Financing universal healthcare in India
India has long had a commitment to offer comprehensive healthcare to all citizens. This has been reaffirmed in the 12th Five-year Plan as well as in the more recent National Health Assurance Mission. However, despite this, India has not been able to realize this goal. It is not clear if it has embarked on a path that will make it possible to do so even in the distant future.
The most important reason for this relates not to the absolute availability of resources but to the fundamental flaws in the design of the health system. At 4% of gross domestic product, the country expends more than enough money to deliver good quality healthcare to all citizens.
However, 70% of this money is spent on an out-of-pocket basis at the point-of-service (OOP-POS) with the actual expenditure at any point of time varying from zero to more than Rs.10 lakh, and it is spent to pay for care that is often not necessary or for conditions that would have been easier and less expensive to treat if they had been detected earlier or those that have a slow onset or are asymptomatic until they reach an advanced stage.
This produces financial hardship for all but the top 1% of the population and leads to low levels of well-being across all income segments. The high variability of OOP-POS expenditure on health and the deterrent effect it has on seeking care in a timely manner is also one of the key factors responsible for the re-entry of the middle classes into poverty. It is also a reason for the delayed progress of all below the poverty line, effectively reducing the rate of economic growth.
One way to tackle the high level of variability of OOP-POS is to universalize hospital insurance so that households have to pay only a fixed amount each year as insurance premium, with the government paying it for the poor.
However, healthcare is not a standard market good and suffers from problems that result in people delaying care until they are really very sick; inability of patients to fully understand and properly evaluate the quality of advice and treatment that they receive and to determine if it is priced in a fair manner; a number of chronic diseases not being suitable for treatment within hospital settings; and the tendency of hospital insurance to result in overuse of hospital services leading to a steady increase in the insurance premium for such services, particularly when patients have received no primary care and have come directly to the hospital.
Developmental efforts of all successful health systems have simultaneously sought to address concerns relating both to financial protection of their citizens and the proper provision of healthcare, with a high degree of implied paternalism to compensate for the failure of traditional competitive market mechanisms to arrive at optimal solutions.
Some, like Japan, have flooded the market with healthcare providers which, in combination with tight regulations, have kept prices low and quality high, have required all the citizens to buy into a single national health insurance plan and have relied heavily on the general good health, healthy dietary practices and high levels of literacy to ensure their consumption of healthcare is optimal.
Others, like the UK, have ensured taxes pay for all healthcare, with the government contracting private doctors for primary care and directly providing higher level of care to all its citizens.
Even though there are a few notable exceptions at the state level, India, despite driven by a low tax-to-GDP ratio of 15%, allocates 10% for healthcare as a proportion of its total expenditure. Still it is unable to afford to pay for all the healthcare needs of its citizens through taxation alone. It will remain so until there is a sharp increase in the tax-to-GDP ratio or the government decides to increase its allocation towards healthcare disproportionately at the expense of other social services.
Most Indian governments have tried to improve the tax-to-GDP ratio and while they have maintained the level of health expenditure as a proportion to their total expenditure, they have not seen it politically rewarding to prioritize health over other expenditures. Faced with severe paucity of resources allocated to them, the health ministries instead of developing other solutions for financing healthcare, have focused on building a stripped-down, low- quality, government-owned and managed health system.
This kind of system is almost exclusively focused on maternal and child health and provides even that narrow service at a low level of delivered quality. As a result, left to its own devices, a highly distorted healthcare market has evolved in India, with the bulk of both government- and private-sector investments going into hospitals and away from primary care, paid for in large part through highly variable OOP-POS expenditures. The small private insurance market is evolving to help the top percentile of the population pay the insurance premium on an OOP basis to contain the variability of in-patient expenditures and experience zero OOP-POS.
Given its nature, if India is to provide good healthcare to its citizens, it would need to pay attention to the problems of financing and provision of healthcare. Given its large population, low per capita income, a high burden of disease and the need to ensure that people operate at their maximum potential to ensure economic growth, it is obvious that a Japanese-style hospital and a severe-illness centric healthcare design will not work for India.
India urgently needs high-quality comprehensive primary care that is free at the point of service and accessible to all. This should be combined with a smoothly functioning referral service for patients who require advanced levels of care, which is also made available for free at the point of service, thus ensuring that the variability associated with OOP-POS is zero.
Thailand offered such a system to all its citizens more than 15 years ago when its per capita income levels were comparable with those of present-day India and was thus able to lay the foundations of a high-quality, low-cost system.
Given the paucity of tax resources, it is clear that such a design cannot be implemented by the Indian government on its own for the entire population. However, if the government were to focus on developing a national scheme, which helps build a healthcare system with an optimal design centred on primary care that is not just free but allows access to hospitals only if referred by primary care providers, then it could become the bedrock of a strong universal healthcare system.
The government could then easily pay for the poor to access such a scheme and offer it to the non-poor at its full price as a government-sponsored and managed care scheme. It can be made mandatory for all in the formal sector to purchase it with the support of their employers. Such a scheme would work best if the government, directly through its health department, were to operate and manage both the healthcare system and the financing of it, including the collection of the insurance premiums for such a scheme from the non-poor.
In states where the public system’s capacity to provide for such services is weak, the government could still be responsible for the payment of the scheme for the poor and for the collection of the premium from the non-poor. It could seek the support of the private sector to provide the necessary services but only from those providers who are willing to construct and operate a complete health systems, including primary, secondary and tertiary care, and be prepared to paid a fixed charge for each enrolled family or individual and not a variable charge based on the services actually provided to them.
Globally, such a mixed financing and provision approach has been successfully followed by many countries, notably by Colombia, the Philippines, Vietnam, Turkey and, more recently, by Indonesia, countries that are closer to India in socio-economic and political contexts.
Any such scheme must have three key components. First, the scheme should provide and pay for a comprehensive essential health package (EHP) and not just restrict its attention to maternal and child health or only to financial protection. Historically, health insurance schemes in India, including those offered by governments, have restricted coverage to in-patient hospital-based treatments. They merely reimbursed expenses up to a pre-defined limit, acting almost as a financing scheme for the deductible or the co-pay instead of a true insurance scheme. All of the primary and secondary healthcare provided by the government has exclusively focused on maternal and child health, and both the private sector and the government have provided comprehensive care only at the tertiary and quaternary levels.
However, data indicates that almost 70% of health expenses are incurred during out-patient visits and purchase of medicines. There is a high level of price elasticity in seeking primary care and, most importantly, on account of high levels of information distortion, patients are most often not aware of their true health status. It is crucial, therefore, that the EHP includes both financing and care across the healthcare continuum, most importantly primary care, with its preventive and curative aspects that reduces the progress of disease and prevents expensive hospitalisation.
Secondly, such a scheme would have to be designed from its conception stage to serve both the poor and the non-poor. This would mean the quality dimension would need to be paid attention to, as well as the look-and-feel of the facility itself. Primary care facilities in Thailand have been designed with just this purpose in mind and offer a clean and courteous environment in which to seek care with a branding and layout designed to look like the out-patient department of a hospital and not an independent clinic.
The strong gatekeeping that is imposed at the primary care level ensures that their secondary and tertiary care facilities are not crowded and are easily able to admit all those that require that level of care, with low waiting times, once again creating an environment in which both the poor and non-poor would seek care.
Thirdly, while the costs of the scheme for the poor would be paid for by the government, the premium for the non-poor would need to be collected directly from households as pre-payments for access to this scheme.
For the formal sector, payroll contributions deducted at source appear to be a tried-and- tested method that has been implemented in 68 countries across the world, including low- and middle-income countries such as Colombia, Ghana, Vietnam, Kyrgyzstan, the Philippines and Thailand, which are comparable with India.
Based on the collections from direct taxes on income in the current assessment year in India, such a system of pre-payments from the non-poor who are part of the formal sector could raise between Rs.14,000 crore and Rs.34,000 crore with a total contribution ranging from 5-12% of salaries. This amount on its own has the potential to contribute up to 18% of the required health budgets, without the deadweight loss associated with generalized increased in taxation that hurts growth.
In any developing economy, and India is no exception, there is a large section of the population that is above the poverty line but is not a part of the formal sector. Innovative pre-payment mechanisms can be designed to cover this segment, including explicit sale of the integrated insurance-healthcare product to them on a full-cost basis. Kyrgyzstan is an example of a country that has an informal agricultural sector, which has successfully devised mechanisms to collect contributions towards healthcare from these groups, and has thus, been able to extend health coverage to more than 80% of the population. The successes of the Swavalamban Scheme and the microfinance movement in India suggest the informal non-poor have the willingness and the ability to pay for schemes that directly add value to them.
Anuska Kalita is the vice-president, strategy, and Nachiket Mor is a director at IKP Trust. Views are personal.