7 PM| Health Financing in India | 24 January, 2019

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What is health financing?

Health Financing refers to the mobilization, accumulation and allocation of money to cover the health needs of the people in an equitable and efficient way.

Sources and status of health finances in India:

  1. Public Expenditure: The public health expenditure in India (total of centre and state governments) is 1.4% as of 2017-18- considerably lower than the world average of 6%.

Note: National Health Policy, 2017 commits government health expenditure to reach 2.5 per cent of the GDP by 2024-25.

  1. Out-of-pocket (OOP) payments for healthcare/ User Fees:
  • According to the WHO’s health financing profile for 2017, 67.78% of total expenditure on health in India was out of pocket as compared to the world average of 18.2%.

  • The highest percentage of out of pocket health expenditure (52%) is made towards medicines.

  1. Contribution to Social and Voluntary insurance:According to the National Health Profile (2018), around 34% of the population were cover under any health insurance in 2016
  2. External Sources: External aid comes through bilateral aid programme or international non-governmental organizations. For example:The Global Fund, Vaccine Alliance, and President’s Emergency Plan for AIDS Relief (PEPFAR).

Issues and Challenges

  1. Low public spending:
  • The tax based funding of healthcarein India has been below expectations and challenging as the government has limited ability to generate sufficient tax revenues due to presence of large informal sector.
  • However, despite a steady increase in economic growth and the increase in the per person income and tax collections, a corresponding increase has not occurred in India’s total spending on health.
  1. High Out of Pocket Expenditure:
  • A high share of OOP health payments in the absence of other sources of health financing has put the burden inequitably on the Indian population. This has aggravated the problem of health inequity among population.
  1. Poor Efficiency in Health spending:
  • Public funds often remain unused or used inefficiently by states owing to lack of political commitment and deficiency of public health and managerial expertise.
  1. Regional disparity in financing:
  • There is high variability among states in health financing and outputs as many governments do not give high priority to health. For example: Haryana, which is among high-income states (with per-capita income of Rs 1,77,723), spent only Rs 925 per person on health in 2015-16. On contrary, Rajasthan—a state with substantially lower income (Rs 94,311 per-capita) spent higher (Rs 1,070 per person) on health in 2015-16.
  1. Issues with voluntary and social insurances:

Voluntary Insurance:

  • In a voluntary insurance market, there is an adverse selection problem where people who buy insurance on average are sicker than the average population. This makes the pool of insured more risky and thereby makes pricing of insurance difficult.

Social Insurance:

  • Though the government announced Ayushman Bharat – National Health Protection Mission (AB-NHPM) which seeks to move India closer to the Sustainable Development Goal of ‘Universal Health Coverage’, its implementation remains a major concern given the paucity of public spending on health.
  • Another major concern is that the extreme poor households do not use their health insurance coverage given their low financial literacy and awareness.
  1. Issues with donor assisted heath funding:
  • External aid generally insufficient and volatile in nature.
  • Another major drawback is that these target specific diseases such as malaria, tuberculosis, and HIV/AIDS rather than targeting the entire health sector

Way Forward

  1. Preventive Measure: with rapid demographic changes, rising incidence of non-communicable diseases and increased morbidity, the foremost intervention is preventive measures to address health issues.
  2. Increased public spending:there is a need for a substantial increase in the allocation for health at both Centre and the state level. Governments could raise additional resources by imposing health cessesand taxes on health-degrading products.

Best practice: Thailand

In 2001, the Thai government established an autonomous Thai Health Promotion Foundation popularly known as the Thai Health. Funding for Thai Health comes from 2% dedicated tax on tobacco products and alcohol beverages, over and above the existing tax structure and the money is used for health promotional activities.

  1. Innovative Health Financing Models:
  • Development Impact Bond:Development Impact Bonds are Results-Based Financing (RBF) where private investors earn a return if the developmental targets are achieved. Such a system of financing has been used in Rajasthan -Utkrisht Bond- world’s first health impact bond.
    • Launched by United States Agency for International Development (USAID), the bond aims to reduce the number of mother and infant deaths by improving the quality of maternal care in Rajasthan.
  • Medical savings accounts (MSAs): Itis an account into which tax-deferred amounts from income can be deposited and the deposited money is to be used for medical expenses. Countries like Singapore and China have adopted MSAs for health financing.
  • Compulsory Health Insurance: A compulsory health insurance is one of the best solutions for financing health.

Best Practice: community Based Health Insurance in Rwanda:

Introduced in 1999, the scheme makes it compulsory for every person uninsured by any other health insurance to join a CBHI

  1. Developing Health infrastructure and maintaining quality standards: increased spending on health alone is insufficient to improve the health status of Indian people. Simultaneous steps are needed to improve health infrastructure especially PHCs, maintain quality by monitoring performance, efficiency, and accountability in the public and private sectors.
  2. Price Regulation:Policy and legislative changes are need of the hour to address the rising costs of medical care. The government would need to fill gaps and deficiencies in drug policies and guidelines for health-care interventions.
  3. Public private Partnership: A PPP model can be adopted for meeting growing health financing needs in India. Further, enhancing corporate social responsibility can make contributions for financing public health needs.


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