Framing the right prescription for health expenditure

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India spends close to 5% of its GDP on health. While this may appear low when compared to 18% of the U.S., data show that Organisation for Economic Co-operation and Development (OECD) countries spend 8-11%, middle-income countries close to 6%, and India’s peers, the lower-middle-income countries 4.5%. By these measures, India’s health-care spending, while still somewhat low, is not unusually so. However, on an index measuring country performance on the health-related Sustainable Development Goal (SDG) indicators, India ranks poorly at 143 out of 188 countries.

If we look in terms of Purchasing Power Parity (PPP), a measure that more accurately corresponds with our actual standard of living, India is the third largest economy in the world, at almost PPP $8 trillion. Given the large size of our population, our 5% allocation to health translates to a mere $267 per individual, a number far lower than the OECD average of $4,698. Yet, countries with comparable or even lower per capita health expenditures, including Indonesia, Thailand, and Ghana, are ranked better on the SDG Index at 91, 112, and 141, respectively, out of 188, and offer us hope and a few lessons.

Interestingly, two of the most important differences between India and these countries are the extent of pooling of health expenditures and the level of government control of the health system.


Pooling of expenditure

First is the pooling of health expenditure: India has among the lowest pooled expenditure for health care; between 2004-2014, approximately 4-7% of households fell below the poverty line as a result of high out-of-pocket expense. Pre-payment and pooling of resources are critical to ensure financial protection against catastrophic health shocks. The extent of pooling is determined by the government’s tax allocation to health and insurance coverage in the country. India’s low tax to GDP ratio and allocations of around 5% of general government expenditure to health impact the total quantum of funds available. Countries such as Thailand which have a comparable tax to GDP ratio have prioritised health within their budgets and allocate 13% of it to health care. To increase pooled funds for health care, India needs to both provide a significantly higher level of allocation to health care in its annual Budgets, as in Thailand, as well as extend schemes such as the Employees’ State Insurance Scheme (ESIS) — currently a mandatory insurance scheme only for low-wage earners in the formal sector in India — to all employees. Gradually the informal sector, both in upper and lower income, can be included by making it mandatory for all residents to buy into national or state health insurance schemes as has been successfully done in Kyrgyzstan, China, and South Korea.

Government control

Second is the control exercised by the government on the health system: Successful health systems, the world over, including in entirely free market developed economies such as Germany, Switzerland, South Korea, and Japan, do not necessarily have the government as a provider. Nevertheless, they all have a high degree of direct government control on the services that are offered; the pricing of health services, referral pathways, and treatment protocols that are followed. Governments such as those of Japan and Switzerland exercise direct price controls on services like how much physicians and hospitals may charge. Similar to the control in some mandated drug pricing, setting a price control on what hospitals and physicians may charge for their services, are critical elements that India may consider. The other area could be instituting licensing processes for hospitals, similar to the Certificate of Need process in the U.S., which can help a regionally-equitable distribution of hospitals by incentivising the setting up of facilities in poorly served areas.

It is clear that significant, strategic shifts in the level of control that the government exerts on both the financing and provision of health are urgently required. India can build on learning from core design principles from global experiences, including prioritising resources for health within government budgets, pooling existing resources, and greater government control over the health sector. It can also allow for a customised approach based on its context. Such a path will allow India to deliver on quality health care and equitable health outcomes to all of its people.

Saachi Bhalla and Nachiket Mor are with the Bill & Melinda Gates Foundation’s India Office. The views expressed are personal

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Printable version | Jan 17, 2022 11:39:00 PM |

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