Home / Mint-lounge / Mint-on-sunday /  Dengue deaths, Deaton and the economics of healthcare

Two major outbreaks of communicable diseases in two of India’s largest cities over the past two months have once again highlighted the dysfunctional state of the country’s public health system. If Delhi reeled under dengue deaths, Mumbai had to face an acute tuberculosis (TB) problem leading to staff deaths at Asia’s largest TB hospital.

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, even as several poorer countries have notched up impressive gains in healthcare.

According to 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.

It is in this context that a recent declaration for the provision of universal healthcare by 267 economists from 44 countries published in the pre-eminent medical journal The Lancet assumes significance.

The declaration recognizes that different countries may define essential health services differently depending on the availability of resources to spend on healthcare, and the most cost-effective services should be provided first.

Nonetheless, the declaration points out that most countries do have the means to raise resources to bring down their disease burden to universally low levels over the next couple of decades. The returns will be several times the cost incurred in providing universal health services, the economists argued.

“Over the past decade, health improvements—measured by the value of life-years gained (VLYs)—constituted 24% of full income growth in low-income and middle-income countries," the declaration said. “Health systems oriented towards UHC (universal healthcare), immensely valuable in their own right, produce an array of benefits: in times of crisis, they mitigate the effect of shocks on communities; in times of calm, they foster more cohesive societies and productive economies."

As an earlier Economics Express column pointed out, the case for universal healthcare is backed by rigorous economic theory.

While economists generally trust the market to meet many of society’s needs, they consider healthcare to be a special case since the market for health suffers from severe imperfections. Information asymmetry (the fact that patients invariably know less about what is being sold than what the seller knows) is one such imperfection, but there are also other limitations that make state intervention imperative.

The provision of preventive public health services such as sanitation and waste management, for instance, is a public good: the market has little incentive or coordination capacity to provide such services.

As this year’s Nobel laureate in economics, Angus Deaton, showed in his most recent book, The Great Escape, better public health measures and improved health technology led to a rise in living standards as well as life expectancy all over the world over the past century.

During the mid-19th century cholera epidemic in London, it was widely believed that cholera was caused by a blood disorder. John Snow, a physician, collected data on 1854 cholera deaths in London and put it on a map to find that cholera epidemic was more severe in areas with contaminated water supply, debunking the myth that cholera was caused by blood disorder. This led to a significant reduction in child mortality not only in the UK, but also across the world in the 20th century.

Despite improvements on a global scale, healthcare provisioning in developing economies remain highly skewed, Deaton argues, necessitating state intervention to enable wider provision of healthcare. Deaton notes that “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".

Recent empirical evidence also points in favour of universal healthcare. A growing body of evidence from a wide variety of countries shows that universal healthcare models are working well in diverse settings.

Economists Anthony Strittmatter and Uwe Sunde of the University of St Gallen, in a 2011 paper published in the Journal of Population Economics, compiled data on health outcomes and the introduction of some form of universal healthcare for 12 European countries from 1820 to 2010. Strittmatter and Sunde showed that the introduction of state-funded healthcare systems led to a decline in mortality rates and increased per capita incomes in these economies.

Among developing countries, Thailand is often cited as the poster child for universal healthcare. Complemented by a reasonably good monitoring system, universal healthcare has led to rapid improvement in child and infant mortality rates in Thailand.

In 2013, three World Bank economists—Ursula Giedion, Eduardo Andrés Alfonso and Yadira Díaz—published a report, in which they collated all existing evidence regarding universal healthcare in developing countries.

They selected the best available papers and evaluated the performance of universal healthcare in terms of three broad measures—access, financial protection and health status. Out of 29 papers, 25 found positive impact on access, indicating that universal healthcare, in countries ranging from Bangladesh to Ecuador, enhances access to health services.

They also found that the poorest registered the highest increase in utilizing healthcare services as these services became more affordable. While universal healthcare seems to be doing well in making health services reach the poor, universal healthcare schemes also help the poor in reducing their out-of-pocket expenditure on healthcare, thereby protecting their finances.

However, the effect of universal healthcare schemes on health indicators such as mortality rates remains ambiguous, according to Giedion et al. Their conclusion is that universal healthcare schemes are heading in the right direction in many developing nations.

It is high time Indian policymakers recognized the growing evidence from around the world showing the benefits of a universal healthcare model.

Economics Express runs weekly, and features interesting reads from the world of economics and finance.

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