Romancing health insurance


Published in The News International on June 28, 2008:

With all the four provincial budgets for the fiscal year 2008/09 tabled, the annual provincial development programs for the next year have been unveiled. Provincial development budgets range from 22.12-41.13% of the total outlays with Punjab spending the highest and Balochistan the lowest. 1.84-12.15% of the total provincial development budgets have been allocated for health with Sindh allocating the highest in relative terms. On the whole, provincial health allocations suffer from limitations that are somewhat similar to those described for the federal health budget in the author’s editorial in The NEWS on June, 20. However, a consistent reference to health insurance as a potential means of financing health in budget speeches has prompted this opinion in an attempt to bring clarity to the potential therein.

First of all, it is important to recognize that there are broadly two means of financing health – public and private; public sources, which include tax and pooling (social health insurance and exemptions are the two ways of pooling) are more equitable in protection against health expenditure than private sources, inclusive of private insurance and out-of-pocket payments. Public sources must therefore be prioritized. However, as opposed to this, private out of pocket payments account for 70% of the means of health financing in Pakistan, as is the case in many other developing countries. Revenue allocations for health currently stand at Rs. 270/- per capita. In view of the need for investments of the order of Rs. 2,700/- per capita, per year and limitations to correspondingly enhance revenues, other options for financing healthcare clearly need to be explored.

The potential within social health insurance (SHI) as a mean of financing health has been explored times and again in Pakistan. Official development agencies and experts have advocated the need for its mainstreaming into planning, but governments have been unable to institutionalize arrangements.

In the early 1990s, World Bank and Japanese bilateral assistance supported a health insurance pilot in NWFP, which was later discontinued. More recently, when the Asian Development Bank provided technical assistance to the Government of Pakistan for social protection in 2005, it envisaged five areas of which social health insurance was one; its development study (ADB TA 4155-PAK) had a component on health insurance, which recommended the introduction of a social health insurance scheme on a ‘start small and grow’ basis. However, the final Social Protection Strategy, 2007 did not appropriately include health in its core instruments. In NWFP, German bilateral agencies have focused on introducing SHI with support from the religious community capitalizing its non-profit solidarity characteristics. The Federal Government has also looked into the possibility many times and Government of Punjab has constituted task forces to explore options. Each evaluation reiterated the need to build this as an option for financing healthcare in Pakistan.

The priority now is to develop a concerted vision for a way forward. Whilst it is important to draw lessons from other countries where public sources of financing ensure universal coverage, a way forward must be locally suited. In this context it would be important to note what the current sources of public financing are, and the potential within them to be scaled up. As a first step, there is the need to earmark a higher percentage of revenues to finance the delivery of a package of essential services. In terms of the alternative public sources, opportunities in Pakistan can be categorized based upon whether they apply to the formally or the non-formally employed sector.

First, Social Security, which is one of the five charges imposed by labor legislation on private employers in Pakistan, supports an insurance scheme under which private employees in a certain category receive healthcare through the health infrastructure of the Employees Social Security Institutes in three provinces. There are an estimated 5.65 million employees and their dependants covered under this. The government should use this as a platform for increasing social health insurance coverage for those in the formally employed sector.

Secondly, there are an estimated 0.8 million individuals and their dependants covered under private health insurance in the corporate/private sector. As such there is limited role of private health insurance in Pakistan as the primary source of coverage because of issues of affordability; the only countries in the world where private health insurance is mandatory and therefore a major mode of financing healthcare are Switzerland and Uruguay. Growth of private health insurance is correlated with economic growth in general and growth of the formally employed sector in particular. It is only when employers subscribe to global employment practices and factor in health benefits for a large number of employees that health insurance companies with investment capacities and appropriate domain experience have an incentive to operate in developing countries; by underwriting a large number of people in a pool they can also create an opportunity health providers would wish to avail and may compete for, hence bringing down costs. The government should therefore analyze the current policy environment for private insurance companies balancing financial incentives with appropriate safeguards and explore incentives for employers so as to encourage them to subscribe. However, in doing so, they should ensure that these measures help to decrease inequities.

Thirdly, there are examples of community health insurance within the country; this involves not-for-profit pre payment plans with voluntary membership. In general, the cost implications of administering policies in far flung rural areas when transferred to the insured generally make the premium unaffordable, standalone. However, microfinance institutes (MFIs) in Pakistan are attempting to address this issue by offsetting administrative costs in pilot projects; these involve one time purchase of policies, which MFIs sell to their clients; some initial encouraging results have been demonstrated. In this case the government should attempt to offset the risk associated with their size and vulnerability by providing subsidies and underwriting costs.

The forth option for pooling is through cash transfers. Theoretically, a local government certified Zakaat form entitles the needy to free services that involve a user charge in public hospitals; high cost diagnostic and invasive procedures not funded through Zakat are meant to be financed through the Bait-ul-Mal. However, there are many weaknesses in this system; in addition, the funding pool has a narrow base; only 11% of Zakat funds and 8% of Bait-ul-Mal funds were allocated for health in the year 2007/08. Here the priority for the government is to broaden their base for health, but more importantly introduce transparency promoting measures in governance that can eliminate the wide scope for patronage and abuse and discretionary use of power and exploitability of procedures in targeting social protection funds.

The issue of health insurance therefore has to be seen in the broader context of the need to expand public financing in order to provide universal coverage for healthcare. Expanding the base of social health insurance for those in the formally employed sector and community insurance in cases where it is sustainable, the use of private insurance for equitable outcomes and broadening of the base of exemption systems will help to enhance public sources of health financing and will contribute to social health protection; these measures need to be prioritized in the short to medium term. As a long term goal universal social health insurance and restructuring of social welfare and social security systems should be pursued. These necessitate complex organizational changes such as separating provider and purchaser functions, enacting appropriate legislation and building further on the system of individual registrations through the National Database Registration Authority. It must be recognized however, that these changes can only be brought about by institutions that project long term and have the ability to cascade complex changes into concrete action.

The author is the founder and president of the think tank, Heartfile. E mail:

Budget – five points under the health lens


Published in The News International on June 21, 2008: 

Had it been conventional to place the budget in the public domain to solicit inputs of the civil society on the directions proposed therein, suggestions such as the one articulated in this opinion could have been more timely in terms of possible inclusion in the planning process. Given that this is not the scenario, the following five points are offered as policy inputs in relation to budgetary allocations for health, on the premise that some of these ideas will generate a discussion in the forthcoming parliamentary debates.

First, it is important to recognize that the health status of populations has a direct correlation with the level of public spending on health. However, it is not just the aggregate level of spending, but the percentage of GDP allocated for health adjusted for inflation and population growth, and its translation into per capita public expenditures relative to private expenditures that gives a somewhat truer picture of the state’s investments in health. Here it is acknowledged that Pakistan’s aggregate level of allocation for health has increased considerably over the last decade with further increases in this budget representing a positive trend. However changes in health allocations as a percentage of GDP have remained unremarkable; over the last 10 years this has ranged from 0.67% to 0.8%. Although this year’s figure is not in the public it will be within this range as opposed to the internationally recommended 4% of the GDP. Currently, the public sector spends US $ 4 per capita on health annually as opposed to the internationally recommended US $ 34 per capita, the minimum required to provide essential health services in developing countries. Clearly, this huge gap needs to be bridged.

Triangulation and analysis of health expenditure patterns across agencies in Pakistan providing comprehensive health cover to employees and their dependants, demonstrate that delivery of health appears plausible at an expenditure level of Rs. 2,700 (roughly US $ 42) per capita, annually in Pakistan. This is still significantly lower than what some other developing countries spend on health. Assuming Rs. 2,700 as the benchmark per capita public health expenditure for Pakistan, it is recommended that the government should present a five year plan to incrementally enhance allocations. Although it may not be possible to reach the goal in five years, targeting the goal can set a precedence to enhance allocations over and above the Fiscal Responsibility Act stipulation of doubling health allocations over a ten year period.

The second point is in relation to the current skew in favor of private sources of health financing, as opposed to the desired public sources. Approximately 70% of healthcare in the country is financed through out of pocket payments made to health providers at the point of care. This is the most inefficient and inequitable way of financing healthcare. Idealistically, health should be funded through public sources, which include revenues, social health insurance or other means of pooling such as social protection. We cannot expect miracles to turn this equation around overnight; it is accepted that it is only through long term structural measures that the skew might even out if appropriate policies are adopted and sustained overtime. Whether the present government can do that is a separate debate and one that will be the focus of another opinion. Relative to the present discussion, it would be appropriate to introduce certain short to medium term innovative measures. These could include earmarking of a higher percentage of Zakat and Bait-ul-Mal funds, over and above the current estimated 15% for health, ring fencing these funds into a transparently governed health equity pool, and the creation of the an efficient delivery instrument. Another quick win could have been modification of the eligibility criteria under the Employee’s Social Security Institute, to include a wider segment of the population, or creating better linkages of health under current labor legislation, or simply expanding the scope of cash transfers under Benazir’s Income Support Program to protect the poor against catastrophic spending on health; the latter according to the Planning Commission’s 2007 Social Protection survey, are the commonest cause of economic shocks to households in a poverty precipitating context. The creation of a financial tool to make it implicitly binging on district governments to spend a certain percentage on health is another low lying fruit. Although these opportunities have been missed, there is still time to explore them during the budgetary parliamentary sessions.

Thirdly, the budget does not appear to be concerned with utilization and targeting issues. The 20% lag in allocation and expenditure observed over the years in various health agencies is telling, as is evidence related to the wide scope for patronage, abuse, discretionary use of power and exploitability of procedures in case of targeting resources to the poor. It has been estimated that the cumulative value of resources pilfered, mis-targeted and ineffectively handled are more than a staggering 50% of the total health budget. In order to address this, certain invisible measures are needed. Strengthening capacity to streamline national health accounts, leveraging technology to minimize leakages from the system and measures to promote transparency through the creation of electronic public expenditure tracking systems and payment inventories are some measures, which can lead to major gains in the long term. Budgetary allocations in these areas are not evident and it is strongly urged that some of these strategies should be budgeted for.

Fourthly, the classical budgetary disparity evidenced in priorities for allocating resources for preventive healthcare is obvious. According to the Federal Bureau of Statistics’ Pakistan Demographic Survey, it is documented that more than 50% of deaths are due to non-communicable diseases (NCDs). However as opposed to this, only 0.66% of the total healthcare budget has been allocated for the prevention of these diseases. NCDs, a collective name given to the diseases of the heart, diabetes and some lung conditions and cancer, incur significant costs in healthcare, undermine income generating capacities of the productive workforce and have the potential to perpetuate acute poverty crises. There is an expectation that a new government will engage the much needed reengineering of public health priorities; due attention must be paid to this.

Fifthly and following on the same note, there was also an expectation that there would be a move away from the output-driven approach as evidenced by new target setting in the number of Lady Health Worker and recasting of old programs to some strategic restructuring interventions that could help the new government achieve its stated commitment embodied within the creation of a national health services as articulated in their manifesto. There are many imperatives for restructuring a health system that has fundamental flaws and where governments attempt to finance and deliver services in an environment where the private sector operates in a completely unregulated market. A policy, legislative, regulatory and institutional overhaul in health has been long over due.

The government could have signaled a commitment to overhauling the health system by reorienting priorities for allocating resources and earmarking seed funding for innovative pilots. The beginnings of that are not evident in the directions of the budget. Nonetheless, let us give the new government the benefit of doubt. Perhaps time and situational constraints precluded attention to this matter and an opportunity was inadvertently lost. The parliamentary debate would be the next opportunity to weave in some strategic measures, which can then be built upon further in their new health policy. If that opportunity is not leveraged, they will not just miss the boat but also the chance to take initial steps to consolidate the egalitarian premise of their manifesto and the opportunity be true to the reference to social justice in its preamble.

The author is the founder and president of the think tank, Heartfile. E mail: