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November 2017

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WHAT’s Inside

Health Care Financing in India

Single-Payer Health Financing
System: Is it a Right Approach
for India?

Roundtable Discussion: Innovative
Financing Mechanisms to Improve
Health Coverage in India

PFCD in the News


India is a paradox of inequity. Despite the highest rate of growth of the gross domestic product (GDP) among the major economies of the world, a vast number of billionaires, successful tech and pharma industries, and a burgeoning space program, India is home to one-fourth of the world’s extreme poor. Millions lack access to quality and affordable health care. Those living in congested urban slums and far-flung rural outposts suffer disproportionately from poor health aggravated by poverty. Each year, millions of Indians are pushed into poverty due to the high costs of health care. Successive Indian governments have been constrained to allocate less than two percent of the country’s GDP on health. This has left the public health system chronically underfunded. Consequently, it has produced a weak primary health care system and a highly unregulated private health sector.

India’s health system has admittedly made some good progress over the past decades, with Government spending over US $23 billion on health and expanding the insurance coverage for the poor. Despite these investments and a growing economy, the out-of-pocket expenditures (OOPE) at the point of service continues to be high, pushing 3.5 percent of households below poverty line each year. Although the proportion of OOPE in health care has fallen from 70 percent to around 60 percent of total health expenditure, it is still too high to be affordable or equitable. Most of this OOPE takes place in the private sector as more than 70 percent of the health care source in India includes private doctors, clinics and hospitals. This problem requires collective action from policy makers, private health care facilities, donors, civil society, corporations and advocacy organizations.

A major gap in the policy and market response to the issue of high OOPE in India is the skewed focus on hospitalization care. All the private health insurance products and the national and state government sponsored health insurance schemes provide hospitalization cover but do not include outpatient or preventive health services. This is in spite of the fact that three to four times more households fall into poverty because of outpatient spending as compared to inpatient spending. Even the existing “hospitalization-only” insurance covers less than one-fifth of the 1.3 billion Indians.

In contrast to the public and private health insurance products, the health mutual and micro health insurance space in India does address primary health care, apart from providing partial cover hospitalization. But the population coverage of these micro insurance and health mutual is miniscule, as compared to the large population base of India.

Apart from increasing the financial risk cover for healthcare, there is also a need to promote greater public and private investments into primary healthcare aimed at providing affordable healthcare to the Bottom of Pyramid

(BOP) populations. The policies need to leverage India’s strengths in matured financial markets and the rising entrepreneurial spirit. This may involve strengthening investment forums to attract venture capitalists, banks, private equity and impact investors to invest in sustainable primary health care (PHC) models to reach the BOP with affordable care. To support private investments in PHC, the government and the donor partners can underwrite credit risk of loans provided by financial institutions to investors in primary health care.

Health for all may be a normative dream with its own inherent problems in operationalisation, but health care for all seems a relatively defined target to aim at. Health care has to be a priority in the social welfare ideas of governance and conversion of it into a practical entity needs not only economics but politics as well.

(With inputs from Dr Gautam Chakraborty, Development Assistance Specialist (Health Finance), USAID)
(All views expressed in this article are personal)


Is it a Right Approach for India?

Aman Gupta
Country Representative, PFCD

Health is considered as one of the most important aspects of human development, and it has been widely acknowledged as well. Access to basic and affordable health care is what everyone deserves to lead a better life. The moment when access to health care is insured, it gets translated into several work and economic benefits including minimum absenteeism, high work productivity and low out-of-pocket expenditure. Due to prevalence of high degree of asymmetric information in the health sector, it is often argued that government intervention is must. Throughout the world, governments have had a significant role in providing and regulating health services and their role is especially important in developing countries because there is large concentration of the poor.

In India, like those in other low- and middle-income countries, the health care challenges are formidable. The requirement of the public spending in the country is much more than the actual spending on health-related activities. This gap between the required and actual spending keeps on varying across various states, and for some the condition is worsening day by day, resulting into marked inter-state inequality. With over 70 percent of the spending on health being out of pocket (OOP), the low level of public spending and its uneven distribution have been a major cause of economic impoverishment. On top of that, this low level of spending is having an adverse impact on the creation of infrastructure for preventive healthcare.

Over the last several years, India’s public health expenditure stands at little 1 percent of GDP, which is well below the world average of 5.99 percent . Meanwhile, household out-of-pocket health spending stands at 69.1 percent of total health expenditures, making this a major component of the financing system . India was already facing the burden of communicable diseases and now the rising incidence of non-communicable diseases (NCDs) has added to the woes. According to the WHO, one in four Indians risks dying from an NCD before reaching 70 . There is utmost and urgent requirement of health reforms, especially in health care financing, as the OOP expenditure for an individual is increasing exponentially with every passing day.

Looking at different factors like health budget allocation, disease burden and out-of-pocket expenditure, pre-pooling/risk sharing could be one of the most suitable reform options. Pre-pooling/risk sharing is a health insurance mechanism where a group of people contribute to a common pool, from where collected revenues are transferred to organizations (government or private) to purchase health services and products for the beneficiaries. These “pre-pooled” funds are used to pay for all or part of the cost of providing a defined set of health services, as needed, for members of the pool. Pre-pooling ensures that the risk related to financing health interventions is borne collectively by all the members of the pool – healthy or sick – and not by each contributor individually. Its main purpose is to share the financial risk associated with health interventions for which there is uncertain need.

Pre-pooling functions are central to the creation of cross-subsidies between high-risk and low-risk individuals (risk subsidy) as well as between rich and poor (equity subsidy). The larger the pool, the greater the potential for spreading risks and lowering the individual costs, and the greater the accuracy in predicting average and total pool expenditures costs.

India currently follows a single-payer system which includes all citizens within a single risk pool. Since single-payer health insurance system rely primarily on tax collection mechanisms that are used to collect revenue for other purposes and collect health revenues for the entire population, they generally have lower collection costs. In a country like India where the tax collection is very limited, government revenues may not be sufficient to fund a universal single-payer insurance system.

In designing an effective and efficient health financing system, countries like India face a difficult dilemma due to several associated factors like insufficient financial and administrative capacity to establish a single insurance pool, adverse selection concerns with multiple insurance pools, among others. To find a universal health financing system is not an easy work to do but with the plethora of experiences from other countries, there is a lot to learn and implement.


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Innovative Financing Mechanisms to Improve Health Coverage in India

After two successful roundtable discussions on health care financing in 2015 and 2016 respectively, Partnership to Fight Chronic Disease (PFCD) organized another multi-stakeholder discussion on healthcare financing, titled “Innovative Financing Mechanisms to Improve Health Coverage in India” in August 2017 at Le Meridien Hotel in New Delhi. The main objective behind organizing the roundtable was to look at the feasibility of adopting an innovative health care financing model through pre-pooling and risk-sharing in the context to India’s finances and demographics.

The roundtable witnessed the presence of several prominent experts, including:

  • Mr Alok Kumar, Adviser, NITI Aayog
  • Dr Kenneth Thorpe, Chairman, Partnership to Fight Chronic Disease
  • Prof Ramesh Bhat, President, Indian Health Economics and Policy Association
  • Dr Shakthivel Selvaraj, Senior Economist, Public Health Foundation of India (PHFI)
  • Dr Sanjiv Kumar, Director, International Institute of Health Management Research
  • Alexo Esperato, Senior Program Officer, Bill & Melinda Gates Foundation (BMGF)
  • Ali Mehdi, Senior Consultant (Social Sector and Development), ICRIER

Key Insights emerged from his Keynote Address:

  • Limited political and bureaucratic articulation on how the ideal health system of India should be
  • Every state has its own views on health financing, and it is a major factor why our public health spending is stuck between 0.9% and 1.3% of GDP for past many years
  • When it comes to health financing, the government is still not clear whether its role is more of a steward, provider or financer. This is one aspect that needs to be considered
  • Ineffective utilization of funds by the state governments is a big area of concern
  • Need to move away from a narrow focus on a single-payer financing system for the whole country as we have several states which have more population than few countries
  • Need to devise health system in a state-specific manner as each state has different disease burden and demographics

Key Issues:

  • Low public health spending
  • High out-of-pocket expenditure
  • No risk protection for majority population (almost 60%)
  • Low utilization of existing health insurance schemes like RSBY
  • Complete absence of primary care
  • Low administrative efficiency
  • Affordability
  • Financial literacy

Key Issues:

  • Expansion of private voluntary health insurance schemes like RSBY to include other vulnerable groups
  • Promotion and scale-up of community-based insurance schemes
  • Incentives to promote community and mutual-based schemes

The Roundtable also had a panel discussion, titled “Risk Pooling in Health Financing: Key to Achieving Universal Health Coverage”. The objective of the panel discussion was to look at the innovative system of health care financing which would pool financial risk to share the cost burden. For most developing economies, a single public health care financing system cannot effectively cover the entire population, given the significant fiscal resources required to run and sustain such programs.

Prominent experts from different stakeholder groups deliberated on the issue, and came up with a set of key recommendations:

Adoption of Multi-Payer System

Keeping in mind a huge disparity in terms of income, employment and geography in India, a multi-payer approach would be better suited. The multi-payer system would rely on numerous pre-pooling mechanisms, in which people would contribute to a common pool and ensures that the risk related to financing health interventions is borne collectively by all the members of that pool and not by each contributor individually.

Create Awareness about Health Insurance

The penetration ratio of both public and private health insurance is very low for India at 3.4 per cent in 2015, as against world average of 6.2 per cent, according to ASSOCHAM . This is primarily due to lack of awareness as most people don’t have even the basic understanding of why they need health insurance or what health insurance will offer them.

Expansion of Public and Private Health Insurance

Despite the government’s policy of insuring the uninsured through the launch of its low premium insurance schemes both life and non-life in 2015, the penetration ratio is still below the global average. Therefore, it is important to simultaneously expand both public and private insurance by using pre-pooling/risk-sharing health insurance mechanisms in order to achieve the desired objective of universal health coverage.

Strengthening of Primary Health Care System

Strengthening of primary health care system in India failed to get the priority it deserves. No health financing insurance system will work unless and until we provide a robust primary and preventive health care system.

Inclusion of NCDs in Health Insurance Schemes

It is important for both the public and private sectors to come up with innovative health financing schemes that adopt basic principle of risk pooling, cross-subsidization and comprehensive services package.

Proactive Role of State Governments

Health is a state subject in India. State governments need to be in the forefront and come up with their respective health financing policies basis demographics and other needs.


A Dose of PPP in Healthcare is What the Doctor Recommends

Dr Kenneth E Thorpe, a professor of health policy and management at Emory University in the US and also the Chairman of Partnership to Fight Chronic Diseases (PFCD), says “The government alone cannot do everything. They don’t have the resources and capacity. So we have to find ways to engage the private sector. We have to start talking about the options that build more capacity, understand what the implementation issues are or regulatory infrastructure you need. Like the central government health plan has to be a compulsory plan and every state got to participate”.

He added, “We need a discussion on public-private health financing. We need to figure out how to draw the public-private partnership to get resources into the system to build infrastructure and the capacity you need to treat, survey, measure and monitor patients”.

Govt Can’t Bear the Burden of Health Care Alone, says Kenneth Thorpe

Dr Kenneth E Thorpe, Robert W Woodruff professor of health policy at Emory University, has been working with the Indian government on blueprints for national-level health policy changes. In an interview to Veer Arjun Singh, he says the government and the private sector need to work together to form a sophisticated health insurance market.

Dr Thorpe said, “One can’t expect the government to take the complete burden of health care. The private sector has to pitch in too. Right now, India spend about four percent of its GDP on health care, if you also include out-of-pocket expenses. We think that to do an effective job of building infrastructure for better treatment, prevention and detection, the government will have to spend about seven to eight percent.

Low healthcare Spend Worrying

Dr Kenneth Thorpe, PFCD Chairman, said “The National Health Policy 2017 was a much-needed step to address the healthcare situation in the country. However, it has taken too long for a country with such a high population and it should have been accorded priority much before. It is important that in India, a country of 1.2 billion-plus people with a robust democracy and economy, the health of its people is accorded priority in the manner that it truly deserves. Lack of focus on health can have serious implications, not just on the state of the health of people and the misery that it causes, but also in dragging the economy of the country down several notches”.

India Must ‘Hike Health Spending or Risk Slowdown

“Investment in health is critically important to achieving your economic goals… it’s not just a health issue, there’s impact on your global aspirations,” Kenneth Thorpe, Chairman of Partnership to Fight Chronic Disease told, “If you don’t make that investment, the number of your healthy workforce goes down, workdays go down, family incomes go down, it’ll have a real negative effect on the economy”.

Thorpe co-authored with Indian government officials, doctors and policy analysts a national blueprint on reducing NCDs burden in India. He was in New Delhi for meetings with government and private healthcare, pharmaceutical, finance, insurance and patient groups to discuss how to move the agenda forward.


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