Development Finance

How tobacco taxation can fund access to health care

The Philippines has introduced a tax on tobacco with 240 Filipinos dying every day from smoking-related diseases

Nick Ferguson highlights how ‘sin taxes’ on tobacco and alcohol have raised over US$1 billion to expand health care in the Philippines

As a Hong Kong resident I have experienced numerous health scares over the years with bird flu, Sars, swine flu and, most recently, Mers, attracting lurid headlines and making face masks more common than hats. A stark reminder of the threat of infectious diseases are the signs in Hong Kong airport asking if you have recently been to West Africa where Ebola had such a desperate effect on Liberia, Sierra Leone and Guinea.

But while such diseases grab the headlines and push governments into emergency action, it leaves us with a perception that is at odds with everyday reality which is that the majority of people die from non-communicable diseases.

While the annual number of deaths due to infectious disease is projected to decline, the total annual number of deaths from non-communicable diseases (NCDs)-such as heart and lung diseases, stroke, cancer and diabetes–is projected to increase to 52 million by 2030, up from around 40 million today.

The leading causes of worldwide NCD deaths in 2012 were: cardiovascular diseases (17.5 million deaths, or 46.2 percent of NCD deaths), cancers (8.2 million, or 21.7 percent of NCD deaths), respiratory diseases, including asthma and chronic obstructive pulmonary disease (4 million, or 10.7 percent of NCD deaths) and diabetes (1.5 million, or 4 percent of NCD deaths).

This is not just a problem for rich countries. Non-communicable diseases pose a significant risk in Asia. Across the whole region, deaths from NCDs grew to 19.4 million in 2012, the latest complete year for which there is data, from 15.3 million in 2000.

“Unfortunately, the region still accounts for the most number of deaths from NCDs globally,” says Hai-Rim Shin, Coordinator, Non-communicable Diseases and Health Promotion for the World Health Organization (WHO) regional office for the Western Pacific. “Eight out of 10 adults die from NCDs [in Asia Pacific], and many of these deaths could have been prevented.”

Asian initiatives

In the Western Pacific (which comprises most of Asia Pacific in WHO-speak), the organisation has launched an NCD action plan for 2014 to 2020 that was approved in 2013.

The plan provides strategic guidance for countries in implementing cost-effective interventions. Across the region, initiatives related to NCD surveillance and management are being supported through countrywide surveys and the roll-out of essential NCD interventions at the primary care setting. At-risk countries such as Brunei, Cambodia, Laos, Mongolia and Vietnam have launched their own tailored action plans.

The cost of not acting to prevent non-communicable diseases is measured both in dollars and, of course, numerous everyday human tragedies. But the corollary of this is that taking action saves money as well as lives.

In this sense, the argument for implementing policies to reduce deaths from NCDs is a simple one. According to WHO, an annual investment of just US$1 to US$3 per person can produce significant results.

Margaret Chan, Director-General of WHO

“The global community has the chance to change the course of the NCD epidemic,” said Margaret Chan, Director-General of WHO, when launching the organisation’s most recent global status report on non-communicable diseases. “By investing just one-to-three dollars per person per year, countries can dramatically reduce illness and death from NCDs.”

Roughly 16 million people die prematurely each year as a result of harmful use of alcohol and tobacco, insufficient physical activity and poor diet. These risk factors give rise to the four major NCD killers: heart disease, diabetes, chronic lung disease and cancer.

There are several cost-effective interventions addressing each one, say specialists, but governments should start with the most obvious.

“Raising tobacco taxes and prices is one of the most effective ways to prevent NCDs,” says Shin. “It is a win-win solution that curbs smoking rates and raises government revenue to support public health activities at the same time.”

More broadly, effective NCD interventions require a full-court-press approach of multiple elements: meaningful community participation and engagement, supportive policy prioritisation and settings, multisectoral collaboration, a health-in-all-policies approach and active partnerships among national authorities, non-governmental organisations, academia and the private sector.

Mongolia offers a good example of working with industry on action against non-communicable disease. Overconsumption of salt is linked to high blood pressure, which increases the risk of heart disease and is a particular problem in Mongolia, where even the tea is salted.

The World Health Organization recommends that people consume no more than five grammes of salt a day, but a 2011-2012 baseline population survey on salt intake by Mongolians found that on average people were consuming more than 11 grammes per day. In the province of Uvs, home to Mongolia’s vast salty lakes, the average daily intake was more than 15 grammes.

As part of a public awareness campaign called ‘Pinch Salt’, the Talkh-Chikher bakery company agreed to reduce the amount of salt in its loaves by 12 percent.

“I was a member of the group working on this project and of course I wanted to start the process of lowering the salt content in bread from our own company,” said Lkhagvaa Yanjin, Talkh-Chikher’s general manager, who is cited in a WHO report. “After all, we are the suppliers of one of the 10 staple foods of Mongolian consumers.”

Getting the message

Financing such programmes that address NCDs remains a challenge as awareness is a circular problem: people don’t demand their government spends money on problems they don’t recognise.

“Education certainly plays a role in terms of raising awareness and advocating for greater commitment to address the burden of NCDs,” says Shin. “However, by itself, it is not enough.”

Hai-Rim Shin, Coordinator, Non-communicable Diseases and Health Promotion, World Health Organization

Governments need to be proactive in addressing some of the problems, but money is a perennial obstacle. Intense competition for budgets often means that such programmes are either under-funded in the first place, or fall by the wayside soon after.

Shin says that the WHO has established a working group to explore various mechanisms for funding, and one model being explored is the use of tobacco taxation as a tool for dedicated domestic financing.

The Philippines is at the forefront of this model. In 2012, it passed a Sin-Tax Law, increasing taxes on tobacco and alcohol. Within a year of its implementation it had raised more than US$1.2 billion in additional revenue, which has allowed the government to expand health coverage to an additional 14 million families or 45 million Filipinos. Enrolment in the national health insurance programme has expanded from 74 percent four years ago to 82 percent today.

It is now proposing to go further, with the introduction of a tax on sugary drinks that could take effect in 2016. Estrellita Suansing, the politician sponsoring the bill, predicts it could bring in US$750 million in its first year, though it is a controversial bill in a country where much of the wealth originates from the sugar industry. Under the bill, half of the revenues would be used to fund various health programmes, research and development, and access to safe drinking water in rural areas.

Using this type of targeted tax to fund specific government departments is unorthodox, but the provision of universal health care is one of the most effective ways to reduce the burden of NCDs–as well as reducing the likelihood that poor health will push people into poverty.

Indeed, universal health coverage (which the WHO defines as “ensuring that all people have access to needed promotive, preventive, curative and rehabilitative health services of sufficient quality to be effective, while also ensuring that people do not suffer financial hardship when paying for these services”) is a major goal for health reform in many countries and a priority objective of the World Health Organization.

This is a particularly effective approach for NCDs because it creates a coordinated system that allows various agencies within the health sector to work together to produce a consistent message.

Although universal health care is politically difficult to implement, governments in developing countries are waking up to the economic realities of NCDs and ageing populations, and are increasingly keen to provide a minimum level of care.

“We’re confronting vices like smoking and drinking and turning them into good,” says Jeremias N. Paul, Jr., Undersecretary at the Philippine Department of Finance. “The sin taxes are not only a win for health care; they’re a win for the poor in our country who would not be able to afford health care otherwise.”

The key message is simple and bears repeating: a healthy economy needs healthy people.