Journal of Global Resources
Volume 4 (01)January 2018
ISSN: 2395-3160 (Print), 2455-2445 (Online)

Page 126-132

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HEALTH FINANCING IN INDIA: CHALLENGES AND OPPORTUNITIES
Kavita Singh
Research Scholar, Department of Geography, University of Mumbai, Mumbai, India
Email: dfakrl@yahoo.com
Abstract: India’s healthcare financing system is a cause of and an exacerbating factor in thechallenges of the health inequity, inadequate availability and reach, unequal access and poor
quality and costly health care services. Low per capita on health and insufficient public expenditure
results in very high private out-of-pocket expenditure. Citizens receive low value for money in the
public and private sectors. Financial protection against medical expenditure is negligible. Large
inefficiency in public and private sectors and unregulated private sector reduce efficiency,
effectiveness and accountability of health expenditure. The government of India has made acommitment in recently released National Health Policy, 2017 to increase public health carespending from 1.15 percent of the GDP in 2014 to 2.5 percent of the GDP in 2025, whereas, it could
only increase public health spending from 0.9 percent to 1.15 percent from 2004-05 to 2013-14,
which appears to be a herculean task. Health in India is a state subject and its implementation lies
with subnational. The National Health Policy 2017 has also assured to increase state sector healthspending to more than 8 percent of their budget by 2020 and decrease in proportion of households
facing catastrophic health expenditure from the current level of 64 percent to 48 percent (25percent) by 2025. In addition to increase in public spending on health which would mean
reprioritization which may further mean curtailment of funds in other social sectors which are
already in constraints of resources in India, the government of India needs to review its taxes andsubsidies not only to generate additional resources but to promote health. The paper deals with the
weaknesses of health care financing in India, out of pocket expenditure vis-à-vis other countries
and its addresal, need to increase government spending on health care and innovative means ofgenerating resources to address the unfinished agenda of MDGs carried forwarded to be achieved
during the era of SDG since India is undergoing a demographic, epidemiological and nutritionaltransition.
Keywords: Health, Financing System, Health Priorities, Diseases
Introduction
Improving health care and increasing the number of people who are healthy is the development
goal of any country. In case of fast developing economies, like India external aid isdrastically getting reduced and there is a little capacity to increase per capita spending on healthas India has limited capacity to raise tax revenue. The health priorities are changing as maternaland child mortality have rapidly declined but there is growing burden of non-communicable diseases
and some infectious diseases. Due to rising economic growth which enables to enhance physicalcapacity; India is experiencing an emergence of robust health care industry estimated to be growing
a double digit but is also facing growing incidences of catastrophic due to healthcare cost which
are presently estimated to be one of the major contributor to poverty. Healthcare spending in India
for 2014 is about 4.7 percent of its GDP, which is 75 USD per capita1. Of this Government HealthExpenditure (GHE) is 30 percent and a majority, more than 60 percent of healthcare expenditure ishousehold out of pocket expenditure (OOPE). Prepayments towards risk pooling arrangements orhealth insurance are very low. Household premiums to private health insurance are 3 percent of
Total Health Expenditure and Social health insurance expenditures2 (which are included under
government health expenditures) are about 6 percent. The National Health Accounts, 2013-14
reports that Government Health Expenditure is 3.8 percent of the general government
1

Health financing indicators for select countries 2014; Global Health Expenditure Data Base (GHED), World Health Organization
Social Health Insurance includes Central Government Health Scheme (CGHS), Employee State Insurance Scheme (ESIS), Exservicemen Contributory Health Scheme (ECHS), and Government Financed Health Insurance Schemes such as RSBY and State
specific health insurance schemes. Medical Reimbursements to Union/State Government employees are also included.
2

126expenditures. Considering India’s federal structure, share of State governments in government
health expenditure is 66 percent and about 7 percent of Government healthcare expenditures inIndia are capital investments. Of the current health expenditures, government spending is 51
percent on primary healthcare, 23 percent on secondary 13 percent on tertiary care3 and others.
Government spending on health is primarily focused on primary healthcare covering familyplanning, immunization, disease control programs for both communicable and non-communicablediseases provided by health facilities and outreach programs. In 2013-14, Household expenditures
on health were majorly OOPE (64 percent of THE) and Health insurance contributions were very
low of THE. OOPE on healthcare is largely spent on curative care services as 55 percent was on
outpatient care, 32 percent on inpatient care, 6 percent on patient’s transportation, and 4 percent
on preventive care and the rest on other services. Overall, majority of OOPE is on drugs anddiagnostics i.e. 53 percent and 10 percent respectively. India’s position on OOPE vis-à-vis othercountries is alarming, therefore, there is need to enhance efficiency and look into innovative waysof raising finance.
Aims and Objectives
The main and objectives of the research study are as under:• To study health care financing in India.
• To study Out of Pocket expenditure and its addressal.
• To focus on need to increase government spending on health care.
• To suggest the innovative ways to raise health care financing.
Research Methodology
The present research paper is based on secondary data information sources and publication of
Ministry of Health and Family Welfare, Ministry of Finance, World Health Organization, Economic
Surveys and budget documents. Statistical methods and diagrams like percentages, growth, bar
diagrams and pie charts have been used to display change.
Study Area
The study is focused on India but the parameters like low public spending, out of pocket expenditureand per capita health spending is compared with neighboring and developed countries.
Out-of-Pocket Expenditure in Selective Countries
Health expenditure in 2014 shows that India has the highest out-of-pocket expenditure (62.4
percent) on health except Bangladesh (67 percent). The countries like Thailand (12 percent), UK(9.7 percent), China (32 percent), USA (11% percent), South Africa (6.5 percent) and Brazil (25.5
percent) have shown more public spending on health which are the reasons for better healthparameters. The government spending in India is lower than Nepal (40 percent), Sri Lanka (56percent), Thailand (78 percent) and China (56 percent). This shows that the countries spending
more towards public health care face no catastrophic expenditure.
Table 01: Health Expenditure in 2014
Countries
OOPE as % o
GHE as % o
India
62.4
30.0
Bangladesh
67.0
27.9
Nepal
47.7
40.3
Sri Lanka
42.1
56.1
Thailand
11.9
77.8
Brazil25.5
46.0South Africa
6.5
48.2
Russia
45.8
52.2
China
32.0
55.8
United Kingdom
9.7
83.1
United States of America
11.0
48.3
Source: WHO, Global Health Expenditure, 2014
*Others include private health insurance, enterprises, NGOs and Donors.

Others * as %
8.0
5.0
12.0
2.0
10.0
28.0
45.0
2.0
12.0
7.0
41.0

3The combined (public and private) spending on primary, secondary and tertiary care is 45.5%, 34.8% and 16.1% respectively.

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The per capita total health expenditure in India is much lower than Sri Lanka, Thailand,Brazil, South Africa and China. The government health expenditure is also lower than othercountries except Bangladesh and Nepal. The out-of-pocket expenditure is also very high ascompared to Thailand and China. India ranks 183 among 192 countries in terms of out-of-pocket
healthcare expenditure as a percent of total health expenditure and is just above Bangladesh (187)and Afghanistan (184).
Figure 01: Health Expenditure in 2014
90

83.1
77.8

80
70

67
62.4
56.1

60
47.7
40.3

50

48.2
46

42.1

55.8

52.2
45 45.8

48.3
41

40
30

27.9

30

25.5

20
10

8

12
5

11.9

10

32

28

12 9.7

6.5

2

7

11

2

0

OOPE as % of THE

GHE as % of THE

Others * as % of THE

Per Capita Total Health Expenditure, Per Capita Government Health Expenditure and Per Capita Out-ofpocket Expenditure in Selective Countries

Table 02: Per Capita THE (USD), Per Capita GHE (USD), Per Capita OOPE (USD) and Per
Capita Others (USD)
Countries
India
Bangladesh
Nepal
Sri Lanka
ThailandBrazilSouth Africa
RussiaChina
United Kingdom
United States of America

Per Capita
THE (USD)
75
31
40
127
360
947
570
893
420
3935
9403

Per Capita GHE
(USD)
23
9
16
71
310
436
275
466
234
3272
4541

Per Capita
OOPE (USD)
47
21
19
54
29
241
37
409
134
383
1039

Per Capita
Others (USD)
5
1
5
2
21
270
258
18
52
280
3823

The squeeze of public finances in India has resulted in the appalling state of health care system
and given birth to impoverishing out-of-pocket health care expenditure which is as high as 62
percent of total health expenditure, which pushes 7 percent population below poverty threshold
every year.
Addressing High Out-of-Pocket ExpenditureHigh OOPE coupled with low government spending (1.15 percent of GDP) has made India’s
healthcare financing highly inequitable. Since OOPE is the most inefficient way of spending whichleads to catastrophic health expenditure and pushing households into impoverishment, Government128

of India has assured through national health Policy, 2017 to increase Government healthcare
expenditures to 2.5 percent of GDP and ensured a majority of government spending oncomprehensive primary healthcare, drugs and diagnostics, screening of hypertension, diabetes andincrease proportion of healthcare expenditures through risk pooling arrangements or healthinsurance. This can be done either through expanding population and service coverage throughgovernment on social health insurance schemes like employee state insurance and Rastriya
Swasthya Bima Yojana (RSBY) that provides cashless healthcare services to population. Manystates have already such insurance schemes under implementation such as Yeshasvini Scheme in
Karnataka, kudumbasree in Kerala and Aryogyashree in Andhra Pradesh. The Government of India
is also working on National Health Protection Scheme (NHPS) to provide health insurance to poorand marginalized. These measures can largely contribute towards reducing OOPE. Efforts are also
made for incentivizing the large middle-income class population to purchase private healthinsurance so that majority of population with a ‘capacity to pay’ could be covered through thismechanism without any additional burden on the government finances.
Need to Increase Government Spending on Healthcare
Government spending on health is of utmost importance as this is central to efficiently mobilizing
resources for the health sector. This key element underpins strong socio-economic solidarity
among communities, which is essential to a health system. Without this, systems will be more
dependent upon private funding sources, such as OOP spending and private health insurance
which are associated with inequity and poor financial protection leading to iniquitous and unhealthysociety. India is currently facing the problem of high Out-Of Pocket Expenditure (OOPE) which isover 60 percent (rank 183/192 countries) and over 7 percent population slip below poverty line due
to catastrophic health expenditures and 27 percent of hospitalized patients had to sell assets orborrowed money to finance healthcare needs.
Further, large private sector and OOPE dependency leads to deleterious health outcomesdue to issues of information asymmetry as majority of poor population are illiterate and do not havethe understanding and are unable to make a decision about treatments largely depending on
doctor’s advice. There are several externalities (e.g. TB, vaccination) in healthcare where private
markets fail to provide services such as disease prevention, health promotion and public health thatwill require government intervention to be able to achieve good health outcomes. India with its rapidsocial and economic development, undergoing a major epidemiological transition. Over the last 26
years the disease pattern has shifted as mortality due to communicable, maternal, neo-natal andnutritional diseases (CMNND) has declined substantially but non-communicable diseases andinjuries are increasingly contributing to overall disease burden. India’s health system therefore,
faces a dual challenge. The burden from diseases such as diarrhea, respiratory infections, delivery
complications, neo-natal disorders and tuberculosis are reduced but still a high burden. At the sametime the contribution of NCDs such as cancer, heart disease, stroke and diabetes are rising which
are largely life style diseases. The nature of this challenge varies across the country.
Figure 02: Contribution of Major Disease Groups to total Deaths in India, 1990 and 2016

1990

2016
8.50%

10.70%
27.50%

37.90%

53.60%

61.80%
Communicable, maternal, neonatal, andnutritional disease
Non-Communicable disease

Communicable, maternal, neonatal, and nutritional
diseaseNon-Communicable disease

Injuries
Injuries

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The proportion of deaths in India due to CMNNDs has reduced from 53.6 percent to 27.5
percent during 1990 to 2016 whereas, those due to NCDs increased from 37.9 percent to 61.8
percent and those due to injuries increased from 8.5 percent to 10.7 percent. This shift in disease
burden requires extra resources to address life style diseases. Therefore, the reason why healthcare system in India requires more funds are high out-of-pocket expenditure (OOPE), low healthinsurance coverage, weak public health facilities, dearth of infrastructure, shortage of skilled
professionals and heavy burden of non-communicable diseases which is accounting for 62 percent
of diseases. Though the National health Policy of India, 2017 assures availability of freecomprehensive primary health care services for all aspects of reproductive, maternal, child, andadolescent health and for the most prevalent communicable, non-communicable and occupational
diseases and moving towards universal health coverage but as per past trends the total healthcare
expenditure in India has increased from 0.9 percent of GDP in 2004-05 to 1.15 percent of GDP in
2013-14 and this 27.7 percent increase in expenditure could be achieved over constant efforts in a
decade. However, as per the projections under National health policy, increase in healthcare
expenditure from 1.2 percent in 2017-18 to 2.5 percent in 2025 means more than 100 percent overa period of 7 years will be a challenge for the government of India where health had never been apriority. The GDP calculations made assuming an annual increase of 7.2 percent with prices being
constant show that to increase the health expenditure up to 2.5 percent of GDP, Government needs
to increase health expenditure to 97.45 billion USD approximately with provision of 31.18 billion
USD at central level.
Innovative Ways to Raise Health Financing
In India, additional funds for health would be reprioritisation which mean curtailment of funds inother social sectors which are already in constraints of resources. Innovative ways of health carefinancing to create more money for health and enhancing capacity, efficiency and accountability to
get more health for money are the options to support developing economies to deal with unfinishedagenda of Millennium Development Goals (MDG) and to create a roadmap for Sustainable
Development Goals (SDG). Progress towards the MDGs, on the whole has been remarkableespecially on front of poverty reduction, education improvements and increased access to safe
drinking water. The progress on health goals and targets has also been considerable. Globally, theHIV, TB and malaria epidemics were addressed to an extent. Child mortality and maternal mortality
decreased 53 percent and 44 percent respectively since 1990. In case of India, IMR reduced
from 88 per 1000 live births in 1990 to 35 per 1000 live births in 2015 and Maternal Mortality
Ratio (MMR) reduced from 556 per 100,000 live births in 1990 to 167 per 100,000 live births in2015 but failed to achieve the target of reducing IMR by 2/3rd and MMR by 3/4th in 1990. Healthcare spending in India including public and the private sector was 4.7 percent of the country’s GDP
in 2014 which translates to about 75 USD per capita and three forth of this is from the private sector.
The National Health Account for 2013-14 reports that Government health expenditure in India is
3.8 percent of the Total Government Expenditure (TGE) including State and Central government.
Considering India’s federal structure, share of State governments in government health expenditureis about 66 percent. National Health Policy 2017, has committed to increase health expenditurefrom the existing 1.15 percent to 2.5 percent of GDP by 2025.
In India, to generate more resources for health, there is need to consider review of taxes
and subsidies which play a preventive role in controlling communicable and non-communicablediseases for example commodities that harm health, needs to be declared sin and heavily taxed
and taxes generated to be earmarked for preventive and promotive health care whereas thosebeneficial need to be subsidised. In India, as per 2017-18 budget document, 10 percent ofgovernment spending are earmarked for subsidies for food, fertilizers and petroleum etc, whichhave direct and indirect health effects. The subsidies during 12th five-year plan were 1.74
times more than the central, State and local budget on health hence subsidies need to be reviewed
periodically. Raised Taxes on harmful commodities may not only improve health but can generate
more fiscal space for health. In case of India, taxes on alcohol, tobacco, salt and sugar will not only
generate additional resources but would be preventing communicable and non-communicablediseases and contribute to easing burden on health system. At present, communicable and noncommunicable diseases cause more than 65 percent deaths, the fiscal deficit created due to raised
taxes would be impacting socio-economic and cultural factors in a low and middleclass society. The revenue generated through tobacco taxes may be earmarked for health sector130to deal with cancer and cardiovascular diseases and for agriculture sector to shift farmers
from tobacco cultivation to other crops which yield high returns and are sustainable ecologically.
At policy level, marginal increase in taxes may not yield desired results and outcomes,
thereby increase in taxes need to be substantial to achieve the desired changes in
consumption andmore
towards
phasing
itout
fromlife. Ina country
likeIndia, inflation surpass small increases hence inflation need to be adjusted to avoid tax
ineffectiveness. Planning of such taxation would yield outcomes if mechanism of strict adherenceof regulation at centre and State is in place to avoid non-compliance on ground of loopholes andground against smuggling and bootlegging as large tax collection allures pilferages. Formulation ofpolicy on raised taxes may not achieve defined results unless its implementation andenforcement are monitored effectively and coordinated till it yields desired outcomes to transport
and trade illegally. Raised taxes on tobacco, alcohol, salt, sugar and unhealthy products are
justified not only to address the bad effects on society from the abuse of these substances but also
to enhance collection of government revenue. Revenue raising on these products should be as
high as the component that mitigate the bad effects of consumption/abuse. The design of taxes
must take into account all products leading to obesity and further diabetes and cardiovasculardiseases. Adolescents and adults respond most to price increases on unhealthy foods andbeverages, tobacco and alcohol, therefore, for the productive utilization of tax resources, part of tax
collection could be earmarked to preventive and promotive health care of these sections andremaining for improvement for air and water quality, nutrition and treatment of diabetes,
Cardiovascular Diseases, Cancer and Chronic Obstructive Pulmonary Disease (COPD).
In a similar way, other front of resources mobilisation is review of subsidies which is aburden on growing economies and may provide some fiscal space. Food substances that
contribute to obesity including refined grains such as wheat flour and white rice are highly
subsidised and these subsidies need to be reviewed and reoriented towards improving thenutritional content of subsidised food. Production and consumption of pulses have stagnated inIndia while the output of food grains and sugar has increased. In India, under the National Food
Security Act (NFSA), 2013, the government is projected to spend $25 billion a year to subsidize
food grain, whereas this food subsidy can be used towards subsidies on pulses, fruits, vegetables
and milk which will have a far beneficial impact on nutrition and help in addressing life stylediseases. It is not only what consumers eat, drink or smoke that can harm health and whose effects
can be modified by taxes or subsidies. India subsidises coal, gasoline and their fossil fuels
which are the leading products of particulate matter which causes lower respiratory tract
infections, Chronic obstructive pulmonary disease (COPDs), cancers, heart diseases andexacerbates the risk of tuberculosis.
According to a 2015 IMF report, government spent 6.5 percent of the world’s GDP to
subsidise energy and energy subsidies which is more than public spending on healthand education. Re-allocating fuel subsidies towards clean fuels and eliminating subsidies on those
items which have direct harmful effect on health to improve health and save scarce resources.
Review of subsidies and later removal or reduction and imposition of heavy taxes may not favour
political agenda but the health and economic burden of tobacco and alcohol use falls heaviest on
the poor. Heart disease and stroke are the leading causes of catastrophic expenditure in India andthe main reasons of families fall below poverty line trap into poverty. A second concern is thatremoval of agricultural subsidies would adversely affect farmers and small-scale manufacturers
including those who make bidis and other tobacco products. Farmers of tobacco and sugarcane dowell as these crops are cash crops in India but to assist them to switch over to such crops that are
not harmful to human health and just a substitute of their livelihood. Allocating part of earmarked
revenue collected through taxes for the orientation of these farmers for smooth transition from thesecash crops to other crops without putting them into financial hardship. Policy makers need to
document explicitly pros and cons of these reforms of reorienting tax revenue and subsidies andexplain provisions how the losers from these changes would be compensated to ensure that theirlivelihoods are not compromised.

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Conclusion
In nutshell, the need of the hour is an effective implementation of NHP for the improvement ofhealthcare service delivery and to reduce OOPE substantially. The policy ensures more resources
by increasing government spending to 2.5 percent of the GDP by 2025 but the review of taxes andsubsidies will further generate resources for health financing. Increase in government spending will
also create millions of jobs through much needed expansion of the health workforce, which is 5thlargest employer in India. This will help India converting a demographic surplus into demographic
dividend. Further “Sarvebhavantusukhinah, sarvesantuniramaya” and Health is not only a Goal in
itself, but also vital for improved developmental outcomes. Better Health Improves productivity andreduces economic losses due to premature death, prolonged disability & early retirement. Healthand nutrition directly impact the scholastic achievements- bearing on productivity and income.
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