Elsevier

The Lancet

Volume 377, Issue 9766, 19–25 February 2011, Pages 668-679
The Lancet

Series
Financing health care for all: challenges and opportunities

https://doi.org/10.1016/S0140-6736(10)61884-3Get rights and content

Summary

India's health financing system is a cause of and an exacerbating factor in the challenges of health inequity, inadequate availability and reach, unequal access, and poor-quality and costly health-care services. Low per person spending on health and insufficient public expenditure result in one of the highest proportions of private out-of-pocket expenses in the world. Citizens receive low value for money in the public and the private sectors. Financial protection against medical expenditures is far from universal with only 10% of the population having medical insurance. The Government of India has made a commitment to increase public spending on health from less than 1% to 3% of the gross domestic product during the next few years. Increased public funding combined with flexibility of financial transfers from centre to state can greatly improve the performance of state-operated public systems. Enhanced public spending can be used to introduce universal medical insurance that can help to substantially reduce the burden of private out-of-pocket expenditures on health. Increased public spending can also contribute to quality assurance in the public and private sectors through effective regulation and oversight. In addition to an increase in public expenditures on health, the Government of India will, however, need to introduce specific methods to contain costs, improve the efficiency of spending, increase accountability, and monitor the effect of expenditures on health.

Introduction

Well known weaknesses in India's health financing system are the cause of insufficient provision and reach of good-quality health services and inadequate financial protection against ill health for the Indian people.1, 2, 3, 4 Public spending on health–0·94% of the gross domestic product (GDP) in 2004–05–is among the lowest in the world and the reason for private expenditures accounting for 78% of total health spending in the country,5 resulting in serious inequities in health.6, 7 The Indian public receives low value for money in terms of the quantity and quality of health-care services in the public and private sectors. Health services in the public sector that can be accessed free or for a nominal fee are grossly inadequate. As a result, most Indians access private health care that is expensive, unaffordable, unreliable, and impoverishing. Good-quality health care in the private sector is also not available, particularly in rural and other remote parts of India. Most private practitioners are not qualified and work in substandard facilities.2, 8 The Government of India has made a commitment to increase public spending on health to 3% of GDP during the next few years. A major policy challenge will be to find out how best to invest augmented public funding.

In this report, we analyse the patterns of health financing in India; extent of financial protection provided by the present health system; whether the money spent on health is used effectively and efficiently; links between health spending and health outcomes; and whether effective mechanisms exist for public funding of health by the central and state governments since the state governments are responsible for implementing health programmes (panel). We draw on our findings to recommend how India can increase health expenditure, consider ways to spend the money wisely, increase insurance cover, and improve the manner in which the central government funds states' expenditures and incentivises states to improve outcomes for the poor. The policy options are not mutually exclusive. Public funding can greatly improve the performance of state-operated public systems by enhancing the volume and flexibility of central-to-state government financial transfers. This funding can also increase insurance coverage for financial protection by supporting the public and the private sectors because universal coverage in India cannot be achieved by either system alone.19 Most importantly, enhanced public financing can help to greatly reduce private out-of-pocket expenditures on health. Although we recommend increased public expenditures on health, we emphasise the need to contain costs, enhance the efficiency of spending, improve accountability, and assure quality in the public and private sectors through effective regulation and oversight.

Key messages

Address major shortcomings

  • Low per person spending that results in very high private out-of-pocket expenditures on health

  • Large inefficiencies in public and private sectors that reduce efficiency and effectiveness of health expenditures

  • Insufficiency of services to address the health needs

  • Practically no financial protection for most Indian people against medical expenditures

Policy responses needed

  • Ensure achievement of government's commitment to increase public spending on health from less than 1% to 3% of gross domestic product

  • Improve quality, performance, efficiency, and accountability of public and private health systems

  • Introduce policy and legislative changes to contain the rising costs of medical care and drugs

  • Increase availability of health services through direct expansion of public health services and by enlisting private providers of allopathic and non-allopathic drugs

  • Increase insurance and risk pooling to include financial protection

  • Introduce a predominantly tax-paid universal medical insurance plan that offers essential coverage to all citizens

Section snippets

Patterns of health financing

At first glance, India seems to spend an adequate amount on health care. In 2005, India's total health expenditure as a proportion of the GDP was less than the global average of about 6% but higher than that for the neighbouring countries such as Thailand, Sri Lanka, and China (table 1).18 The situation, however, changes greatly when per person health expenditures are assessed. At purchasing power parity International $100 per person, India's health expenditure is only about half that of Sri

Low public spending

As a proportion of the GDP, India's public spending on health, after increasing between 1950–51 and 1985–86, stagnated during 1995–2005, was 0·95% of the GDP in 2005, among the lowest in the world, compared with 1·82% in China and 1·89% in Sri Lanka.18 Analysis of the per person public spending on health shows that the situation is similarly bleak. The per person government spending on health in India was about 22% of that in Sri Lanka, 16% of that in China, and less than 10% of that in

High out-of-pocket expenditures

In 2005, India's private expenditure of nearly 80% of the total expenditure on health was much higher than that in China, Sri Lanka, and Thailand (table 1). Two features of the private out-of-pocket expenditure are noteworthy. First, most of the expenditure (74%) was incurred for outpatient treatment, and not for hospital care; 26% was for inpatient treatment. Second, drugs accounted for 72% of the total private out-of-pocket expenditure.20 These findings have implications for insurance

Financial protection

According to the National Family Health Survey 2005–06,14 only 10% of households in India had at least one member covered by medical insurance. India's medical insurance sector remains weak and fragmented despite several medical insurance schemes operated by the central and state governments, public and private insurance companies, and several community-based organisations.23, 24 The benefits of insurance coverage accrue only to a few privileged individuals.25, 26, 27, 28 For example, the //mohfw.nic.in/cghsnew/index.asp

Efficiency of health spending

India's pluralistic public sector in health has remained weak and fragmented despite the steady increase since independence.8, 31 Top-end government-run hospitals offer world-class allopathic care at affordable prices. But these are few and often overcrowded and overstretched. India has thousands of health subcentres, primary health-care centres, and community hospitals. In addition to allopathic care, people can access various non-allopathic systems of medicine, including ayurveda, yoga,

State differentials in financing and outcomes

India shows high variability among its states in health financing, outputs, and outcomes (table 2). Generally, the southern states are better than the northern states in all financing, outputs, and outcomes (table 2). Although the average per person public expenditure on health for India in 2004–05 was INR268, wide variations exist in public expenditure across states. For example, the amounts for Kerala and Bihar differ by three times (table 2). These differences are also shown in the health

Centre–state financing of health

Insights for potential solutions to the problem of low public expenditure in the states that have a poor performance must begin with the Indian Constitution, which assigns health as a state subject. The state governments are primarily responsible for the funding and delivery of health services. Yet, the amount and type of public financing is jointly determined by both the centre and the state. The state government bears 64% of the total government health expenditure, whereas the centre accounts

Flow of funds

The Government of India has, since 2005, introduced many new initiatives to address the challenges of health financing, including low public spending, high out-of-pocket expenditures, little financial protection, inflexible financial arrangements with state governments, poor efficiency, and rising costs of health care.46

Started in 2005, the National Rural Health Mission attempts to induce state governments to join a centrally sponsored scheme that seeks to quickly increase the delivery of

Way forward

India has set a target of increasing public spending on health from 0·94% in 2004–05 to 3% of the GDP.1, 54, 55 First, attention needs to be paid to centre–state financial flows. Under the National Rural Health Mission, the central and state governments are expected to share the additional health expenditures in the ratio of 85:15 during 2007–12.55 After 2012, the ratio is expected to change to 75:25. This arrangement needs to be assessed on a state-by-state basis. In the past, state

References (70)

  • DH Peters et al.

    Regulating India's health services: to what end? what future?

    Soc Sci Med

    (2008)
  • Report of the National Commission on Macroeconomics and Health

    (2005)
  • Mid-term appraisal of the tenth five year plan (2002–07)

    (2005)
  • P Berman et al.

    Government health spending in India

    Econ Polit Wkly

    (2008)
  • National health accounts of India 2004–05, national health accounts cell

    (2009)
  • Y Balarajan et al.

    Health care and equity in India

    Lancet

    (2011)
  • R Duggal

    Poverty and health: criticality of public financing

    Indian J Med Res

    (2007)
  • M Rao et al.

    Human resources for health in India

    Lancet

    (2011)
  • National Health Accounts 2001–02

  • State finances. A study of state budgets of 2008–09

    (2008)
  • Detailed demand for grants 2006–07

    (2007)
  • Detailed demand for grants 2006–07

    (2007)
  • National health profile (NHP of India–2007

  • National Family Health Survey (NFHS-3), 2005–06

    (2007)
  • District Level Household and Facility Survey (DLHS 3) 2007–08: fact sheets India, States and Union Territories

    (2010)
  • National facility report. Reproductive and child health 2, Mumbai

  • Populations projections for India and states 2001–2026: report of the Technical Group on Population Projections constituted by the National Commission on Population, May 2006. New Delhi: Office of the Registrar General, Government of India

  • World Health Statistics 2008

  • KS Reddy et al.

    Towards achievement of universal health care in India by 2020: a call to action

    Lancet

    (2011)
  • National Sample Survey Organization. Household consumption of various goods and services in India 2004–05. Vol I: major states and all-India

  • National Sample Survey Organization. Consumption of some important commodities in India. NSS 50th Round 1993–94. Report number 404

  • Reserve Bank of India Bulletin

  • S Rao

    Health insurance: concepts, issues and challenges

    Econ Polit Wkly

    (2004)
  • N Devadasan et al.

    Community health insurance in India—an overview

    Econ Polit Wkly

    (2004)
  • I Gupta et al.

    Health insurance: beyond a piecemeal approach

    Econ Polit Wkly

    (2006)
  • A Acharya et al.

    Health care financing for the poor: community-based health insurance schemes in Gujarat

    Econ Polit Wkly

    (2005)
  • RP Ellis et al.

    Health insurance in India: prognosis and prospects

    Econ Polit Wkly

    (2000)
  • MK Ranson et al.

    Making health insurance work for the poor: learning from SEWA's community-based health insurance scheme

    Soc Sci Med

    (2006)
  • Select health parameters: a comparative analysis across the National Sample Survey Organization 42nd, 52nd, and 60th Rounds

  • Report on the conditions of work and promotion of livelihoods in the unorganised sector

  • J Hammer et al.

    Understanding government failure in public health services

    Econ Polit Wkly

    (2007)
  • Audit report (civil) for the year ended 31 March 2008

  • Union Government (civil) (performance audit–report no 8 of 2009–10

  • DH Peters et al.
  • Cited by (122)

    • How viable is social health insurance for financing health in Zambia? Results from a national willingness to pay survey

      2022, Social Science and Medicine
      Citation Excerpt :

      However, past efforts to increase public financing for health across sub-Saharan Africa have proved to be largely unsuccessful, as exemplified by the general failure by countries to meet the 2001 Abuja commitments to increase the share of total public expenditure dedicated (Grekou and Perez, 2014). Furthermore, most countries still rely heavily on Out-of-pocket payments (OOPs), despite evidence that OOPs do not equitably generate adequate levels of financing to fund public health programs (Kumar et al., 2011; Dieleman et al., 2017). For example, in Zambia, the current level of total health spending at approximately US$60 falls considerably below the recommended range of between $74 and $198 per person in lower-middle-income countries (Stenberg et al., 2017).

    • Facilitators and barriers to participation of the private sector health facilities in health insurance & government-led schemes in India

      2021, Clinical Epidemiology and Global Health
      Citation Excerpt :

      Health insurance is one such model that works on pooling risk and resources which gives premium & business to the insurer, more clientele to service provider & quality services without out of pocket expenditure to an insured. In India, policymakers are in an opined that expansion of public-funded health insurance is the key to achieve UHC.5–7 In the last two decades, state and central governments in India funded several Health insurance schemes to circumvent impoverished people from catastrophic health expenditure.8–10

    View all citing articles on Scopus
    View full text