Healthcare in India: Changing The Financing Strategy: Ravi Duggal
Healthcare in India: Changing The Financing Strategy: Ravi Duggal
Healthcare in India: Changing The Financing Strategy: Ravi Duggal
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SHORT Articles
POLICY
Blackwell
Policy
UK
TITLE & ADMINISTRATION
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Publishing
&RUNNING
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LtdLtd. 2007SOCIAL Vol.
HEAD: POLICY
41, No.
& ADMINISTRATION
4, AUGUST 2007 Vol. 41, No. 4, AUGUST 2007
Ravi Duggal
Abstract
The way in which healthcare is financed is critical for equity in access to healthcare. At present
the proportion of public resources committed to healthcare in India is one of the lowest in the
world, with less than one-fifth of health expenditure being publicly financed. India has large-scale
poverty and yet the main source of financing healthcare is out-of-pocket expenditure. This is a
cause of the huge inequities we see in access to healthcare. The article argues for strengthening
public investment and expenditure in the health sector and suggests possible options for doing this.
It also calls for a reform of the existing healthcare system by restructuring it to create a universal
access mechanism which also factors in the private health sector. The article concludes that it is
important to over-emphasize the fact that health is a public or social good and so cannot be left
to the vagaries of the market.
Keywords
India; Health equity; Health financing; Universal access
Introduction
Access to healthcare is critically dependent on how healthcare provision is
financed.1 Countries that have universal or near universal access to health-
care have health-financing mechanisms in which either a single autonomous
public agency or a few coordinated agencies pool resources to finance
healthcare. All OECD countries, excluding the USA, have such a financing
mechanism. In these countries, per cent of financing comes from public
resources like taxes, social insurance or national insurance, which ensure
healthcare reaches over per cent of the population. The health financing
system in USA has resulted in poor access to healthcare compared to other
OECD countries such as Canada. Outside the OECD group a number of
developing countries in Latin America, Asia and Africa, such as Costa Rica,
Cuba, Argentina, Brazil, South Africa, Kenya, South Korea, Iraq, Iran, Thai-
land and Sri Lanka, have also evolved some form of single-payer mechanism
Address for correspondence: Ravi Duggal, -B Chaitanya Apartments, Clarke Town, Kadabi
Chowk, Nagpur , India. Email: [email protected]
The Author(s)
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Main Street, Malden, MA , USA
S P & A, V. , N. , A
Table
Note: These estimates include local government health spending. The figures in parentheses
are percentages.
1
Estimates derived by author based on NSSO ().
2
Estimates derived by author based on Central Statistical Organisation ().
3
Compiled from Ministry of Finance (), Reserve Bank of India (), Labour Bureau
() and MoHFW ().
4
Private health insurance data estimates obtained through personal communication with
insurance companies.
per cent of GDP. It has further been reported that even this small public
expenditure is skewed towards the richer groups, particularly those living in
urban areas (NCAER ).
This political economy of expenditure differentials also reveals that the
largest source of financing healthcare in India is out-of-pocket or self-financing
expenditure. Out-of-pocket spending on healthcare as a mode of financing
is both regressive and iniquitous, especially for poorer households, i.e. the
bottom three quintiles that are either below poverty line or at the threshold
of subsistence. When illness strikes, such households just collapse. As the
National Sample Survey (/) shows, the estimated loss of household
income per hospitalization episode in rural areas was . per cent of mean per
capita expenditure for the poorest quintile (NCAER : ). Furthermore,
while this burden is being largely self-financed by households, a very large
proportion of this does not come from current incomes. For hospitalizations
especially, it comes from debt and the sale of assets.
Data from the nd Round National Sample Survey of / (table )
reveal that over per cent of households borrow or sell assets to finance
hospitalization expenditure, 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
reinforced by employer reimbursements and insurance. When we combine these
data with evidence on the proportion not seeking care when ill (in case of acute
ailments) in the bottom three quintiles by contrast with the top quintile a
difference of . times, with the reason for not seeking such care being mostly
the cost factor it becomes amply evident that out-of-pocket financing has
drastic limits and is itself the prime cause of most ill health, especially amongst
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Journal compilation Blackwell Publishing Ltd
S P & A, V. , N. , A
Table
Key data for out-of-pocket expenditures, source of finance and for not seeking care
across expenditure quintiles and social groups, NSS nd Round, /
Outpatient
Rural
Rs per episode
Urban
Rs per episode
In-patient
Rural
Rs per hospital
Urban
Rs per hospital
Debt and sale of
assets (per cent)
Did not seek care
(per cent)
Cost as factor in not
seeking care (per cent)
the large majority for whom this mode of financing health threatens their very
chances of survival.
In sharp contrast, in those countries where near universal access to health-
care is available with relative equity, the main financing mechanism is usually
a single-payer system such as tax revenues, social or national insurance or
some such combination, administered by an autonomous health authority
that is mandated by law and provided through a publicprivate mix organized
under a regulated system. Canada, Sweden, the UK, Germany, Costa Rica,
South Korea, Australia and Japan are a few examples of this. Experience from
these countries suggests that the key factor in establishing equity in access to
healthcare and good health outcomes is the proportion of public finance in
total health expenditure. In most of these countries public expenditure averages
per cent of total health expenditures (OECD ). By contrast, India,
where public finance accounts for only per cent of total healthcare expendi-
ture, has a poor equity record in access to healthcare and health outcomes
by comparison even with China, Malaysia, South Korea and Sri Lanka, where
public finance accounts for between per cent and per cent of total
healthcare expenditure (WHO ).
Thus, if India is to improve healthcare outcomes and equity in access,
increasing the role of public health expenditure will be critical. Apart from
this, the healthcare system will need to be organized and regulated within a
framework geared to universal access. As India has its own peculiarities, any
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Table
/ . . . . .
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system will have to be designed with this in mind. We cannot transplant, say,
the Canadian or Costa Rican system into India intact, but we can learn from
others experience and adapt useful elements from systems in operation elsewhere.
were made simply on a per capita basis (as is done in Canada, for
instance), then rural and urban areas would both get Rs per capita.
This would be a major gain for rural healthcare of over twice more
money, which could help fill the gaps, in both human and material terms,
in rural healthcare systems. The urban areas have municipal resources in
addition, though they have to generate more resources to maintain their
existing healthcare systems that, at least in terms of numbers (such as
hospital bed : population and doctor : population ratios) have been adequately
provided for. Such global budgeting could also mean autonomy over how
resources are used at the local level. Doing away with the current highly
centralized system of planning and programming in the public health
sector would result in greater faith being placed in local capacities.
. The public exchequer even today contributes substantially to medical
education, to the extent that nearly per cent of medical graduates are
from public medical schools. This major resource is not fully being utilized.
Since medical education is virtually free in public medical schools, the
state should demand compulsory public service for at least three years from
graduates from them as a return for the social investment3 (today only
about per cent of such medical graduates are actually absorbed into the
public health system). Furthermore, a spell of public service should also be
made mandatory for those wishing to undertake post-graduate studies, which
currently attract as many as per cent of public medical school graduates.
. Governments could raise additional resources by imposing health cesses
(levies) and taxes on health-degrading products, if they cannot be banned,
such as cigarettes, beedis (small Indian cigarettes), alcohol, paan masalas (betel
nut mixture) and guthka (tobacco), personal vehicles and so on. For
instance tobacco, which kills , people in India each year, is a Rs
billion4 industry. A per cent health cess on tobacco could generate
Rs billion annually for the public health budget. Similarly alcohol,
which presently generates Rs billion in sales turnover per year, could
also bring in substantial resources if a per cent health cess was levied.
The same logic could also be applied to personal transportation vehicles,
both at point of purchase as well as each year, through a health cess on
road tax and insurance to be paid by owners. Land revenues and property
taxes could also attract a health cess (i.e. a tax earmarked for public
health, just as municipal taxes already have an education cess component).
. Social insurance could be strengthened by making a contributory system
similar to the Employee State Insurance Scheme (ESIS) compulsory across
the entire organized labour market sector and integrating ESIS, the cen-
tral government health scheme and other such social insurance schemes
with the general public health system. In addition, social insurance will
need gradually to be extended to other sectors of employment, using
models drawn from experiments elsewhere in collective financing (as with
the sugarcane farmers of south Maharashtra, for instance, who pay Re
per tonne of cane as a health cess, for their entire families to be assured
of healthcare through the sugar cooperative). There are many non-
governmental organization experiments in using micro-credit as a tool for
health financing for members and their families. Large collectives, whether
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The above are just a few examples of what can be done within the existing
system, by making small innovations. But this does not mean that radical or
structural changes should not also be considered. Ultimately, if we wish to
ensure universal access with equity, we need to think in terms of restructur-
ing and reorganizing the healthcare system, using a rights-based approach.
This would require a multi-pronged strategy: building awareness and con-
sensus in civil society; advocating rights to healthcare at the political level;
demanding legislative and constitutional changes and, finally, reorganizing
the entire healthcare system, especially the private health sector.
In short, we have to stem the growing out-of-pocket financing of the
healthcare system and replace this with a combination of public finance and
various collective financing options such as social insurance and other forms
of collective fund-raising. The healthcare system needs to be organized into
a regulated system that is ethical and accountable, that is governed by a
statutory mandate and that pools together the various collective resources
and manages autonomously the workings of the system in the interests of
providing comprehensive healthcare to all with equity.
Conclusion
At present, one sees a greater political will to address public health needs via
the National Rural Health Mission (NRHM), a flagship programme of the
United Progressive Alliance ruling government which, in its manifesto declared
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that the public healthcare should receive up to per cent of the GDP to
realize the goal of health for all. This affords a good opportunity to innovate
and experiment with a restructured healthcare system, but such restructuring
will be possible only if certain conditions are met:
Notes
. This is a revised version of a paper presented at a National Symposium of the
Council for Social Development, New Delhi, October .
. These estimates are calculated by the author based on an assessment that the
rural healthcare system effectively gets one-third of budgetary resources.
. To train one MBBS doctor governments spend between Rs. . and million and
thus have every right to expect a minimal amount of public service in return.
. The exchange rate of the Indian Rupee is US$ = Rs .
. The Tobin tax is a currency transaction tax, first proposed by economist James
Tobin in to help weak economies both by limiting currency speculation and
by raising substantial sums for development.
References
Central Statistical Organisation (), National Accounts Statistics, Central Statistical
Organisation, New Delhi: Government of India.
Labour Bureau (), Labour Year Book, Simla: Government of India.
Ministry of Finance (), Finance and Revenue Accounts, New Delhi: Government of
India.
MoHFW (), Health Information India, Ministry of Health and Family Welfare, New
Delhi: Government of India.
MoHFW (), National Health Policy, Ministry of Health and Family Welfare, New
Delhi: Government of India.
MoHFW (), National Rural Health Mission Mission Document, New Delhi:
Government of India.
MoHFW (), National Rural Health Mission Framework, New Delhi:
Government of India.
NCAER (), Who Benefits from Public Health Spending in India. New Delhi: NCAER.
NSSO (), Report No. , nd Round /, National Sample Survey Organ-
isation: New Delhi Government of India.
OECD (), OECD Health data. Available online at http://www.oecd.org/document/
/,,en_______,.html [accessed August ].
Reserve Bank of India (), Finances of State Governments, Mumbai: Reserve Bank of
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WHO (), World Health Report, Geneva: WHO.
The Author(s)
Journal compilation Blackwell Publishing Ltd