‘More Money for Health’: Financing Universal Health Coverage in India

The study has been authored by Nachiket Mor, Visiting Scientist at The Banyan Academy of Leadership in Mental Health.

Any discussion of the pathways that India needs to take towards Universal Healthcare (UHC) would be incomplete without a clear understanding of how it is to be financed. While this proportion varies considerably across states, currently, we in India spend a total of about 4% of our Gross Domestic Product (GDP) on healthcare with almost 2.5% (or 62.5% of the 4%) of this being directly paid for by us at the time we use any healthcare services. This is far too high. For UHC to be achieved it is imperative that we instead pay for all of this via our taxes or insurance premiums and the share of direct (also called “out-of-pocket” or OOP) payments gradually declines to zero. This is because while sudden episodes of severe illness could strain our individual budgets and may even force us to forego care, large tax and insurance pools are well equipped to absorb such shocks. Also, left to themselves, even well educated and affluent consumers tend to wait until they are very sick and then go directly to hospitals instead of being seen by a primary care doctor regularly. This leads to a situation, as it has in India, where not only are we not in good health, but only hospitals grow, and the primary care that we so urgently need for good health, gradually withers away. Government and large non-government purchasers (i.e., insurers) of health care, when they function effectively, are in a much better position to guide and, where appropriate, compel, us as consumers to act in our best interests, often more so than we ourselves would, acting on our own.

Health Ministry on Tuesday said there has been no scarcity in oxygen supply in the last 10 months. (Bloomberg file photo)

However, perhaps the most important challenge that we face in our UHC journey is that while the proportions being allocated to healthcare by each state government from its annual budget vary greatly and range from 0.7%-0.8% of GSDP for higher-income states such as Gujarat, Haryana, Maharashtra, and Tamil Nadu, to 1.3%-1.4% for low-income states such as Bihar and Uttar Pradesh, they are all very low, even though health is a state subject. These low proportions immediately beg the question of why is it so and how states can be persuaded to allocate larger shares for healthcare? Given the need to at least triple, and in many cases quadruple, budgetary allocations for healthcare, there is a need for a careful dialogue with state-level politicians and bureaucrats to find satisfactory answers.

The wide and inevitable differences in the cost structures and approaches also give rise to the need for careful modelling and simulation work to quantify the amounts that would be needed for UHC in each state. Such work will make it possible for an informed discussion to take place with each state government on the extent to which it needs to increase its budgetary allocations to get to UHC.

Insurance premiums paid by consumers are another important financing mechanism, particularly in the absence of adequate financing for healthcare from state governments. At the moment in India, its share is only a minuscule 0.25% of GDP and all of it is being offered only in the form of a purely financial risk management instrument (“indemnity health insurance”) with no guarantee of either the quantum or the quality of healthcare that it will help enable. As citizens search for ways to protect themselves, the rapid growth of this mechanism is inevitable and is already underway. There is, therefore, an urgent need to better regulate the commercial health insurance industry and via their control of payments, to also de facto regulate the behaviour of the private sector healthcare providers. There is also a need to study if the current form of indemnity health insurance needs to be gradually replaced by mechanisms in which health insurance and healthcare come together and offer consumers much stronger integrated healthcare, also referred to as Managed Care, by revisiting current regulatory barriers.

The Lancet Citizens Commission on Reimagining India’s Health System expects to engage in-depth with all these questions of modelling and simulation, political economy, and regulation of the insurance sector to arrive at its recommendations on the best pathways for India to follow.

The Lancet Citizens’ Commission on Reimagining India’s Health System is a cross-sectoral endeavour to develop a citizens’ roadmap to achieving universal health coverage for the people of India in the next decade. For more on the Commission, please visit.

(The study has been authored by Nachiket Mor, Visiting Scientist at The Banyan Academy of Leadership in Mental Health.)