Indonesian health system reform no simple fix for inequity

Authors: I Nyoman Sutarsa, ANU and Luh Virsa Paradissa, Gadjah Mada University

In 2009, the Indonesian government enforced mandatory health spending to establish equitable health systems and enhance social security. The Law on Health (Law No. 36/2009) required governments to allocate at least 5 per cent of the national budget and 10 per cent of the local government budget to the health sector.

But the new Law on Health (Law No. 17/2023), passed in August 2023, has abolished this obligatory health spending — sparking concerns regarding its potential negative impact on health equity. The magnitude of these consequences will hinge on the approach taken by governments in implementing new health expenditure mechanisms.

Before 2009, most Indonesian health expenditures came from out-of-pocket (OOP) payments, causing significant disparities between the wealthiest and poorest segments of society. Only 26 per cent of Indonesians were covered by government and private health insurance schemes in 2007, while OOP accounted for 48 per cent of health expenditure by 2009. This underscored the need for government investment in health sectors to foster inter-regional health equity.

Mandating minimum health spending was the right policy direction for promoting social and health security in Indonesia. This move was politically well-timed, aligning with the implementation of health decentralisation since 2001 and the establishment of a national health insurance scheme under the provisions of National Social Security Law (Law No. 40/2004).

Since 2009, mandatory health spending in Indonesia has delivered favourable effects on health expenditure, primary care functions and overall population health outcomes. There has been a significant reduction in OOP expenditure — from 45.2 per cent in 2000 to 31.8 per cent in 2020 — which underlies the ability of mandatory health spending to mitigate health disparities. Mandatory health spending also improved maternal and child health outcomes, including increased coverage of essential immunisations.

Indonesia has also witnessed increases in community health centres, rising from 8234 in 2007 to 9601 in 2014 and to 10,205 in 2020. The data indicates that the implementation of mandatory health spending has a positive impact on the availability and access to essential health services and public health interventions.

Despite these improvements, evaluations reveal that only 37.8 per cent and 48 per cent of local governments met mandatory health spending requirements in 2018 and 2020. This means over 50 per cent of districts fall short of the 10 per cent mandatory health spending due to limited local fiscal capacity and competing priorities.

Abolishing mandatory health spending could jeopardise the significant health progress achieved over the past decade and potentially worsen inter-regional disparities in Indonesia. It may also increase OOP expenditure, hinder access to health services and lower overall health outcomes.

Public health expenditure as a percentage of GDP has increased from 1.85 per cent in 2000 to 3.41 per cent in 2020 — still below the World Health Organization standard of 5 per cent. Careful planning is vital to prevent a decline in this proportion with the removal of mandatory health spending.

Though Indonesia has made significant progress in expanding healthcare coverage, there is still much to be accomplished in improving health financing fairness. Increased primary care funding could strengthen access to care for low-income individuals. The extent to which discontinuing mandatory health spending will impact access and health equity hinges on transition strategies in the 2023 Health Law.

The 2023 Health Law mandates a performance-based budgeting system (PBBS) to replace mandatory health spending, aiming to boost health expenditure efficiency. PBBS shifts focus from cash allocation to achieving specific objectives. It fosters a forward-looking approach to healthcare outcomes by prioritising public health interventions, primary care and preventative medicine and health promotion strategies to reduce costs.

PBBS also encourages health providers to offer value-driven, efficient and socially responsible care and necessitates an integrated health information system for expenditure tracking, performance assessment and outcome evaluation. Evidence from Burundi and Rwanda shows that PBBS strengthens health systems, while Zambia’s experiences show that it enhances accountability and autonomy in health facilities.

Implementing an effective PBBS presents challenges — preconditions include a robust performance information system, well-prepared performance indicators, effective management accounting and evaluation tools. While the national government is prepared to implement PBSS, many local governments lack readiness. PBBS demands a robust health information system and an accurate selection of performance metrics. Strengthening local health information systems requires substantial investment.

Introducing PBBS could unintentionally disadvantage resource-limited, remote and isolated healthcare facilities. The PBBS transition should be carefully planned to avoid disrupting health services. One approach is to select districts with strong fiscal capacity, robust health systems and adequate health information systems as pilot areas for PBBS implementation. These pilot projects can inform key strategies for effective PBBS implementation across all government levels.

Enhancing the quality of health spending is important and PBBS adoption can drive effective healthcare.

The implementation of PBBS should commence at the national level before extending to provincial and district levels. The provisions of the 2023 Health Law would necessitate over 100 implementing regulations. Such implementation should also encompass a strategic alignment of health priorities from the national to district levels, the delineation of shared responsibilities and the fostering of robust linkages across sectors to address the social determinants of health.

I Nyoman Sutarsa is Senior Lecturer at the School of Medicine and Psychology, College of Health and Medicine, The Australian National University and Senior Lecturer at the Department of Public Health and Preventive Medicine, Faculty of Medicine, Udayana University.

Luh Virsa Paradissa is Master of Health Law, Faculty of Law, Gadjah Mada University

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