Country Z's National Health-Care Program (NHCP) provides free health

Z's healthcare program provides free care to all.
In last 5 yrs, increased funds (in absolute terms and as % of country Z's GNP).
Yet, standard of health care has decreased.
Meanwhile, the standard of health care in other industrialised countries has increased. (so it is not a global issue)

Conclusion: Over the past five years, NHCP must have become an overgrown and wasteful bureaucracy.

The point of the argument is that though funding has increased, standard of health care has decreased. So it has become wasteful.

Now what is the assumption here? That need has not increased even more than the funding. The funding has increased, we know. But the need has increased even more. Then can I still say that NHCP must have become wasteful? No I cannot. It may not have become wasteful.

A) NHCP should not have received increased funds during the past five years.

We are looking for an assumption, not an opinion. We are looking for that which MUST BE true for the conclusion to hold.

B) In the last five years, the need for health care among country Z's citizens did not increase to beyond the amount of health care that could have been provided by a proper expenditure of the increased funding.

Correct. This option says that the assumption is that the need did not increase even more.

Negate it if you must:

The need did increase to beyond what could have been provided by a proper expenditure of increased funding.

Well then, that would be responsible for lower standard of health care. Now I cannot say that NHCP MUST have been wasteful. It is not necessary that it would have been wasteful.

C) NHCP was suspected of wasteful money management five years ago, but no action was taken to improve NHCP's money management procedures.

To make our point, we are certainly not assuming that NHCP was suspected of waste 5 yrs ago.
Given this premise, we may be able to strengthen that NHCP is being wasteful but it is not necessary. Note that an assumption would be within the confines of your argument. The author will make certain points and then derive something out of it. You should be able to say what is it that the author is assuming. An occurrence as specific as this will not be an assumption. He doesn't need to assume that NHCP was suspected of waste five years ago.

D) The standard of health care in country Z five years go was good related to the standards of health care in other industrialized countries at that time.

Again, we don't need to compare Z's health care with other countries' healthcare. The only point the argument makes is that healthcare in other countries has not deteriorated compared with their own healthcare of 5 yrs ago. (So it isn't a global issue that we are facing because of factors outside the control of NHCP)

E) Most other industrialized countries have free national health care programs similar to NHCP.

Irrelevant.

Answer (B)