Investments in preventive public health can be an effective insurance policy against communicable diseases, and can be both pro-poor and pro-growth in the long run
I feel a deep sense of crisis when I think about education and health (in India), especially for the poor," Esther Duflo, one of the leading development economists of the world and a professor at the department of economics at the Massachusetts Institute of Technology (MIT) in the US, said in an interview last year. “These concerns are not shared widely enough at any level of government and that’s unfortunate," she added.
The Gorakhpur tragedy shows that healthcare is not a political priority till the point there are large-scale deaths. Hence, systemic issues which plague this sector often do not receive the importance they deserve. While there have been a flurry of moves in the health sector in recent months, the contradictory nature of the policy moves suggests the lack of a coherent policy framework to deal with India’s health challenges. On the one hand, the government has shown a remarkable alacrity to micro-manage prices of drugs and surgical implements such as coronary stents and knee implants, while on the other hand, a section of the government wants a private-public-partnership model for district hospitals.
While the health ministry has been quite statist in its approach to healthcare policies and appears unwilling to even let go of its control over a condom-manufacturing firm, NITI Aayog officials have been advocating a more market-dependent healthcare system for quite some time.
The conflict between the health ministry and the planning body is not new. The previous United Progressive Alliance regime witnessed a similar argument between the former Planning Commission and the ministry as well. What this disagreement, which seems to have survived despite a change in political regime, reflects at its core is a fundamental lack of consensus and clarity on the role of the state (and the role of the market) in healthcare. The debate on the extent and nature of state interventions in health is not unique to India. But what is exceptional about the Indian debate is how little of health economics has featured in it.
Why healthcare is different
Most mainstream economists consider the market forces of demand and supply to be the optimal arbiter of prices and quantities of a good or service to be supplied. But in healthcare, the usual rules do not always apply, as five decades of scholarship in health economics will testify.
The story begins, as it often does, with an outstanding Nobel-winning economist. The economist in this case was Kenneth Arrow, who passed away earlier this year at the age of 95. Arrow was the genius who outlined mathematically how the ‘invisible hand’ of the market operated, helping build the edifice on which much of modern economics rests today. But Arrow was a careful economist, who would stress that the theorems he outlined held only under ideal market conditions. It is not so surprising therefore that in a 1963 research paper, Arrow demonstrated that the market for healthcare was quite far from what those ideal conditions demanded. Arrow noted the stark information asymmetry between the buyer and the seller of medical care: the patient could not be expected to know either the cause or the treatment for his or her ailment. The buyer cannot even evaluate what he or she has been sold with any degree of certainty.
Arrow’s classic, which found a place in the list of the 20 most influential research papers of the last century compiled by the American Economic Association in 2011, was followed by seminal contributions from other economists who identified several imperfections in the market for health.
Given that health shocks are unpredictable, it can cause severe financial stress for individuals and households faced with such shocks. The market for medical insurance has sprung up to tackle this problem but this in turn leads to two well-identified problems in healthcare: moral hazard and adverse selection. Both patients with insurance and their doctors (or hospitals to which they are admitted) tend to overspend on tests and procedures which are insured, knowing that these are covered by insurance, a problem of moral hazard. Also, unless incentivized or promoted by the state, insurance can attract high-risk buyers, leading to higher premiums, and driving out other willing buyers from the market—a problem of adverse selection. An attempt to solve the adverse selection problem, through subsidies or tax breaks, can however aggravate the moral hazard problems.
Due to these issues, economies which tend to depend heavily on medical insurance tend to have higher expenditure on healthcare on aggregate. The US is a classic example, where the widespread provision of subsidized insurance products has led to a sharp escalation of costs. A tendency to over-utilize medical services, and adopt expensive innovative procedures even when evidence of their effectiveness is lacking has made health spending in the US extremely inefficient, a widely-cited 2008 research paper by health policy experts Alan M. Garber and Jonathan Skinner pointed out.
What complicates matter further in healthcare is that certain aspects of it are unlikely to be provided by the market because of what economists call ‘externalities’. If a person is vaccinated for instance, the benefits accrue not just to him but to the entire community.
Similarly, there are certain aspects of healthcare, primarily relating to preventive health, which have public good characteristics. One example would be a well-functioning drainage and waste management system, which by lowering the chances of infectious diseases contributes to overall welfare and reduces health expenses.
As several economists including Arrow noted, the contribution of preventive public health to overall welfare gains is more significant than any other aspect of healthcare. An influential 1975 research paper by the American demographer Samuel Preston showed that only 16% of the gains in global life expectancy between 1938 and 1963 could be attributed to gains in income per se. The growing awareness that germs caused disease, and the consequent investments in public health systems involving sanitation and disease surveillance played a bigger role in the mortality decline, Preston argued. The Nobel winning economist Angus Deaton, on revisiting this issue using updated and more robust data, found that Preston’s conclusions were broadly correct. Income growth had no significant impact on mortality reductions, Deaton wrote in his 2013 book The Great Escape: Health, Wealth, and the Origins of Inequality.
Given that markets have very little incentives to provide such public goods, the level of investments in preventive public health infrastructure can be below what is socially optimal if the state fails to make such provisions. India is a classic example of such under-provisioning.
Health policy in India: A chequered history
The under-provisioning of public health in India began in the colonial era itself. At a time when Japan was borrowing from the best European practices to create a world-class public health infrastructure across its colonies (Korea and Taiwan), the British were content to limit such investments in British residential areas and cantonments, wrote the demographer Monica Das Gupta of Maryland University in a 2005 Economic and Political Weekly article. The effects of such under-investments seem to have persisted over time. An analysis of the 1991 census data by Abhijit Banerjee of the Massachusetts Institute of Technology, Lakshmi Iyer of the Harvard Business School and Rohini Somanathan of the Delhi School of Economics showed that, on average, access to public goods was significantly lower in regions that were under the yoke of the British Raj as compared to regions that were ruled by princely states.
Despite deploying scanty resources, the British approach to healthcare was systematic, and involved an impressive cadre of public health professionals. Some of these professionals helped shape the recommendations of the Bhore committee on healthcare set up by the colonial government. In a three-volume report submitted in 1946, the Bhore committee recommended the creation of an integrated national health system that would focus both on preventive and curative health.
The Bhore committee set out an ambitious agenda for health, which newly independent India did not have the resources to implement.
Unfortunately, the biggest casualty was preventive public health. Given that the contribution of preventive public health services are measured primarily in negative terms (diseases or epidemics averted), it requires great political skill to make the case for such investments. Investments in curative care such as new hospitals have greater appeal in a democracy, noted Das Gupta. Elite capture also played a role, with most resources funnelled towards tertiary care. India’s ethnic diversity too may have played a role in the under-provisioning of public health, although this view is beginning to be contested.
The setting up of missions to tackle specific diseases such as malaria also detracted from the larger goal of creating an over-arching public health infrastructure. As a result, the public health cadre of the colonial era withered away as scarce resources were directed towards curative care, and towards a few disease-specific donor-driven programmes. While such disease control programmes met with sporadic successes as in the case of eradication of malaria in the 1950s, these gains proved to be unsustainable because of the overall weakness of the public health infrastructure and disease surveillance systems.
The rampant spread of infectious diseases has contributed to India’s nutritional crisis, and imposes a heavy human and economic cost by raising health expenditure, and lowering productivity and earnings. According to a 2016 report by Oxford Economics and Water Aid, the lack of sanitation alone cost India $106.7 billion in 2015, almost half of the total global losses, and 5.2% of the country’s GDP in that year.
The Swachh Bharat (Clean India) programme of the Narendra Modi-led government marked a radical change when it was announced, with the top political leadership owning an aspect of sanitation. However, the narrow focus of the programme has meant that its impact will be far lesser than what it could have been if it were integrated within an overall thrust to rebuild India’s preventive public health apparatus. The programme has progressed slower than planned, and not all of the toilets that have been built are being used. The two key reasons for this are the lack of attention to the behavioural component of the programme, and lack of development of an entire ‘sanitation value chain’ (involving water supply, containment, waste management and sewerage) as Bhaskar Pant of the London School of Economics pointed out in a 2016 Ideas for India piece.
Recent research by Duflo and her colleagues in rural Odisha shows that toilets can be very effective in preventing diseases if they are universalized, and accompanied by complementary goods including water connections. Evidence from other parts of the world also lends support to the view that an integrated approach to public health is usually more effective in improving health outcomes.
If our future is to be any different, we will need a comprehensive framework for health and nutrition that takes into account complementarities and externalities in health investments, and ranks the different kinds of investments which will be most effective in the Indian context. At less than 2% of GDP, India’s overall spending on public health is much lower than that of its peers from the developing world, data from World Bank shows. This needs to change. But in order that the increase in spending is most effective, there has to be a clear prioritization of goals.
Health policy documents of the Indian government typically emphasize a broad range of goals but they do not take into account the need for prioritization, or the efficacy scores of the suggested interventions.
The Copenhagen consensus
One example of effective prioritization of development goals is the Copenhagen Consensus project. In 2004, The Economist magazine and the Denmark’s Environmental Assessment Institute, headed by Bjorn Lomborg, asked a group of eminent economists, including the renowned trade economist Jagdish Bhagwati and several Nobel laureates, to identify a list of welfare projects that would deliver the greatest bang for the buck globally. The final list attracted some controversy because it ranked programmes related to climate change mitigation poorly but the overall approach and thrust of the recommendations received global attention and acclaim. Of the 10 most important priority projects identified by the panel, five related to water, sanitation, and nutrition. Since then, the Copenhagen Consensus Centre has evolved into a US-based non-profit, and held the third round of consultations on the global development agenda in 2012. While some of the priorities have changed between 2004 and 2012, the importance of preventive public health has only gone up . All of the top five interventions recommended by the reconstituted panel relate to nutrition and health, and include such interventions as immunization and tuberculosis treatment.
Perhaps, it is time the Indian government took a leaf out of that approach and identified a priority list of interventions in healthcare based on the desirability and cost-effectiveness of those interventions. It is very likely that in the process, the bias in Indian health policy against preventive healthcare will be corrected. Such a process will also help clarify the role of the state in healthcare, and help forge a political consensus across parties and states on which areas need attention the most.
This ‘New Delhi Consensus’ would perhaps also help the government decide which is more important: running a condom-manufacturing firm, setting up more AIIMS-like institutions, or running district hospitals.
Pramit Bhattacharya is editor (data) at Mint.
Economics Express looks at the world through the lens of economics.
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