Health Financing in India

Health Financing in India – Indranil

tale of political apathy, plunder and catastrophe

Failure to achieve national and international targets
and goals has now become quite routine affair for the policy makers in India.

‘Health for All by 2000[1]
remained on paper, got dropped unobtrusively when economic reforms were
embraced ceremoniously, meanwhile the health situation became bad to worse for
majority of Indians. The Millennium Development Goals, which were comparatively
more suitable to neo-liberal agenda replaced “Health for All”. As things stand
today, maternal and child health related Millennium Development Goals[2] are also
going to remain unachieved in India. Being the largest contributor to global
burden of maternal and child deaths, slow progress in India is likely to impede
the global progress. Without making any critical assessment of failures to
achieve the MDGs, international agencies are gearing up to set the sustainable
development goals (SDGs) during the post-MDG phase. The most important health
related aspect under proposed SDGs is the idea of Universal Health Coverage
(UHC). Under UHC governments are being seen as a major purchaser of health
services (and not the provider or only provider) and different forms of
purchasing mechanisms are proposed including tax financed health insurance,
mandatory social insurance and managed care model. Here is a brief attempt to
look at the health financing situation in India and critically reflect upon the
idea of UHC in order to understand the political economy behind the urgency to
implement UHC.
Public investment
trends: a reflection of political apathy
The idea of universal health care is not new in India.
The Bhore Committee report (1946), which provided the blue print for the public
health system, sought to create a health system in which all Indians would have
access to affordable health services. Massive investments have been made in
building a vast network of government funded and staffed clinics and hospitals
during 1970s and early ‘80s. Since 1990s, through the introduction of economic
reforms, public investment on health, which was already very low, was cut back
significantly. Chronic under-investments lead to crumbling of public health
infrastructure, under-staffing and poor quality of health services (Indranil
& Trisha Aggarwala 2009)[3]. The
level of public investment on health in terms of its share of GDP signifies the
priority accorded to health by the respective governments. Compared to the
developing country average of 2.5 percent of GDP as government expenditure on
health, India spends only about one percent – a level among the lowest in the
The relationship between investments in health with
health system is like that between cloud and rain- investments are necessary
for creating a good system, but may not be sufficient to ensure good health
system to follow. A health system may not be able to ensure equity,
universality and efficiency even if it is heavily financed, if prominent market
failures are not addressed. United States remains the most glaring example,
with more than a sixth of GDP going towards health care, yet leaving fourteen
million people out of coverage. Some developing countries like Brazil, Chile,
Costa Rica, Cuba, Colombia, Thailand, Malaysia, South Africa, which have made
significant efforts in recent history towards provisioning of universal access
to health, spend much higher proportions of GDP on health than India.
Governments in neighbouring countries like Sri Lanka, China, and Nepal could
mobilise more resources towards health than what was done in India. Per capita
public investment on health, is almost at the same level with the average of
the low income countries (LICs) and much lower than the low middle income
countries (LMICs). Countries like Brazil, Thailand, and South Africa which have
recently attempted to universalise have stepped up public spending on health to
3-5 per cent of GDP over the period of a decade or so (table 1).
Table 1:
Public spending on health: Comparing India with some developing countries
govt. expenditure on health as % of GDP*
govt. expenditure on health as % of total expenditure on health
capita govt. expenditure on health
int. $)
Costa Rica
South Africa
Sri Lanka
Source: NHA, WHO
Market and its
If the government does not pay for citizens’ health, people
have to pay through their own pocket. Out-of-pocket payments are the most
regressive forms of financing often leading to poverty and catastrophy. It impedes
access to good quality care, causes untreated morbidity and untimely death or
disability. The share of government expenditure in total health spending in
India is only 17-20 percent. Only a few countries in the world have lesser
government share in health spending – these include Myanmar,
Burkina Faso, New Guinea and Pakistan. Thus, India has the most
privatised health financing system in the world.
Health sector reforms were meant to boost private
investments in health care. Indian state has not only ignored the agonies of
people, it has adopted a multi-pronged approach to accomplish this- gradual
withdrawal from providing health services, introducing user fees, cut backs in
public spending on health, privatisation and commercialisation of existing
facilities and services, provision of subsidised land and other incentives to
systematically help private sector grow. Increasing domination of private
sector in service delivery led to high dependence of people on their own means
to manage health care expenses; prolonged deprivation of a large section of
population from any access to modern health care system and uncontrolled
escalation of profits of the private sector and especially the corporate
hospitals are testimony to the “success” of so-called reforms.
During the early 1980s private sector in India largely
comprised of individual practitioners, both qualified and unqualified,
essentially providing primary level, outpatient care of extremely variable
quality across urban and rural areas in the country
and Anantharam, 1990; Baru, 2003)[5],[6]. The growth of secondary and tertiary hospitals was relatively new
phenomenon, limited to metro cities and few affluent rural pockets of the
country. Like every other sector of the economy, growth of organised and
advanced capitalist forms of production requires state support in different
forms. The case of health sector is no different.
In the 1980s, when medical care was gradually opened up
to private sector and public private partnerships (PPPs) were made part of
national strategy (GoI 1983)[7], the
idea was to help market grow. Introduction of neo-liberal reforms in the 1990s
accelerated the process. Continuous cutbacks in expenditure halted the process
of expansion of government health services and reduced quality of care. A large
and relatively affluent section of the middle class moved out of the government
health services and formed the market base for organised private sector. This
was supplemented by various forms of input subsidies including land, import
subsidies on machinery and equipment, tax concessions. Large government
investments made in medical education allowed private sector to access
subsidised, cheap but good quality doctors. Freeze in government recruitments
left little choice to the medical graduates but to join private sector or fly
abroad. PPPs were expanded to channelise government revenues to provide further
impetus to private sector growth.
But the consequences on people have been really
debilitating. In the absence of adequate public spending, an increasing share
of consumption expenditure is being spent to purchase health care. In 1993-94,
around 3-4 percent of household spending was going for health care (NSSO 50th
round)[8]. The
latest round of NSSO consumption expenditure data for 2011-12 shows that 6.8
percent is being spent on health (NSSO 68th round)[9]. Increased
spending on health is likely to be mobilised by sacrificing some other
essential items like children’s education, selling assets or borrowing.
Morbidity and mortality pushes people into poverty and destitution also. This
works in several ways, if the ill person is also an earning member, since he or
she remains out of work, family earning suffers; at the same time spending on
health care also pushes household expenditure below poverty line. As per NSSO
data around fifty million people were pushed into poverty due to out-of-pocket
spending on health. Over the last two decades the number has almost doubled.

Figure 1:
No of people falling below poverty due to out-of-pocket spending on health.

authors’ calculation based on NSSO unit records, various rounds.
Health in the
political map: some recent developments
The health financing scenario in India is a clear reflection of the
class biases of the ruling elites. It represents complete lack of sensitivity of
the ruling class towards the suffering of millions of people and also complete
submission to interest of profit. Throughout world people have achieved their
health rights through protests and political movements. Health hardly figures
in the political agenda of governments in India. At the same time, whenever
some progressive political atmosphere evolves, significant breakthroughs have
happened in health care delivery. During the late 1970s, health was quite
central to Minimum Needs Program and considerable investments were made. When
the United Progressive Alliance came to power in 2004-05 with a progressive political
plank and out-side support from the Left, it embarked upon the task of
rebuilding rural health services and National Rural Health Mission (NRHM) was
launched. During the initial years of the NRHM considerable investments were
made. Till date, Union Government has invested around Rs83000crores in
strengthening the public system, providing additional human resources and in
providing financial incentives to access government health services in rural
India. However, as the progressive outlook of the ruling UPA faded over the
years, so did the funds for NRHM. Overall, NRHM could arrest the decline in
spending but didn’t lead to any significant improvements.
Almost parallel to NRHM, several states embarked upon states
sponsored insurance schemes. The first one to draw attention of political class
was the Rajib Arogyashree Scheme of Andhra Pradesh, which became quite popular
among people and apparently helped the Congress government to get back to
power. Several states and Union government followed Andhra model and introduced
their own insurance schemes. Experience of RAS in Andhra Pradesh shows that
most of these funds flow to private hospital and tertiary care. At the same
time primary and secondary level care funds are getting squeezed. Moreover, the
growth of private hospitals, in part fuelled by the substantial insurance funds
available, has increased their demand for skilled human resources.  This private sector demand will likely to add
to the growing migration of skilled staff from government to private hospitals.
The UHC agenda:
impact of NRHM as well as the insurance schemes in providing financial risk
protection has remained largely limited. The main reason is that most of the
OOP happens in out-patient care and especially on drugs.[10] As per
the latest NSSO data, two-third of total OOP is on medicines. The insurance
schemes are largely for hospitalisation, which account for only a fifth of
total spending by people. On the other hand, though NRHM has strengthened
maternal and child health related care in rural India, and as a result more
people are accessing public service than before, but drugs are not being
provided free from government hospitals. Barring few states like Tamil Nadu,
Kerala and recently Rajasthan, people need to purchase medicines from market,
even if they access public hospitals.
Under the XII Five Year Plan, we find a renewed call to increase
public spending to around 1.87 percent of GDP from the current level and to
move towards a Universal Health Coverage framework. The Planning Commission had
set up an expert group called the High Level Expert Group on Health (HLEG),[11] which
provided some crucial policy directions for increasing public spending. The
HLEG had some progressive recommendations and as well as left some crucial loop
wholes. It suggested that enhanced public spending on health to 2.5 per cent of
GDP should be largely devoted towards strengthening public systems. It also
recommended against insurance mechanisms and called for bringing different
government insurance programmes under the same umbrella. It rejected insurance
sighting the evidence that bulk of out of pocket expenses was in out-patient
services and on drugs and diagnostics. Instead the HLEG suggested that a
national health package would be provided as a guarantee to all citizens and
services would be jointly provided by the public sector and the private sector.
It suggested two models to engage private sector, one is a ‘coordinated care
model’ based on public provisioning complemented by contracted in private sector;
the other is more like a ‘managed care model’ where private and public
facilities would be part of a network to provide health services to empaneled
citizens. The final health chapter of XII Plan has proposed that two UHC models
would be piloted in different districts and States would be provided incentive
funds for the proposed National Health Mission (NHM) to take up the pilots[12].
may find the ideas of increasing public spending to 2.5 per cent of GDP an
important pre-requisite, and eradication of out of pocket expenditure extremely
essential, there are certain important contradictions between the goal and the
design, which needs to be highlighted. To start with, eradication of
out-of-pocket spending is a narrow goal, it should rather be one of the key
strategies to achieve ‘health for all’. This distinction becomes important
because the goal drives the strategy. Universal health coverage and health for
all mean entirely different things. While ‘health for all’ pre-requisites a
progressive socialization of health care, gradual undoing of commoditization of
health care, primary health care approach integrated under the notion of social
determinants; universal coverage merely means that a financing system is
developed to cover majority of people against out of pocket expenses but
provisioning is done essentially through market.
The noble objective of PC to curtail cost, ensure equity, continuum
of care and rational use of technology would necessarily fall apart because of contradictory
design- a design based on privatisation that is being pushed by the given
global order and the class composition of the present national Government. The
pre-requisite of strong public sector in ensuring greater access has been
demonstrated in all kind of contexts- from the most developed countries like
UK, Sweden, middle income countries like Costa Rica and Chile or developing
countries like Cuba, Sri Lanka, Thailand, and Brazil etc. Like all other Plans,
PC has retained the rhetoric of strengthening public sector and at the same
time paved the way for further monopolisation by the private sector. These
tendencies if not halted will overpower the entire agenda of Alma Ata towards
its design.
This may require bringing qualified general practitioners from
various systems of medicine into the public fold before they get completely
integrated into the medico industrial complex. Experience of initial decades of
NHS shows that the GPs can provide cheaper services, can be regulated, rational
treatments can be ensured through them and most importantly indirectly curb the
growth of tertiary hospital sector. The political context under which such
radical transformations had happened in UK was vastly different from the
neo-liberal regime that we are living in. The strength of progressive political
and civil society movements would be tested at such a juncture. Whether it can
really push the agenda towards rebuilding public provisioning based on Primary
Health Care approach or allows the vested interests to make use of public money
to further the interest of profit and greater downfall of public sector is to
be seen in the days to come. Small ray of hope is seen in the provisioning of
free drugs in public sector. An entitlement which was unobtrusively dropped
during the era of liberalisation may now bring patients back to public
facilities and create demand for better services.
However, the battle to rebuilt public sector in a Primary Health
Care approach cannot be fought in isolation and in current context of
neo-liberalism possibilities of rejuvenating government health services are
really bleak. Under the present regime, where exploitation of labour is taking
place in most advanced and pervasive form, state still plays its role in
generating demand. But only in a manner which doesn’t interfere in the process
of production or price setting. That is why artificial means of demand
generation like cash transfer, voucher schemes, insurance and other market
guarantee schemes are promoted; which allow market to operate freely and make
plunder over peoples’ money. That is why health care, food and nutrition, water
services are packaged and epitaph of universal and comprehensive public
provisioning is written in unprecedented hurry.

[1] WHO (1981)
[2] The fourth Millennium Development Goal calls for a reduction in under-five mortality by two thirds between 1990 and 2015. Similarly, UNDP (2000)
[3] Indranil & Trisha Aggarwala (2009): Safe-motherhood, public provisioning and health financing in India; Report, Centre for Budget and Governance Accountability, New Delhi
[4]WHO (2009): World Health Statistics
[5]Jesani, A and Anantharaman S (1990):“Private Sector and Privatisation of Health Care Services: A Review Paper” for the ICSSR-ICMR joint panel on health, Foundation for Research in Community Health, Mumbai.
[6] Baru, R. (2003), “Privatisation of Health Services: A South Asian perspective”, Economic and Political Weekly, 38(42) pp. 4433-4437.
[7] GoI (1983): National Health Policy, Ministry of Health and Family Welfare , New Delhi, India
[8] National Sample Survey Organisation (1993-94): Consumer Expenditure Survey 50th Round, Ministry of Statistics and Programme Implementation, Government of India, New Delhi.
[9] National Sample Survey Organisation (2011-12): Consumer Expenditure Survey 68th Round, Ministry of Statistics and Programme Implementation, Government of India, New Delhi.
[10] Sakthivel S and Karan A (2012): Why publicly financed health insurance schemes are ineffective in providing financial risk protection. Economic and Political Weekly; 47(11):60-68.
[11] Planning Commission (2011). High Level Expert Group Report on Universal Health Coverage in India. Submitted to Planning Commission, New Delhi, India
[12] Planning Commission (2012): XII Five Year Plan: Social Sector; vol II, Government of India, New Delhi, India