Salvaging the Indian Healthcare system

The Indian government has spent merely 1.15-1.5% of its GDP as healthcare expenditure in the recent years which is only about 28.6% of the total expenditure on health. This level of spending is very low even for a developing country and furthermore, catastrophic health expenditure has been one of the main reasons why close to 7% of households have fallen below the poverty line over the last decade. It also explains why 60 to 90 million people fall below the poverty line every year.

Why is our healthcare expenditure Spiralling?

In 2014, 75% of all health expenditure in India was incurred as out of pocket (OOP) expenditure. India has been following a system of private and public health insurance schemes. Yet, private insurance is restricted to the rich urban strata of society as per the last available NSSO data for 2014. The overall coverage for health insurance varies significantly across states with merely 0.3% and 1.7% of people covered in Uttaranchal and Madhya Pradesh, respectively. This can be compared to 62.8% and 39.5% people insured in Andhra Pradesh and Kerala, respectively. Though the data showed that the public health insurance schemes such as Rashtriya Swasthya Bima Yojana, Central Government Health Scheme and Employers State Insurance Scheme, covering 370 million people (~15% of the population) resulted in increased hospitalizsation, it could not reduce their health burden. In fact, it can be interpreted that it is lack of adequate policy coverage as well as improper availability and quality of institutions providing health insurance are important reasons for high out of pocket costs for both inpatient and outpatient care.

"60 to 90 million people fall below the poverty line every year."

In order to curb high individual expenditure on health, health infrastructure needs to be made efficient and more flexible. For instance, the primary cause of health care spending in the US spiraling to 18% of its GDP is the nexus between private health insurers and the health care providers there. In addition, this needs to be supplemented with a broader private and community-based insurance coverage. Further, as legislatively, health is a subject under the concurrent list, the requirement of a coordinated effort at a national level as well as among states by further strengthening the federal character of healthcare needs attention. This idea has been further imposed by the newly framed National Health Policy 2017 (NHP-2017). The policy reinstates the need for laying down vision for providing schemes for universal health care by the central government and its implementation by the states. 

Examples that may help India

The models of Germany, Japan and the Netherlands providing financial protection may benefit India. For instance, through the mandated income-based insurance cover in these countries, it has been possible to bring a wider group into a common risk pool and to restrain existing high OOP expenditure. Lessons from these models can be used in the Indian context in bringing a largely young working population in getting a minimum health insurance cover.

Similarly, the examples of China and Singapore are important in understanding the mixed model of public and private health insurance. In this case, these economies rely on the usage of medical savings account (MSAs). These accounts enhance efficiency in transmission and ensuring flexibility in administration. In recent times, economists have pointed out about the use of tax-deductible MSAs similar to provident funds can be implemented in the Indian context. These methods, in turn, can potentially reduce the concerns of information asymmetry and higher costs, otherwise affected by health care financing through insurances. Though one can seek to benefit from such MSAs, the long-term impact of such a policy remains untested for a large and diverse country like India.

Maintaining the Right Balance

It is pertinent to note that Indian households incur more than two-thirds of their OOP expenses on outpatient care primarily for accessing medicines. 70% of OOP expenditure in rural areas and 60% in urban areas are incurred on medicines. Due to information asymmetries, the possibility of excessive pricing by pharmaceutical companies over and above the costs for research and clinical trials needs to be restricted. This has been exemplified in Marcia Angell’s book “The Truth About the Drug Companies”. It showed that the American drug companies spend higher amounts of funds on marketing than on research.

In India, to ensure affordability as well as transparency, a practice of price control has been followed similar to what is being followed in other developing countries. Here, the prices for more than 400 essential drugs and other pharmaceutical products are controlled by National Pharmaceutical Pricing Authority. The instances of tweaking medicine formulations to circumvent price control and overcharge consumers by pharma companies such as Lupin, Wockhardt and Abbott that have been reported recently, needs to be acted upon. This is required to ensure that the interests of healthcare providers, health insurance providers, government as well as of the consumers are addressed. A well framed pharmaceutical pricing policy needs to be brought in at the earliest by replacing and amending the existing Drug Pricing Order 2013. This has been outlined broadly in NHP-2017 with emphasis on maintaining balance in terms of affordability for the patients and the industry’s concern for adequate returns on investment.

"70% of OOP expenditure in rural areas and 60% in urban areas are incurred on medicines. Due to information asymmetries, the possibility of excessive pricing by pharmaceutical companies over and above the costs for research and clinical trials needs to be restricted." 

Adopting a Holistic Approach

But mere price controls and increased coverage will not be able address the growing challenges in healthcare. This is important as the state has a checkered history in healthcare. The outcome based approach with emphasizes on free drugs and diagnostics in the context of progress towards universal health care needs to be addressed as per the NHP-2017. The policy also mentions about the need for bringing together various regulatory bodies under a common umbrella to ensure that private sector performs in a responsible manner.  Also, there is a shift towards providing two-thirds of its spending on preventive primary health care. The policy, with a focus on prevention of non-communicable diseases that results in 60% of the expenditure on health, is high on intent but under promises in terms of raising government spending from 1.15% to 2.5% of GDP by 2025. This, as many have pointed out is achievable in the next three years.  However, the real test would be to arrive at an understanding among the stakeholders with concrete deliverables and actual output-based and outcome oriented work on the ground.  

Finally, one must remember that the role of minimum health care for all is pertinent not only for its complementary benefits in terms of raising education levels and reducing discrimination against women but essentially, by serving as a basic human right. Hence, the demands of the healthcare market need treating it as an investment rather than a cost. As it can be inferred, this requires a collective responsibility of the state as well as the private parties involved. The overall results will be determined by how the public-private balance is shifted and maintained in the coming years.


This piece was originally published in The Indian Economist. A slightly revised version of the same has been published here with permission from the author. 

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