Poverty & health: Criticality of public financing

Transcription

1 Review Article Indian J Med Res 126, October 2007, pp Poverty & health: Criticality of public financing Ravi Duggal Nagpur (Maharashtra), India Received June 1, 2007 Countries with universal or near universal access to healthcare have health financing mechanisms which are single-payer systems in which either a single autonomous public agency or a few coordinated agencies pool resources to finance healthcare. This contributes to both equity in healthcare as well as to low levels of poverty in these countries. It is only in countries like India and a number of developing countries, which still rely mostly on out-of-pocket payments, where universal access to healthcare is elusive. In such countries those who have the capacity to buy healthcare from the market most often get healthcare without having to pay for it directly because they are either covered by social insurance or buy private insurance. In contrast, a large majority of the population, who suffers a hand-to-mouth existence, is forced to make direct payments, often with a heavy burden of debt, to access healthcare from the market because public provision is grossly inadequate or non existent. Thus, the absence of adequate public health investment not only results in poor health outcomes but it also leads to escalation of poverty. This article critically reviews the linkages of poverty with healthcare financing using evidence from national surveys and concludes that public financing is critical to good access to healthcare for the poor and its inadequacy is closely associated with poverty levels in the country Key words Financing mechanism - healthcare - poverty - public finance Introduction How healthcare is financed is critical to any healthcare system and poverty within that society. India s healthcare system is the most privatized in the world and hence is also one of the most iniquitous, and this contributes substantially to the high levels of poverty experienced in India. Over eighty per cent of health expenditure in India comes outof-pocket and the public exchequer accounts for only 15 per cent of total health expenditure in the country 1. Countries that have universal or near universal access to healthcare, have health financing mechanisms which are single-payer systems in which either a single 309 autonomous public agency or a few co-ordinated agencies pool resources to finance healthcare. This contributes primarily to both equity in healthcare as well as to low levels of poverty in these countries. All member countries of Organization for Economic Cooperation and Development (OECD), excluding the USA, have such a financing mechanism. Outside the OECD group, a number of developing countries in Latin America, Asia and Africa like Costa Rica, Cuba, Argentina, Brazil, South Africa, Kenya, South Korea, Iraq, Iran, Thailand, Malaysia, Sri Lanka, etc. have evolved some form of single-payer mechanisms to facilitate near universal access to healthcare. It is only

2 310 INDIAN J MED RES, OCTOBER 2007 in countries like India and a number of developing countries, which still rely mostly on out-of-pocket payments, where universal access to healthcare is elusive. In such countries those who have the capacity to buy healthcare from the market most often get healthcare without having to pay for it directly because they are either covered by social insurance or buy private insurance, and in contrast a large majority of those who suffer a hand-to-mouth existence, are forced to make direct payments, often with a heavy burden of debt, to access healthcare from the market because public provision is grossly inadequate or non-existent. Thus the absence of adequate public health investment not only results in poor health outcomes but it also leads to escalation of poverty. Political economy of health financing Historically, the Indian State has never been significant player in provision and/or financing of ambulatory healthcare. Private providers, both modern and traditional, as well as informal providers, have been dominant players in the healthcare market. While precolonial healthcare was still largely within the jajmani * realm of transactions, the establishment of modern medicine during the colonial period gradually moved it in the direction of commodification. Today the healthcare system is dominated by modern medicine and healthcare available largely as a commodity. Even the traditional and non-formal providers, often practitioners of quackery, use modern medicine in their practice and operate within the market context. In case of hospital care the transition has been very different. Right from pre-colonial times, through the colonial period and the post-independence period upto midseventies, the State and its agencies were the main providers of hospital care. There were also significant non-state players who set up large charitable hospitals. By 1970s, medical education made a major transition; post-graduation, specialization and super-specialization became sought after and the character of medical practice changed. Specialists on one hand began setting up private nursing homes and the corporate sector on the other hand began to show interests in entering the hospital sector. Also major changes in medical technology, which hastened the process of commodification of healthcare, made for-profit hospitals a lucrative proposition. By 1980s the State was already decelerating investments in the hospital sector and this was a clarion call for the private sector to increase its presence. By the turn of the millennium the for-profit hospital sector had not only become dominant but also within the State sector privatization via user-charges, as well as through contracting out or leasing had become the order of the day. It is apparent that the largest source of financing healthcare in India is out-of-pocket or self-financing. Out-of-pocket spending on healthcare as a mode of financing is both regressive and iniquitous as well as leads to pauperisation. Latest estimates based on National Accounts Statistics 2 indicate that private expenditures on healthcare in India are about Rs.1650 billion and 99 per cent of this is out-of-pocket. Public expenditures on healthcare are about Rs.310 billion additionally (Table I). Together this adds up to 6.5 per cent of gross domestic product (GDP) with out-ofpocket expenses accounting for 83 per cent of the share in total health expenditures or 5.5 per cent of GDP. This is a substantial burden, especially for the poorer households, the bottom three quintiles, which are either below poverty line or at the threshold of subsistence, and when illness strikes, such households just collapse. In fact, for the poorer quintiles the ratio of their income financing health expenditures is 2 to 4 times more than Table I. Financing healthcare in India ( ) Source Estimated users Expenditure (in millions) (Rs. billions) Public Sector * (16) Social Insurance (1.5) Private Sector (84) Private insurance (0.6) ** Out-of-Pocket (83.4) Total (100) *includes local government health spending estimated at Rs.30 billion and social insurance; Figures in parentheses are percentages Estimates derived by author based on - NSS-1996 (1998): Report No. 441, 52 nd Round, NSSO, New Delhi, GOI - Ref. 3 Compiled from - Ref. 4-7 Estimates derived by author based - Ref. 8 ** Private health insurance data estimates obtained through personal communication with Insurance Companies * The jajmani system was a set of economic inter-relations across caste groups in the local community which had social sanction and linked to it mandatory social obligations. While at one level it facilitated economic organization of the local community and assured livelihoods within both productive and service sectors, at another level it also restricted occupational mobility because occupational assignment under such a system was caste based, especially for service occupational categories. Hence the jajmani system also kept intact the economic basis of the caste system. Today it is largely destroyed but may be found in pockets in most States, especially the Hindi heartland.

3 DUGGAL: PUBLIC FINANCING IN POVERTY & HEALTH 311 the average mentioned above. Further, while this burden is largely self-financed by households, a very large proportion of this does not come from current incomes. A very large proportion, especially for hospitalizations comes from debt and sale of assets. Data from the 52 nd Round National Sample Survey (NSS) of (Table II) reveal that over 40 per cent households borrow or sell assets to finance hospitalization expenditures, and this had increased to 52 per cent in the 60 th Round in , and there are very clear class gradients to this nearly half the bottom two quintiles get into debt and/or sell assets in contrast to one-third of the top quintile; in fact, in the top quintile this difference is supported by employer reimbursements and insurance. When we combined these data with the ratio of not seeking care when ill in case of acute ailments by the bottom three quintiles in contrast to the top quintile, there was a difference of 2.5 times, and the reason for not seeking such care being mostly the cost factor, it becomes amply evident that self-financing has drastic limits and in itself is the prime cause of most ill health as well as pauperisation, especially amongst the large majority for whom out-of-pocket mode of financing strains their basic survival. In sharp contrast in countries where near universal access to healthcare is available with relative equity, the major mechanism of financing is usually a singlepayer system like tax revenues, social or national insurance or some such combination administered by an autonomous health authority which is mandated by law and provided through a public-private mix organized under a regulated system. Canada, Sweden, United Kingdom, Germany, Costa Rica, South Korea, Australia, Japan are a few examples. Experiences from these countries indicate that the key factor in establishing equity in access to healthcare and health outcomes is the proportion of public finance in total health expenditures. Most of these countries have public expenditures averaging 80 per cent of total health expenditures 10. The greater the proportion of public finances the better the access and health outcomes and lower the levels of poverty. Thus India, where public finance accounts for only 16 per cent of total health expenditures, has poor equity in access to healthcare and health outcomes in comparison to China, Malaysia, South Korea, Sri Lanka where public finance accounts for 30 to 60 per cent of total health expenditures 11. In India, public health expenditures had peaked around mid s and thereafter there was a declining trend, especially post-structural adjustment period. The decade of eighties was a critical period in India s health development because during this period not only the public health infrastructure, especially rural, expanded substantially but also major improvements in health outcomes were recorded. After that public investment in health declined sharply and public expenditures showed a declining trend both as a proportion to GDP as well as in total government spending. This has also impacted health outcomes, which are showing a slower improvement if not stagnation. At the same time private Table II. Key data pertaining to out-of-pocket expenditures, source of finance and reasons for not seeking care across expenditure quintiles and social groups I Poorest II III IV V Richest SC/ST Other All Outpatient Rural Rs. per episode Urban Rs. per episode Inpatient Rural Rs. per Hosp Urban Rs. per Hosp Rural+ Urban Debt and sale of assets (%) Did not seek care (%) Cost as factor in not seeking care (%) Source: Compiled from NSS 52 nd Round data files (Ref. 3)

4 312 INDIAN J MED RES, OCTOBER 2007 Table III. Health outcomes across rural and urban areas in India Total Rural Urban IMR per 1000 live births Mortality rate (0-4 yr)* IMR, Infant mortality rate * Mortality rate is per 1000 population Source: RGI Bulletins, various years, Registrar General of India, Govt. of India, New Delhi health sector expansion got accelerated and utilization data from the two NSS Rounds 42 nd and 52 nd 3,12, a decade apart, provided ample evidence of this change. The 60 th Round of 2004 showed further expansion in the share of the private sector, especially for hospitalizations. Thus, if India has to improve healthcare outcomes and equity in access then increasing public health expenditures will be critical. Apart from this, the healthcare system will need to be organized and regulated in the framework of universal access, similar to countries like Canada or Costa Rica. Of course, India has its own peculiarities and the system to be designed will have to keep this in mind. We cannot transplant the Canadian or Costa Rican system into India as it is, but we can definitely learn from their experience and adapt useful elements. The achievements of the public health sector in improving health outcomes during the eighties received a set back with the economic crises of 1991 and the subsequent economic reforms which followed under the Structural Adjustment Programme (SAP) strategy commandeered by World Bank. During the 5 th to 7 th Plan periods public health services and public health investment were relatively robust and this got reflected in faster improvements in health outcomes, to begin with in developed States and to be followed by the underdeveloped. This approach received a set back at the turn of the nineties when resource commitments in the public health sector declined, and especially so in the developed States 13. This is reflected at one level in slowing down of improvements in health outcomes and the widening rural-urban gap of these outcomes (Table III and Fig.). And at another level, the public health care facilities are getting incapacitated because the necessary inputs that are needed to run these facilities are not being adequately provided for 14. The 2002 National Health Policy 15 unashamedly acknowledges that the public Fig. Infant mortality rates (IMR) trends in India and low-income countries ( ). Source: RGI, SRS Bulletins, various years, Registrar General of India, Govt. of India, New Delhi; and UNDP Human Development Reports, various years, UNDP, New York. health care system is grossly short of defined requirements, functioning is far from satisfactory, that morbidity and mortality due to easily curable diseases continues to be unacceptably high, and resource allocations generally insufficient: It would detract from the quality of the exercise if, while framing a new policy, it is not acknowledged that the existing public health infrastructure is far from satisfactory. For the out-door medical facilities in existence, funding is generally insufficient; the presence of medical and para-medical personnel is often much less than required by the prescribed norms; the availability of consumables is frequently negligible; the equipment in many public hospitals is often obsolescent and unusable; and the buildings are in a dilapidated state. In the in-door treatment facilities, again, the equipment is often obsolescent; the availability of essential drugs is minimal; the capacity of the facilities is grossly inadequate, which leads to over-crowding, and consequentially to a steep deterioration in the quality of the services 15.

5 DUGGAL: PUBLIC FINANCING IN POVERTY & HEALTH 313 Table IV. Public health financing trends in India ( ) in (Rupees crores) and selected ratios Rs. in crores % of GDP % of govt. expenditure per capita (Rs.) capital as ratio to revenue expend GDP - Gross domestic product Source: For health expenditure - Ministry of Finance, Finance Accounts, various years and various states (compilation from the database maintained at CEHAT, Mumbai); and for GDP - CSO, National Accounts Statistics, Central Statistics Organization, various years, Govt. of India, New Delhi This is largely caused by compression of public spending in the health sector and secondly due to allocative inefficiencies caused by unprecedented increases in salaries as a consequence of the 5 th Pay Commission implementation (around ). Nonsalary components have shrunk considerably as budget increases do not factor for allocative efficiencies for effective running of the public health system. This coupled with privatization policies, including introduction and/or increase in user charges, have taken the public health system to the brink of collapse. With greater dependence on the market for healthcare, access becomes more difficult. Table IV shows trends in public health spending over a long term and it is very evident that in the eighties public health investment was expanding and had reached its peak as a proportion of GDP but the SAP related reforms reversed this trend and public health investment declined right through the nineties and into the new millennium as a per cent of GDP as well as a proportion of total government expenditure. What is worse is that capital health expenditure as a ratio to revenue health expenditure has virtually halved since the eighties indicating that new public health investment is not on the agenda. One can only hope that the National Rural Health Mission will reverse this trend and bring in greater public investment in healthcare. Further supportive evidence for this is clearly brought out in the changes one sees across the 42 nd, 52 nd and 60 th Round NSS surveys 3,9,12, when over these two decades utilization of private health services, especially in the hospital sector, increases substantially, out-of pocket spending gallops, indebtedness due to health care affects more than half the users and the proportion of non-utilization due to cost considerations also increases. This trajectory of healthcare utilization and spending is also a good proxy for indicating growing poverty 15. Table V. Health outcomes in relation to health expenditures Total Public Under - 5 Life health health mortality expectancy expenditure expenditure Male Female as % of GDP as % of total India China Sri Lanka Malaysia South Korea Source: Ref. 16 In fact, when one relates health outcomes with expenditures it is seen that in comparison to similarly developed countries India s performance is the worst despite India having one of the highest total health expenditures amongst these countries (Table V) 16. This is largely due to the fact that in India the spending is mostly out-of-pocket because public resources committed are very low. In a scenario of poverty such a mechanism of financing will never show up good health outcomes because out-of-pocket health expenditures for the poor as well as the not so poor means foregoing other basic needs or worse still getting into indebtedness. National surveys 17 show loans for healthcare to be the number one reason for families, especially the poor, getting into indebtedness (in the category of consumption loans). Thus organic linkages of health with poverty come out sharp and clear. Another dimension of the reform process is that of disinvestments by the State in economic activities. This is supposed to release resources for a larger role of the State in social sectors -the human face in the reforms/ adjustment process. While divestment of public sector undertakings has been taking place, there is no evidence of increased support to the social sectors like health and education. This is mostly due to the simultaneous shrinking of State revenues because of cuts in tax rates,

6 314 INDIAN J MED RES, OCTOBER 2007 excise duties, etc. which reduces the State s share in the national income, that is declining tax : GDP ratios (from a peak of over 16% of GDP in mid-eighties down to 13% presently) 18. This trend is in itself a threat to public spending because not only the promised additional resources are not available for the social sectors but also some support which was available through public sector enterprises is now getting diminished and is already getting reflected in increased unemployment ratios which are up from around 2 per cent in the eighties to over 7 per cent presently 18 and this only adds to the poverty pool. The social sectors, which are of primary importance for human resource development, are critically dependent on public financing. The latter becomes even more important in the context of poverty because such support creates equity even with high levels of income poverty. Three-fourths of people live below or at subsistence levels. This means per cent of their incomes goes to food and related consumption (necessities of survival). In such a context social security support for health, education, housing, etc. becomes critical. Ironically, India has one of the largest private health sectors in the world with over 80 per cent of ambulatory care being supported through out-of-pocket expenses. Further, overall the public health services are very inadequate. The public curative and hospital services are mostly in the cities where less than 30 per cent of the population resides. Rural areas have mostly preventive and promotive services like family planning, antenatal care, immunization and communicable diseases control. The private sector has virtual monopoly of ambulatory curative services in both rural and urban areas and over half of the hospital care. Further, a very large proportion of private providers are not qualified to provide modern health care because they are either trained in other systems of medicine (traditional Indian systems like Ayurveda, Unani and Siddha, and Homoeopathy) or worse do not have any training, and these are the providers who the poor are most likely to seek health care from. In the underdeveloped States, the proportion of unqualified or inadequately trained practitioners is much higher. This adds to the risk faced by the already impoverished population. The health care market is based on a supplyinduced demand and keeps growing geometrically, especially in the context of new technologies. The cost of seeking such care is also increasing. This means that the already difficult scenario of access to health care is getting worse, and not only the poor but also the middle classes get severely affected 1. Thus India has a large, unregulated, poor quality, expensive and dominant private health sector, and an inadequately resourced, selectively focused and declining public health sector, with the former having curative monopoly and the latter carrying the burden of preventive services. Poverty and health As we have seen above the pattern of development of the health sector is closely linked to the political economy and the level of economic development. While economic development, as seen in developed or middle income countries, can create conditions for better access to healthcare as well as a better average standard of living and hence improved health outcomes, a political economy based on largely private health financing like in India or other developing countries, can create large adversities for health not only for the poorer sections of the society but also the middle classes. Thus the role of public financing is critical in both developed and underdeveloped economies. In most developed countries where healthcare access is near universal, public financing of healthcare, whether through state revenues and/or social insurance, has been the critical component in realizing universal access with equity 19,20. Across the States in India one can see these correlations apparent in operation. At one level, States which have invested adequately in public health and have maintained high levels of spending in public health care like Kerala and most NE States, have achieved significantly better health outcomes, and at another level those in the organized sector who are covered by some form of social security have better health and do not have to spend a significant amount out-of-pocket for healthcare. Poverty and health also have similar linkages. Health outcomes are a function of poverty but more importantly poverty levels are closely associated with public health investment, and hence again public financing of healthcare becomes critical even for poverty. The latest poverty estimate by the Planning Commission based on the 61 st NSS Round 21 puts the proportion of persons below poverty line at 27.5 per cent, that is over 315 million people which in itself is an astounding number. However, this estimate is based on a ridiculous level of monthly per capita consumption of Rs for rural areas and Rs for urban areas. This is nowhere close to the globally accepted figure under Millennium Development Goals of $1 per

7 DUGGAL: PUBLIC FINANCING IN POVERTY & HEALTH 315 Table VI. Poverty and health linkages across the States in India State Poverty Poverty IMR IMR Per capita Public health OOPs ratio rural ratio urban rural urban public health expenditure per capita expenditure as % of SDP Andhra Pradesh Arunanchal Pradesh Assam Bihar Chattisgarh Delhi Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Orissa Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttarakhand Uttar Pradesh West Bengal All India The highlighted figures for NE States are based on Assam as reference point this is highly problematic because rural poverty in most NE States other than Assam is very low given the subsistence nature of the economy. Sources: Ref IMR, infant mortality rate; SDP, State domestic product; OOPs, out-of-pocket spending Correlation matrix for Table VI (generated in Microsoft Excel) Poverty Poverty IMR IMR Per capita Public OOPs ratio rural ratio urban rural urban public health health per expenditure expenditure capita as % of SDP Poverty ratio Rural 1 Poverty Ratio urban IMR Rural IMR Urban Per capita Public Health Expenditure Public Health Expenditure as % of SDP OOPs per capita

8 316 INDIAN J MED RES, OCTOBER 2007 day for absolute poverty which translates into Rs monthly per capita expenditure. With this figure for defining poverty level, 2/3 rd to 3/4 th of the population would be in absolute poverty. And then there is the $2 per day estimate of transcending poverty which translates to a whopping 93 per cent of India s gross domestic product. Let us now look at the evidence for the povertyhealth-public health expenditure linkages. Table VI and its correlation matrix gives a very clear picture of this association across all the States. We have taken the poverty estimates of the Planning Commission to represent poverty, infant mortality rate (IMR) as representing health outcomes and expenditures on healthcare, both public and out-of-pocket, as representing health investment. As expected poverty levels and health outcomes are positively correlated, that is, higher the level of poverty higher is the IMR of the State in both rural and urban areas, and much more strongly in the latter. And both poverty level and IMR are negatively correlated with public health expenditure and out-of-pocket health expenditure, that is, higher the health expenditure, especially public health expenditure, the lower is the IMR and lower the poverty levels. The negative association with public health expenditure is very strong and this clearly supports our hypothesis of the criticality of public financing for health and poverty outcomes. Out-of- pocket expenditure on healthcare is a function of purchasing power and given the high levels of poverty, the relatively weaker negative correlation is understandable. But the fact remains that because of low levels of public health investment people are forced to spend out-of-pocket and a lot of that is by getting into debt, which ultimately contributes to poverty and poorer health outcomes. Conclusions Poverty, health and public investment/expenditure in healthcare emerge as being very closely correlated and this gives strong credence to our hypothesis of criticality of public financing of healthcare. Almost all developed countries which have strong public investments in health do not show any significant levels of poverty. USA is the classic exception which finances healthcare mostly via private health insurance and hence 15 per cent of the US citizens lack access to healthcare and this coincides with the population which is poor in the USA. In developing countries the experience has been similar. Those which have set up universal access healthcare systems with largely single-payer mechanisms like Costa Rica, Sri Lanka, Malaysia, Thailand, Iran, etc. have come out of the vicious poverty cycle. India has been unable to establish an organized universal access healthcare system and hence continues to suffer large scale poverty. Within India, Kerala and NE States (excluding Assam) are examples of low poverty States with high public health investments and expenditures. It is time we give public health financing its due place within the health sector in India. The need for enhancing publicly financed healthcare from the current 1 per cent of GDP to 3 per cent of GDP as in the UPA manifesto, could not just result in better healthcare and health outcomes but also has a spin off in reducing poverty drastically as global experience and the limited experience within India tells us. References 1. National Sample Survey Organization (NSSO). NSS60 th Round, NSSO, New Delhi : NSSO, Govt. of India; Available from: mospi.nic.in/nspb_m.htm. 2. CSO 2006, New Delhi : National Accounts Statistics, CSO, Govt. of India; Available from: mospi.nic.in/ national_accounts_divison_index.htm. 3. NSS 1996, Report No. 441, 52 nd Round, New Delhi: NSSO, Govt. of India; Finance and revenue accounts, New Delhi: Ministry of Finance, Govt. of India; Finances of state governments, Mumbai: Reserve Bank of India, Govt. of India; Labour year book, Shimla: Labour Bureau, Govt. of India; Health information India, New Delhi: Ministry of Health and Family Welfare, Govt. of India; CSO 2004, New Delhi: National Accounts Statistics, CSO, Govt. of India; NSS 2004, Report No. 507, 60 th Round, New Delhi: NSSO, Govt. of India; Available from: 0,2340,en_2649_201185_ _1_1_1_1,00.htm, accessed on August 2, World Health Organization (WHO). World Health Report- 2004, Geneva: WHO; NSS , Morbidity and utilisation of medical services, 42 nd Round, Report No. 384, New Delhi: National Sample Survey Organization, Govt. of India; Duggal R. Public health expenditures, investment and financing under the shadow of a growing private health sector. In: Gangoli V, Duggal R, Shukla A, editors, Review of healthcare in India, Mumbai: Centre for Enquiry into Health and Allied Themes, (CEHAT); Reproductive and child health facility survey, New Delhi: Ministry of Health & Family Welfare, Govt. of India; National Health Policy (2002), para 2.4.1, New Delhi: Ministry of Health & Family Welfare, Govt. of India; Changing the Indian health system. Draft Report, New Delhi; 2001.

9 DUGGAL: PUBLIC FINANCING IN POVERTY & HEALTH Labour Bureau, Rural Labour Enquiry: Indebtedness among rural labour households Shimla: Labour Bureau, Govt. of India; Economic survey New Delhi, Govt. of India; Roemer MI. National strategies for health care organization: A world overview, Ann Arbor, Michigan; Health Administration Press; Health care systems in transition-the search for efficiency. Paris: Organization for Economic Co-operation and Development; Poverty Planning Commission Poverty Estimates , PIB, Govt. of India, March 2007 (press release) based on 61 st NSS round. 22. Per capita public health expenditure - RBI Finances of State Governments; Public health expenditure as % SDP calculated from CSO SDP estimates as quoted in Kerala Budget in Brief and source Infant mortality rate, IMR Sample Registration System Bull; Oct OOPs (out of pocket spending) calculated from NSS 60 th Round. Reprint requests: Dr Ravi Duggal, Consultant, Research, Training & Advocacy, 501 B Chaitanya Apartments, Clarke Town Kadabi Chowk, Nagpur , India rduggal57@gmail.com