Financing Universal Healthcare in India

India has long had a commitment to offer comprehensive healthcare to all citizens. This has been reaffirmed in the 12th Five-year Plan as well as in the more recent National Health Assurance Mission. However, despite this, India has not been able to realize this goal. It is not clear if it has embarked on a path that will make it possible to do so even in the distant future.

The most important reason for this relates not to the absolute availability of resources but to the fundamental flaws in the design of the health system. At 4% of gross domestic product, the country expends more than enough money to deliver good quality healthcare to all citizens.

However, 70% of this money is spent on an out-of-pocket basis at the point-of-service (OOP-POS) with the actual expenditure at any point of time varying from zero to more than Rs.10 lakh, and it is spent to pay for care that is often not necessary or for conditions that would have been easier and less expensive to treat if they had been detected earlier or those that have a slow onset or are asymptomatic until they reach an advanced stage.

This produces financial hardship for all but the top 1% of the population and leads to low levels of well-being across all income segments. The high variability of OOP-POS expenditure on health and the deterrent effect it has on seeking care in a timely manner is also one of the key factors responsible for the re-entry of the middle classes into poverty. It is also a reason for the delayed progress of all below the poverty line, effectively reducing the rate of economic growth.

However, healthcare is not a standard market good and suffers from problems that result in people delaying care until they are really very sick; inability of patients to fully understand and properly evaluate the quality of advice and treatment that they receive and to determine if it is priced in a fair manner; a number of chronic diseases not being suitable for treatment within hospital settings; and the tendency of hospital insurance to result in overuse of hospital services leading to a steady increase in the insurance premium for such services, particularly when patients have received no primary care and have come directly to the hospital.

Developmental efforts of all successful health systems have simultaneously sought to address concerns relating both to financial protection of their citizens and the proper provision of healthcare, with a high degree of implied paternalism to compensate for the failure of traditional competitive market mechanisms to arrive at optimal solutions.

Some, like Japan, have flooded the market with healthcare providers which, in combination with tight regulations, have kept prices low and quality high, have required all the citizens to buy into a single national health insurance plan and have relied heavily on the general good health, healthy dietary practices and high levels of literacy to ensure their consumption of healthcare is optimal.

Others, like the UK, have ensured taxes pay for all healthcares, with the government contracting private doctors for primary care and directly providing higher level of care to all its citizens.

Even though there are a few notable exceptions at the state level, India, despite driven by a low tax-to-GDP ratio of 15%, allocates 10% for healthcare as a proportion of its total expenditure. Still it is unable to afford to pay for all the healthcare needs of its citizens through taxation alone. It will remain so until there is a sharp increase in the tax-to-GDP ratio or the government decides to increase its allocation towards healthcare disproportionately at the expense of other social services.

Any such scheme must have three key components. First, the scheme should provide and pay for a comprehensive essential health package (EHP) and not just restrict its attention to maternal and child health or only to financial protection. Historically, health insurance schemes in India, including those offered by governments, have restricted coverage to in-patient hospital-based treatments.

Secondly, such a scheme would have to be designed from its conception stage to serve both the poor and the non-poor. This would mean the quality dimension would need to be paid attention to, as well as the look-and-feel of the facility itself. Based on the collections from direct taxes on income in the current assessment year in India, such a system of pre-payments from the non-poor who are part of the formal sector could raise between Rs.14,000 crore and Rs.34,000 crore with a total contribution ranging from 5-12% of salaries. This amount on its own has the potential to contribute up to 18% of the required health budgets, without the deadweight loss associated with generalized increased in taxation that hurts growth.

In any developing economy, and India is no exception, there is a large section of the population that is above the poverty line but is not a part of the formal sector. Innovative pre-payment mechanisms can be designed to cover this segment, including explicit sale of the integrated insurance-healthcare product to them on a full-cost basis. Kyrgyzstan is an example of a country that has an informal agricultural sector, which has successfully devised mechanisms to collect contributions towards health insurance from these groups, and has thus, been able to extend health coverage to more than 80% of the population.

The successes of the Swavalamban Scheme and the microfinance movement in India suggest the informal non-poor have the willingness and the ability to pay for schemes that directly add value to them.

[Source: http://blog.livemint.com/Opinion/X4F3daIPrtCj3uxyzrpSVN/Financing-universal-healthcare-in-India.html ]