without clear rationing criteria, rationing of care will continue implicitly, despite the intention of moving toward a more explicit benefit package guaranteed to all Ukrainian residents. The discretion in how explicitly the PMG will be rationed leaves the government with a complex political trade-off. While explicit rationing is more open, transparent, and direct, it is usually more challenging politically as it makes it easier to identify winners and losers. Allocating resources by implicit rationing is an easier approach technically because there is no need to develop rationing criteria and politically because the outcomes are less visible to the public. At the same time, as long as the government continues to fund the PMG without clearly expressed criteria for exclusion and inclusion of individuals and services, rationing within the PMG components will continue implicitly at the level of service providers.
FINDING RESOURCES FOR MAINTAINING AND EXPANDING THE PMG: CONSTRAINTS AND OPPORTUNITIES BEYOND 2021 The overall level of government financing of health care in Ukraine is relatively high for its income level but much lower than in neighboring European Union (EU) countries. The total government spending on health in Ukraine is higher than what would be predicted for its income level. At 3.7 percent of GDP in 2018, the latest available year for Ukraine NHA data, government health spending is higher than the LMIC average of 2.78 percent and close to upper-middle-income countries (UMICs) at 4.0 percent and non-OECD high-income countries (HICs) at 3.86 percent. At the same time, this level of public health funding is lower than Ukraine’s EU neighbors, most of which are OECD HICs (6.51 percent in 2017). For example, public health spending is 4.5 percent of GDP in Poland, 4.8 percent of GDP in Estonia, and 5.3 percent of GDP in the Slovak Republic. Expanding the PMG will require additional funding, but not all of the available resource generation options would be equally effective and some may entail risks. It is vital that the annual budget allocations to the PMG are sufficient to cover the provision of services included by law in the PMG benefit package, or there will inevitably be service rationing, undermining the guarantee to care provided by the government of Ukraine to the Ukrainian people. Several options may be considered individually or in combination to secure additional resources for the PMG. First, there is the possibility of expanding the overall fiscal envelope either through new taxes or new debt. Second, it may be possible to reallocate resources from other functions or programs by deprioritizing other sectors. The third option is to deprioritize other (non-PMG) health spending within the health sector. Fourth, it might be possible to reconsider the intergovernmental revenue-sharing arrangement. However, if the government decides to shift the responsibility for PMG utility financing from SNGs to the central level and
