Over the past couple of decades, India has had an impressive record of lifting millions out of poverty. But its record in improving health outcomes has been much less impressive despite years of rapid economic growth. As a recent Mint article pointed out, India’s disease burden is much higher than other emerging economies such as China, Indonesia, Brazil, Mexico and Sri Lanka. Even poorer neighbours such as Nepal and Bangladesh have a better record in health care compared to India.

The new national health policy announced by the government a few weeks ago promises to usher in a new era in this regard. According to many scholars, poor health in India is largely a result of poor policy and low public investments both in preventive health facilities such as drainage and sanitation networks and in curative medical care facilities such as primary health centres. The new policy addresses a lot of what has already been laid down in the report of the high level expert group set up by the previous government in 2011 which recommended universal health care in the country based on 10 core principles including universality, equity and community participation.

There is a huge body of economic research that points to the limitations of the market in addressing the health care requirements of a modern society. One of the first economists to point out imperfections in the market for health was the Nobel laureate Kenneth Arrow. Arrow along with his colleague Gerard Debreu had helped set up the theoretical foundations of modern market-based economics. But Arrow astutely observed that the characteristics of the medical care market differed fundamentally in several ways from the usual competitive markets economists studied. In a seminal 1963 research paper, which was later included in the list of the 20 most influential papers of the last century by the American Economic Association in 2011, Arrow anticipated the field of information asymmetry in economics by pointing to the lack of knowledge among consumers regarding what they are buying.

Information asymmetry is one of the biggest hurdles to a well-functioning competitive market for health but not the only one. The nature of demand for health services is unpredictable (health shock in a household is a random event). Moreover, there are supply-side anti-competitive norms which cannot be wished away (registered medical practitioners are few in number, and medicines are sometimes prohibitively priced).

The solutions to such market imperfections have been a matter of debate among scholars for a long time, with some favouring a targeted public health care programme, others advocating a universal state-funded health care system and still others arguing for well-designed insurance policies to cope with health risks.

In India, as in many other developing countries, targeting poses a gargantuan challenge for a state, which is not known for its capacity to identify the poor correctly. Even if a consensus on the poverty line is reached politically, it is difficult for the Indian state to identify households that fall below that threshold accurately. As with the food subsidy programme, targeting errors are likely to be widespread, with deserving households missing out and not-so-deserving households gaining from such a move.

Insurance seems an attractive market solution at first glance but the market for medical insurance suffers from two well-identified market failures—adverse selection and moral hazard. The problem of adverse selection appears when insurance premiums go up because only a few high-risk buyers are chosen for insurance, driving out other willing buyers of the market. Similarly, a lot of people who choose insurance have little or no incentive to keep their bills low, a problem of moral hazard. Since these bills are reimbursable and hospitals want their costs to be minimized, a lot of people who require high-cost health care are driven out of the market.

The American public health researcher and journalist Atul Gawande documented precisely such market failures in his coverage of the medical care market in the US. “There are the physicians who see their practice primarily as a revenue stream," wrote Gawande in a widely cited New Yorker article. “They instruct their secretary to have patients who call with follow-up questions schedule an appointment, because insurers don’t pay for phone calls, only office visits. They consider providing Botox injections for cash. They take a Doppler ultrasound course, buy a machine, and start doing their patients’ scans themselves, so that the insurance payments go to them rather than to the hospital. They figure out ways to increase their high-margin work and decrease their low-margin work. This is a business, after all."

An insurance-driven health system is also a hospital-driven one, and ignores needs of preventive health care which can save lives and health costs of millions living in unsanitary and unhygienic conditions. Most deadly diseases in India such as malaria and tuberculosis are communicable and require investments in public health to drive better hygiene. As the health economist Monica Das Gupta pointed out in a 2005 Economic and Political Weekly article, preventive health services provide public goods of incalculable benefits for facilitating economic growth and poverty reduction. India’s high disease burden is largely owing to the fact that unlike other Asian economies, India did not invest in an integrated public health system involving food safety, water management, waste disposal, vector control, sanitation systems, health education and health regulations, Das Gupta argued.

There are other reasons as well that necessitate a broad-based universal health programme. An important one is the presence of high inequality in terms of access to health services. Princeton University economist Angus Deaton, in his book The Great Escape, notes, “in cities like New Delhi, Johannesburg, Mexico City, and Sao Paulo, first-world, state-of-the-art medical facilities treat the wealthy and powerful, sometimes within sight of people whose health environment is not much better than that of seventeenth century Europe."

In a 2008 study published in the Economic & Political Weekly, economists at the Centre of Development Studies estimated state level health inequality and argued that the poorest section bear the greatest burden of badly designed health policies. The lack of reliable public health services and the unaffordability of health insurance compel the poor to spend heavily on private medical care when faced with health shocks, driving many people into the lap of poverty. According to a 2011 research paper by Soumitra Ghosh of the Tata Institute of Social Sciences, out-of-pocket health expenditures account for nearly one-sixth of India’s poverty burden.

Growing incomes can of course partly take care of rising health expenses but there is no linear relationship between income gains and gains in health. An influential 1975 study by the great demographer Samuel Preston showed increases in income can only explain partially the gains in global life expectancy between 1930 and 1960 and the major chunk of these gains and conquest of diseases could be attributed to better public health systems—medical facilities, new drugs, universal immunization and improved sanitation.

The case for universal health care is also strengthened by the recent examples of developing countries such as Thailand and Rwanda. Thailand has made tremendous advancement in providing health care to its citizens. What Thailand did was pretty simple. In 2001, it combined its existing targeted health programmes into one universal programme providing a safety net for all the citizens. Not only dedicated funding was put in place, a strong monitoring and evaluation mechanism ensured that programme reaches the poor.

“The result of universal health coverage in Thailand has been a significant fall in mortality (particularly infant and child mortality, with infant mortality as low as 11 per 1,000) and a remarkable rise in life expectancy, which is now more than 74 years at birth—major achievements for a poor country," the Nobel Prize-winning Indian economist Amartya Sen wrote in a recent opinion piece in The Guardian newspaer. “There has also been an astonishing removal of historic disparities in infant mortality between the poorer and richer regions of Thailand; so much so that Thailand’s low infant mortality rate is now shared by the poorer and richer parts of the country."

The more remarkable example, however, is that of Rwanda. In 2003, the constitution of Rwanda was amended and right to health became a fundamental right. Through public action and a community-based public health system called Mutuelle de Santé, Rwanda has been able to bring down mortality sharply. A Lancet journal study led by the physician Paul Farmer shows that doubling of life expectancy in the country could be attributed to better health policies in Rwanda.

Even within India, states such as Tamil Nadu and Kerala have shown it is possible to have superior health outcomes with a well-funded and well-designed public health system.

The lessons for India are fairly clear. Apart from having more skilled health workers and greater decentralization of services, we need to invest in preventive health care services, and institute nudges so that people use such services.

Sumit Mishra is a research scholar at the Indira Gandhi Institute of Development Research, Mumbai.

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