How to pay India’s hospital bills

As India’s health financing landscape evolves, it is unclear if the government has an overall philosophy that binds the many moving parts

Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

In a country where the private sector provides nearly 80% of outpatient and 60% of inpatient care, and where out-of-pocket spending by individuals makes up a whopping 70% of healthcare expenditure, what is the role of the government in shaping health systems? This is the core question that the recently released National Health Policy 2017 seeks to answer.

In India, the state has a chequered history in healthcare. After independence, it adopted a public sector-led model wherein the government was to provide healthcare services to all for free. However, a lack of funds meant that the system failed to meet the demands of a burgeoning population. When the economy was liberalized in the early 1990s, the private sector stepped up its game and quickly took the lead. The latter’s growth, though, was and continues to be largely unregulated and haphazard. The state’s role was also split, in keeping with India’s federal character, between the Centre, which was to design health programmes, and the states, which were to implement them.

As a result, today, there are huge disparities in the provision of healthcare services—be it across states and districts or along the rural-urban divide. There is also the paradoxical situation wherein medical tourism is booming even as the country struggles to keep up with its peers on key health indices. Meanwhile, the lack of financial protection continues to push a growing number of Indians—an estimated 63 million people every year—back into poverty, so much so that healthcare costs are now considered to be a major contributor to poverty.

Where to from here? The policy offers a long list of targets. These include reducing the infant mortality rate from 38 per 1000 live births in 2015 to 28 by 2019, the maternal mortality rate from 174 per 100,000 live births in 2015 to 100 by 2020, and the under-five mortality rate from 48 per 1,000 live births in 2015 to 23 by 2025; eliminating kala-azar by the end of this year and leprosy by 2018; and increasing average life expectancy at birth from 67.5 years to 70 years by 2025. The policy also envisages the availability of two beds per 1,000 population, and free diagnostics, drugs and essential healthcare services at all public hospitals. As some commentators have already pointed out, many of these are old targets that had been enumerated in the health policies of 2002 and 1983, and which India failed to achieve. Will 2017 be any different?

Notably, the policy talks about increasing healthcare spending—which currently hovers around an appalling 1%—to 2.5% of gross domestic product (GDP). That’s well below the global average of 5.4% but at least it is in keeping with the recommendations of the high level expert group on universal health coverage that was formed by the erstwhile Planning Commission. The problem, though, is not just the amount of money allocated for healthcare, but also the state’s capacity to absorb and utilize these funds. State governments have often returned funds because they couldn’t be utilized—and, as Shamika Ravi of Brookings Institution notes, India’s neighbours Bangladesh and Sri Lanka spend less as a percentage of their GDP on health than India, but still have better outcomes.

The question to ask then is, even if additional funds are allocated, how will they be spent—will the government expand the healthcare delivery system, or will it invest in an insurance scheme of sorts that includes the private sector, or will it spend the money on a little bit of both?

Depending on how this public-private balance is maintained, health systems around the world can be divided into three models—the national health service model, the social health insurance model (also known as the Bismarck model) and the private insurance or consumer sovereignty model.

In the first case, the state is the lead player and the healthcare system is financed through general taxation. The UK’s National Health Service is a good example, wherein hospitals are owned by the state and services are free at the point of delivery.

In the second case, the workforce contributes to a fund which is used to finance healthcare, such as in Germany, which has about 180 autonomous health insurance funds.

In the third case, the private sector has the lead—the public avails of healthcare services at private hospitals and the cost is reimbursed by insurance, also from private companies. The US healthcare system is built on this model.

Needless to say, each model has its share of pros and cons and each stands on its own set of guiding principles—for example, the UK model considers healthcare to be a public good administered by the state while the US model puts a premium on choice so every patient is free to choose their insurance company and healthcare provider.

In India, the government is yet to commit itself to any one of these models. Instead, as Oommen C. Kurian notes for Oxfam, “There is simultaneous push for both supply-side as well as demand-side interventions using public money. The pursuit of these two routes to universal health coverage, one by strengthening the public health system and another, by government financed insurance, has largely been independent of each other with little integration so far between them.” In other words, even as India’s health-financing landscape undergoes a generational shift, it is unclear if the government has an overall philosophy that binds the many moving parts.

How do you think the government can improve healthcare financing in India? Tell us at

More From Livemint