National Institute of Management & Technology - NIRF in Law, Management & Overall Category -
Apply Now →
This article is written by
Dr AK Shiva Kumar, PhD
Lincoln C Chen, MD
Mita Choudhury, PhD
Shiban Ganju, MD
Vijay Mahajan, MBA
Amarjeet Sinha
Prof Abhijit Sen, PhD
This post is for awareness purpose only. Copyright license obtained by NIMT vide License Number 4807811164001
India's health financing system is a cause of and an exacerbating factor in the challenges of health inequity, inadequate availability and reach, unequal access, and poor-quality and costly health-care services. Low per person spending on health and insufficient public expenditure result in one of the highest proportions of private out-of-pocket expenses in the world. Citizens receive low value for money in the public and the private sectors. Financial protection against medical expenditures is far from universal with only 10% of the population having medical insurance. The Government of India has made a commitment to increase public spending on health from less than 1% to 3% of the gross domestic product during the next few years. Increased public funding combined with flexibility of financial transfers from centre to state can greatly improve the performance of state-operated public systems. Enhanced public spending can be used to introduce universal medical insurance that can help to substantially reduce the burden of private out-of-pocket expenditures on health. Increased public spending can also contribute to quality assurance in the public and private sectors through effective regulation and oversight. In addition to an increase in public expenditures on health, the Government of India will, however, need to introduce specific methods to contain costs, improve the efficiency of spending, increase accountability, and monitor the effect of expenditures on health.
Well known weaknesses in India's health financing system are the cause of insufficient provision and reach of good-quality health services and inadequate financial protection against ill health for the Indian people. Public spending on health–0·94% of the gross domestic product (GDP) in 2004–05–is among the lowest in the world and the reason for private expenditures accounting for 78% of total health spending in the country, resulting in serious inequities in health. The Indian public receives low value for money in terms of the quantity and quality of health-care services in the public and private sectors. Health services in the public sector that can be accessed free or for a nominal fee are grossly inadequate. As a result, most Indians access private health care that is expensive, unaffordable, unreliable, and impoverishing. Good-quality health care in the private sector is also not available, particularly in rural and other remote parts of India. Most private practitioners are not qualified and work in substandard facilities. The Government of India has made a commitment to increase public spending on health to 3% of GDP during the next few years. A major policy challenge will be to find out how best to invest augmented public funding.
Address major shortcomings
Policy responses needed
At first glance, India seems to spend an adequate amount on health care. In 2005, India's total health expenditure as a proportion of the GDP was less than the global average of about 6% but higher than that for the neighbouring countries such as Thailand, Sri Lanka, and ChinaThe situation, however, changes greatly when per person health expenditures are assessed. At purchasing power parity International $100 per person, India's health expenditure is only about half that of Sri Lanka's and a third of China's and Thailand's (figure 1).
Insights for potential solutions to the problem of low public expenditure in the states that have a poor performance must begin with the Indian Constitution, which assigns health as a state subject. The state governments are primarily responsible for the funding and delivery of health services. Yet, the amount and type of public financing is jointly determined by both the centre and the state. The state government bears 64% of the total government health expenditure, whereas the centre accounts for the remaining third. Even though the centre's financial contribution is small, the central government's influence can be substantial.
Many state governments do not give high priority to health. Analyses of public expenditures show that in all Indian states, with the exception of Gujarat and Uttar Pradesh—and to a very small extent Bihar—the proportion of government development expenditures allocated to health decreased or stayed the same between 2001–02 and 2007–08
India has set a target of increasing public spending on health from 0·94% in 2004–05 to 3% of the GDP.
First, attention needs to be paid to centre–state financial flows. Under the National Rural Health Mission, the central and state governments are expected to share the additional health expenditures in the ratio of 85:15 during 2007–12. After 2012, the ratio is expected to change to 75:25. This arrangement needs to be assessed on a state-by-state basis. In the past, state governments have used central government funds for the creation of health infrastructure. The finance departments of most states are reluctant to increase the workforce on a recurring basis, even for the provision of improved health care. As a result, many of the facilities are underused, or states do not recruit more members of staff other than what is possible with funds from the central government. The central government might have to specify conditions for reciprocity for the allocation of its resources to state governments. Appropriate incentive systems will be needed to ensure that states are rewarded financially for improved use of public funds and also for recording improved health outcomes. Similarly, a more effective method of equalisation of public health expenditures will be needed to ensure that states with low per person public spending do not have to wait a long time to generate additional resources to achieve a nationally accepted threshold.
Second, for a low-middle-income country like India, with millions of self-employed and underemployed people working in a large informal sector, taxation is the only viable option for mobilisation of resources to achieve the target of public spending on health of 3% GDP. The conditions needed for other methods of financing such as payroll or social security contributions to generate sufficient revenues (large formal sector employment, substantial payroll or social security contribution, and strong tax collections) are not present in India. Taxes are easier to collect than are payroll contributions—a reason why Spain, for example, changed from social security contributions to general taxation. Taxation is also a better financing option, because of the large recurrent expenses, which can only be expected to rise with population aging and the shift towards chronic diseases. The state could specifically consider raising taxes on products that harm public health such as all tobacco products, alcohol, high-calorie foods of little or no nutritional value, and energy-inefficient and polluting vehicles. This increase in taxes will give additional health benefits through reduced consumption of these products. Although user fees can potentially contribute to enhancing accountability of public services and deter unnecessary overuse of the health facilities, they have not proven to be an effective source of resource mobilisation.,Imposition of user fees in many low-income and middle-income countries has increased inequalities in access to health care.Even in India, although some evidence suggests improvement in quality of health facilities with the introduction of user fees, other evidence indicates an increase in inequalities in favour of rich individuals in specific health facilities.
Third, increased spending on health alone is insufficient to improve the health status of Indian people. Simultaneous steps are needed to improve performance, efficiency, and accountability in the public and private sectors. Introduction and reinforcement of health management information systems, third-party assessments of service guarantee and quality, community supervision, public disclosure, social audits, and accreditation of facilities could help to improve effectiveness and accountability. Mechanisms are also needed to help with the flow of public funds, minimise unspent balances, enhance the absorption capacity of the public health system, and ensure improved monitoring and assessment.1 Also important is to build adequate capacity at different tiers of administration, introduce flexibility, and set up mechanisms for the enforcement of quality standards in the delivery of health care.
Fourth, policy and legislative changes will be needed to contain the rising costs of medical care and to ensure quality of care. The government would need to fill gaps and deficiencies in drug policies, registration of health practitioners, and guidelines for health-care interventions including use of pharmaceutical drugs and biotechnologies. The coverage of price regulation of commonly used drugs would need to be strengthened and increased. Standardised protocols and costs of various treatments would have to be developed and monitored, particularly when private providers are called on to provide services to fill gaps in public provisioning. This development ought to be effectively associated with a well designed medical insurance system. The central and state governments would need to introduce more effective ways of ensuring consumer protection and information disclosure about quality, pricing, equity, and efficiency of health services provided in the public and private sectors.
Fifth, risk pooling would need to be greatly increased as a prerequisite for the introduction of any viable system of financial protection. The country's demographics and rising per person income make it feasible to do so. The possibility of average risks increasing as large numbers of low-income households with higher rates of morbidity join an insurance programme are likely to be offset by the large proportion of India's young population. Risk pooling can also be improved by an increase in the duration of the coverage, preferably to lifelong insurance. Intertemporal risk pooling would then take place by any member of an insured group during the lifespan of that person—low incidence of disease at young age is offset by high incidence at old age. Risk pooling for different types of illness will be beneficial. Insurance should cover low-cost and frequent outpatient illnesses, medium-cost and low-occurrence illnesses requiring treatment in hospital, and the expensive but infrequent life-threatening illnesses. Households would then have a high incentive to adopt medical insurance to safeguard against serious illnesses. They would decide to move from complete self-financing to at least part insurance against health contingencies that are less likely but involve increased expenses.
Sixth, universal financial protection is necessary to guarantee health as a right of all citizens. Financial protection should be offered to all citizens, not just those who are poor, against inpatient and outpatient care. Although several lessons remain to be learned from the experiences of other countries, no single solution exists.,
On the basis of evidence, we recommend a single-payer system for India that is known to have several advantages.
In such a system, the government would collect and pool revenues to purchase health-care services for the entire population from the public and private sectors. The state would enlist public and private providers of allopathic and non-allopathic systems of medicine, establish uniform national standards for payment, and regulate quality and cost by use of appropriate information technologies. If well managed, countries with single-payer systems have been able to deal with delays and shortages that are often encountered. They have been better able to manage competition, contain and decrease costs, negotiate reduced prices with private providers, ensure adequate funding for preventive and primary care that reduces costs of curative care, build incentives for physicians to improve quality and performance, and introduce management systems (such as uniform electronic payment) to improve efficiency of service delivery.
Such a medical insurance scheme for health care could be supported by public financing from a combination of tax revenues, private insurance (mandatory for all employers), and income-indexed compulsory personal insurance payments integrated to provide funds for a universal health-care fund. Existing government-sponsored insurance schemes will, however, need to be integrated into the universal medical insurance scheme for health care.
Seventh, effective regulation and oversight are needed to ensure that increased health spending by the government and private households results in improved access to good-quality health care. This outcome will require enforcement of existing norms to contain costs and assure quality, and introduction of new legislation to ensure compliance in the public and private sectors. Methods to ensure compliance with the Indian Public Health Standards specified by the National Rural Health Mission will need to be specified. Appropriate systems of national reporting and record keeping will need to be developed. Registration of private providers with an appropriate authority would be necessary to monitor standards. Such a system of empanelment of private providers would be essential particularly for those who wish to participate in a national public health system and insurance plan.
Last, the value for the money spent on health that an individual gets will depend on the organisation, management, and productivity of health-care services in different states. The extraordinary performance spread within the public and private sectors makes use of additional public expenditures for galvanising a judicious mix of public and private providers for the delivery of health care by India imperative. Additional financial and human resources are needed to ensure better returns on investments already made in the public sector. Increased public investments will be needed to strengthen the provision of primary health care, which is largely the domain of the public sector. Public financing of health care could ensure that affordability does not become a barrier to access of needed health care that draws on the strengths and complementarities of India's public, private, and voluntary sectors.
Whatever happens to medical insurance and private financing of health care, India's national health goals cannot be achieved without greatly expanding public financing in the health sector. In view of the very low level of public financing, greater public investments are thought to be necessary albeit insufficient for India to achieve its national health goals. The amount of public financing and the strategies followed will affect the overall performance of the health systems, including public and private providers and facilities, and will also affect the extent of national medical insurance cover for all people in India.
