Health in India: Where the money comes from and where it goes?

It has long been argued that government spending on health should increase to 2.5 per cent of GDP.

August 28, 2016 03:33 pm | Updated December 04, 2021 11:01 pm IST

National Health Accounts (NHA) monitors the flow of resources in a country’s health system and provides detailed data on health finances. The NHA estimates for India for the financial year 2013-14 were published earlier this week, after a long void of almost a decade. The previous estimates were for the year 2004-05.

In 2013-14, the Total Healthcare Expenditure (THE) of India was Rs. 4.5 lakh crores, which amounts to 4 per cent of the Gross Domestic Product (GDP).

The Draft National Health Policy 2015 recognises this to be a problem. It says: “Global evidence on health spending shows that unless a country spends at least 5-6 per cent of its GDP on health and the major part of it is from government expenditure, basic health care needs are seldom met.”

Of the total amount of Rs. 4.5 lakh crores, Current Health Expenditure (CHE) constituted Rs. 4.2 lakh crores (93 per cent). Rs. 31.9 thousand crore (7 per cent) went to Capital Expenditure.

These estimates help us answer key questions pertaining to healthcare finances. Here are they key findings.

(All visualisations talk about distribution of CHE – Rs. 4.2 lakh crores – under various heads. The size of the circle corresponds to the amount. )

Where do the financial resources come from?

Households continue to be the dominant contributors (73 per cent of CHE) to health finance in India. The bulk of the total money circulating in Indian healthcare – around 69 per cent – comes from Out Of Pocket (OOP) payment by households. OOP is the money which individuals pay out of their own.

“I cannot think of any other country, except Myanmar, where OOP is this huge. This is a huge concern,” said Dr Sakthi Selvaraj, health economist and a member of the expert group that had put together the NHA estimates.

High OOP spending is a result of abysmally low government spending on health, constituting just 1.15 per cent of GDP and 30 per cent of CHE – the lowest among the BRICS nations.

It has long been argued that government spending on health should increase to 2.5 per cent of GDP, a figure also envisaged by the Draft National Health Policy 2015.

But there are challenges. In a conference regarding health data organised by the Observer Research Foundation in July 2016, Bibek Debroy, member of NITI Aayog, said that “There is not much point in saying that government expenditure on health should be increased to 2.5 per cent of GDP, unless you also explain where those extra resources will come from.”

He questioned whether the extra resources for healthcare would come from the removal of tax exemptions, increasing the tax base or by switching expenditure from other development heads to health. “Unless as a country, given the paucity of resources. we have a consensus on what is our priority, a statement [increasing public spending to 2.5 per cent of GDP] like that, to me, is operationally not very meaningful.”

Which healthcare providers get the money?

A third of all money — Rs. 1.5 lakh crores (35.7 per cent) —. was spent in pharmacies. Rs. 88.5 thousand crores (21 per cent) was spent in private hospitals, almost double compared to that of government hospitals which consume 41.7 thousand crores (9.9 per cent).

Around Rs. 28 thousand crores (6.7 per cent) was spent in labs and medical diagnostics.

What goods and services are being consumed?

Outpatient care is when a patient doesn’t stay in the hospital overnight – spends less than 24 hours. When care of patients requires them to get admitted to the hospital, it is called inpatient care.

Around 45 per cent is spent on outpatient care (including both general and special treatment) as compared to 35 per cent in inpatient care.

Overall, the current expenditure on curative care is estimated at Rs 3.4 lakh crores (80.4 per cent) whereas. In contrast, a meagre 9.6 per cent – Rs. 40.6 thousand crores – is spent on preventive care. All the government-funded national health programmes such as the National Disease Control Programmes are covered under this category. However, it does not include spending on sanitation or providing access to clean drinking water.

Rs. 19 thousand crores (4.5 per cent) was spent in patient transportation.

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