Tokyo, Japan National Graduate Institute for Policy Studies

Health Care and Income Distribution in Pakistan

Public Economics

By : SHAH, Mukhtar Paras PAKISTAN

August 2011

Abstract Health is a non-excludable public good. Efficient provision of this public good is connected with marginal costs and marginal benefits. The Expected Value in this case are indicators of Human Development and thus the government has to invest in spite of the fact that people are not willing to pay the costs. At individual level there is a need for interventions in health care for those who want a secure life without economic difficulties. Government interventions in health sector of Pakistan have been insufficient and inequitable. There is need of reforms in health care in partnership with private sector to improve access to health care.

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Table of Contents
Healthcare and income distribution in Pakistan" ................................................................................ 3 Introduction ..................................................................................................................................... 3 HDI and Health Expenditure in Pakistan ........................................................................................ 3 Medium Term Draft Framework ..................................................................................................... 6 Access to Health Care Services........................................................................................................... 7 Maternal and Child Health Care .................................................................................................... 7 Policies affecting health care............................................................................................................... 8 Income Distribution..................................................................................................................... 8 Regional inequalities ................................................................................................................... 9 Inequality in health expenditures ................................................................................................ 9 Role of Private Sector ............................................................................................................... 10 Absence of Health Insurance System ........................................................................................ 11 Findings ............................................................................................................................................. 11 Conclusion......................................................................................................................................... 12 References ................................................................................................................................. 12

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Healthcare and income distribution in Pakistan"

Introduction General taxation is the main source of health financing in Pakistan but no specific tax for health services is levied. Access to health services is easier for the privileged class as compared to deprived sections but still the rich sections of the society do not pay any specified amount in response to services provided by the government under health care. In a way it will not be wrong to assume that poor sections of the society are indirectly affected by No Contribution Policy of the rich sections in health sector. The trend indicates that around 80% of the budget for health sector is financed by the Government whereas around 20% support comes from the international partners like World Bank, Asian Development Bank, DFID and the like. The public sector is spending around $ 6.5 per head on the health of the population whereas minimum level requirement for public sector investment is $40 per capita. Variation to access to health care is an effective parameter to measure inequality. It is the income distribution flows that may define inequality to access to health care and other investments in human capital. The hospitals work under the ministry of health and all staff is employed by the government. Payment mechanism developed at hospitals also reflects the social division of the society between haves and not-haves as different fees and facilities are available for entitled and non-entitled patients. Poor people lack the capabilities to buy health care services thus represent the section of the society with low share in income distribution. This inequality and lack of access to health care may also impact at growth and productivity of the individual as well as whole of the economy, depending on the volume of the people deprived of investing in human capital. HDI and Health Expenditure in Pakistan Similarly we see that countries with slow economic growth have not been investing in health care. Pakistan is an important example where disparity in income distribution has been on the rise. As a result of this we find that country ranks 134 in HDI in the world. Table 1 shows that Pakistan is lagging behind in Asia as well in terms of life expectancy and infant mortality rate. Almost 40% of burden of diseases is accounted for infectious diseases and another 12% is due to reproductive health problems. More than 60% of the 180 million population lives below the poverty line and it is definitely alarming. In the budget 2011-12 only 0.23 % of GDP has been allocated for health sector in Pakistan. The country is lagging behind in achievement of Millennium Development Goals connected

with maternal and child health. National health programs and projects are usually funded by international financial institutions and thus remain ineffective because of lack of ownership. Table 1

Governments usually subsidize health care services in order to attain better and productive human resources that ultimately create a healthy labor force. This subsidy can take the burden of the cost, wholly or partially in any form of health care service. In Pakistan there are 74 doctors for every 100,000 people, which is neither good nor bad. The doctor to nurses ratio is 3:1 whereas WHO recommendation is 1:3. The volume of transfers to health sector can vary from country to country as they allocate resources keeping in view the outcome expected as a result of this investment. The main question is that who will benefit from government subsidy in health sector? Keeping in view the target groups and outcomes, the governments earmark funds for the health sector. If Pakistan is allocating only 0.23% of the GDP (Economic Survey of Pakistan,2011) for the health of 180 million people, there should be some method in this madness. But is there a method in fact? Economists term the government expenditure as progressive if the maximum beneficiaries are from low income group and otherwise the expenditure is regressive if the benefit of policies and services go to the privileged class. The concept is explained in Figure 1 that explains the phenomenon with the help of Lorenz Curve.

Figure 1 Lorenz Curve

It is therefore a good debate whether the government expenditure for health sector in Pakistan is progressive or regressive. The provincial governments run the hospitals and all policies and programs in health sector are introduced for the general public especially the poor. But around 70% of the regular expenditure goes to salaries and purchase of equipment and medicines in hospitals. Only 0.55% goes to maternal health sector, 18.37 for health facilities and prevention measures and around 10% for other expenses (PRSP Annual Report). Table 2 gives a more detailed account of the current and development expenditures in the health sector. It is this mode of distribution of resources that result in distortion of services for the common people. The privileged class such as public office holders and officials has rapid access to government facilities whereas the general public waits for hours altogether to seek a prescription and usually the medicine counter does not give them medicines as well. They have to purchase the medicines by themselves and it has also been seen that general public prefers to go to private doctors because of the nonsatisfactory attitude and service at government hospitals. It is an established fact that poor
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and ordinary people seldom get maximum benefit from government subsidy or intervention in the health sector in Pakistan. Table 2 Health Expenditure in Pakistan Rs.billions

Medium Term Draft Framework According to Medium Term Draft Framework (MTDF); the financial outlay for health during 2005-10 has been Rs.85 billion and the allocation of expenditures in various subsectors has been as explained in Table 3. Table 3

The above table explains it all that there has been huge disparities in division of resources in various sub-sectors which ultimately have an influence on the access of health services required at grass-root level. Access to Health Care Services According to Economic Survey of Pakistan (2011), the country has 144,901 registered doctors, 10,508 dentists and 73,244 nurses. There is one doctor for every 1222 people, one dentist for every 16,854 persons and one bed for every 1701 citizens. There are 972 hospitals (urban centres) with 104,137 beds, 4842 dispensaries and 5344 Basic Health Units in rural areas. The targets for the financial year 2010-11 have been explained in Table 4 that indicates that there have been no big targets and emphasis is on expanding services in terms of recruitment and purchases. How can the facilities be made effective in terms of public service delivery, is a missing link in the budgeting exercise. Table 4 Targets and Achievements in 2010-11

Maternal and Child Health Care According to official documents released by Ministry of Finance, Pakistan is presently aiming at the following targets in respect of Child Health Care: Reduction of maternal Mortality from 276 to 175/100,000 live Births. Reduction of Neonatal Mortality Rate from 54 to 40/1000 live Births.
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Reduction of Infant Mortality rate from 72 to 55/1000 live Births. Reduction of Under 5 Mortality rate from 94 to 65 per 1000 live births. Increase in the proportion of deliveries attended by Skilled Birth attendants at home or in health facilities to 90 percent from 39% (current). Increase in Contraceptive Prevalence Rate (CPR) from 30 to 55 percent.

The expenditure on Mother and Child Health Care in Pakistan may have been termed progressive as its major beneficiaries are poor people. But the natural question is that how much funds have been made available to achieve the targets and how many beneficiaries have actually benefitted from the intervention. The allocation for health sector has been drastically reduced in 2011-12 as a result of economic pressure in the wake of slow growth in the economy. This is the true proof of the academic principle of public economics that politicians can easily divert funds from sectors such as health and education as they are more interested in sectors that can give them immediate results and political leverage. They are more interested in building highways rather than in reduction of HIV. It is a fact that Mother and Child Care continues to be the most neglected sector in health sector of Pakistan. Policies affecting health care Income Distribution One reason for poor and inadequate health facilities in Pakistan is the population and its growth rate. Distribution of income and services cannot be equitable in the wake of challenges posed by the number of recipients that exceed the available resources. The expenditures in health sectors are overall progressive in Pakistan while it is regressive in some sub-head expenditures of health at provincial and regional levels. The extent of inequalities in the four provinces of Pakistan in health sector is given below in Table 5. Table 5 Access to Health Services

Regional inequalities Some Studies have found great disparities and inequalities across regions and among quintiles. The share of lower quintile in the Hospitals and Clinics expenditures is only 7 percent while it is 36 percent for the higher quintile in Pakistan over all (Akram, 2007). The rural-urban divide is more evident in the case of health care services. The doctors do not want to work in rural areas where the 60% of the population lives. Basic Health Units have been the only network of health facilities in rural areas but with only basic services. The doctors appointed in these BHUs usually do not appear as they have their private practices in urban centers and BHUs are run by paramedical staff who has been involved in corrupt measures such as sale of government purchased medicines in the market. On regional basis this divide is more dangerous as the most backward areas such as Baluchistan has inadequate health facilities; partly because of geographical outreach difficulties and partly because of patriarchal and tribal cultures that do not encourage females to visit doctors. In critical conditions patients in these deprived regions rush to bigger urban centers in other provinces such as Sind and Punjab. The availability of health services in rural Pakistan in all the four provinces is explained in Table 6. The dismal picture explains that people in these regions have been living without a choice. Table 6 Availability of Health Services

Inequality in health expenditures Large inequalities in the shares of the different quintiles in health expenditures cannot be rejected. Table 7 gives an account of expenditures being undertaken by the government in its provinces.

Table 7 Distribution of Health Services by Sector

Overall, the public sector spending on health sector is partially progressive in Pakistan. However, the share of the lower quintile is lower than higher quintile in total public expenditures on health. Public sector expenditures in Preventive Measures and Health Facilities sub-sector are progressive at provincial and regional level, except in overall rural Pakistan. It means the public sector spending on Preventive Measures and Health Facilities are more evenly distributed as compared to the income distribution. Expenditure on Preventive Measures and Health Facilities are highly subsidized by the federal government in Pakistan through its vertical programmes. (Akram,2007) Role of Private Sector According to the PSLM (2004-05), as many as, 77 percent households consult the private sector against only 23 percent to the public sector. In view of requirement businesses in health are considered the most lucrative ones and there has been a mushroom growth of private hospitals in urban and semi-urban centers. However, lack of effective regulations has resulted into poor services in terms of quality as well as expenses. The government perhaps cannot or do not want to impose restrictions on private enterprises in health sector because of the need in the sector and also because of the realization that governments own services are not up to the mark. In view of the above it is difficult to accept that public expenditure in health are progressive in Pakistan. In most South Asian countries, the ratio between private and public health expenditures ranges from three to four. Therefore, the burden of financing of healthcare falls disproportionately on households, especially the poor, in Pakistan.

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According to the HIES of 2004-05, expenditure on health by households ranged from about 4 percent of total expenditure bythe lowest quintile to about 3.5 percent for the highest quintile, averaging at Rs 345 per household per month. This implies that the reported private expenditure on health was about Rs 92 billion. If allowance is made for the underreporting of consumption expenditure (in relation to the national income accounts) then the actual private expenditure on health could approach Rs 180 billion. This is almost six times the level of public expenditure on health. (SDPC;2007) Absence of Health Insurance System In Pakistan, Group Health Insurance was introduced some three decades back. The cost incurred on the expenditure of health services for employees and individuals is posing financial problems and government is in the process of introducing reforms. Health insurance by private companies is one solution that may be promoted in order to deal with administrative and financial issues associated with health care of employees. In view of the facts explained above, individual health insurance has huge prospects in Pakistan but only four insurance companies (PICIC, Adamjee, EFU,Askari) endeavored to step into this business. Those companies also failed to reach out the people who are in dire need of health care across the country. Non-tariff nature of business, lack of reliable data and lack of support from the bureaucracy are some of the causes for losses in health insurance business undertaken so far. However, it is believed that if local governments are encouraged to introduce individual health insurance program in association with the private sector, people will have improved access to better health services in a few years time. It will also be advisable to look into the fact whether public health care schemes are an impediment in promotion of private insurance programs or not. The answer to this question may help in devising appropriate futuristic policy in the health sector. Findings The expenditure in health sector in Pakistan is not progressive. There is definite existence of inequalities in shares of different quintiles in health expenditures. Expenditures and efficiency at regional level is not in proportion to each other. Quality of health services in both public and private hospitals is because of absence of an effective regulatory mechanism in health sector. Rural areas that is home to 60% of the population and where majority is living below the poverty line is the most affected in health services provided by the government.

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Conclusion A new health strategy outlining the equitable distribution of resources in health sector both at horizontal and vertical level is required. Only a comprehensive and well directed plan can ensure the disadvantaged groups and low income people access to medical services. A better policy focusing the income distribution factors and increasing subsidy to poor may improve quality of life, provision of public goods and HDI in the country.

References Akram,M(2007). Health Care Services in Pakistan. Pakistan Institute of Development Economics Journal. No.32. PIDE, Islamabad. Jahangir,F (2007). Government Spending in Health Care, International Islamic University, Publication. Islamabad. Economic Survey of Pakistan; 2010-11. Ministry of Finance, Government of Pakistan, Islamabad. Health Systems Profile- Pakistan Regional Health Systems Observatory- EMRO, Islamabad.
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