Between 1987 and 1996, there was a shocking 30% decline in the use of public healthcare facilities in both rural and urban areas. Over this decade, utilisation of private health services, especially in the hospital sector, increased substantially, out-of pocket spending on healthcare galloped, and indebtedness due to healthcare affected nearly half the users of healthcare facilities. A comparison of utilisation and health expenditure data across the 42nd (1987) and 52nd (1996) Rounds of the NSS showed up these alarming trends. As a consequence of the declining use of public healthcare facilities, the 52nd Round showed higher levels of untreated morbidity, especially amongst poorer groups. The 2002 National Health Policy unashamedly acknowledges that the public healthcare system is grossly short of its defined requirements, that functioning is far from satisfactory, that morbidity and mortality due to easily curable diseases continue to be unacceptably high, and resource allocations generally insufficient.
Why did this happen? The inadequate commitment of public resources to healthcare was mainly responsible for poor health outcomes in India.
The cost of seeking treatment even at public hospitals had increased five-fold (simultaneously, the cost of treatment in private hospitals increased nearly seven-fold), though the purchasing power of the poorer classes had not changed in any substantial way.
These trends are closely linked to a wide spectrum of changes in the economy since the mid-1980s, which have led to the privatisation of services, deregulation of drug prices, increased reliance on market mechanisms to address welfare needs, and a weakening of public health systems.
As a result of structural adjustment programmes, investment and expenditure in the public health sector has been declining. This privatisation policy, which mandates the introduction and/or increase of user charges at public health facilities, has taken the public health system to the brink of collapse. With greater dependence on the market for healthcare, access had become more difficult for an increasing number of people.
Public financing is critical
Public financing of healthcare is critical in both developed and developing economies. A political economy based largely on private health financing can create adversities for health not only for poorer sections of society but also the middle classes. In most developed countries, where healthcare access is near-universal, public financing, which accounts for around 80% of all health expenditure, whether through state revenues and/or social insurance, has been the critical component in realising universal access with equity., In contrast, in most developing countries the reverse is true -- 70-80% of health expenditure is met by individuals from their private resources.
India lost the opportunity to implement a national healthcare system immediately after Independence through the Bhore Committee recommendations. The country made very poor investments in the public health sector over the years. But the mid-1970s saw major investment, especially in rural India , via the Minimum Needs Programme. The Fifth to Seventh Plan period was the 'golden era' of public health sector performance in India, when public investment and expenditure in healthcare peaked and health outcomes witnessed substantial improvement, first in the developed states and then in the underdeveloped ones.
But the economic crisis of 1991 and the economic reforms posited by the Structural Adjustment Programme (SAP) pushed by the World Bank upset the achievements of the public health sector in this golden era. Resource commitments to public health declined in the 1990s, especially in the developed states. Improvements in health outcomes slowed down, and the rural-urban gap widened. Public healthcare facilities were incapacitated because of insufficient inputs. This has been caused by the compression of public spending in the health sector as well as allocative inefficiencies caused by unprecedented increases in salaries as a consequence of the implementation of the Fifth Pay Commission (1996-1998). Non-salary components have shrunk considerably as budget increases do not factor in allocative efficiencies for the effective running of the public health system. This coupled with privatisation policies, including the introduction and/or increase in user charges, has taken the public health system to the brink of collapse. With greater dependence on the market for healthcare, access becomes more difficult for an increasing number of people.
In fact, when we relate health outcomes with expenditure we see that in comparison to similarly developed countries India 's performance is the worst despite the fact that we have one of the highest total health expenditures amongst these countries. See the table below.
Health outcomes in relation to health expenditure patterns
| | Total health expenditure as % of GDP | Public health expenditure as % of total | U-5 mortality | Life expectancy | |
Male | Female | | |||
India | 5 | 17 | 95 | 59.6 | 61.2 |
China | 2.7 | 24.9 | 43 | 68.1 | 71.3 |
Sri Lanka | 3 | 45.4 | 19 | 65.8 | 73.4 |
Malaysia | 2.4 | 57.6 | 14 | 67.6 | 69.9 |
South Korea | 6.7 | 37.8 | 14 | 69.2 | 76.3 |
Source: Changing the Indian Health System -- Draft Report, ICRIER, 2001
This poor performance is largely because, in India , spending is mostly out-of-pocket as the public resources committed are very low. In a scenario of poverty, such a mechanism of financing will never show up good health outcomes because when the poor and not-so-poor have to pay their health expenses they forego other basic needs or, worse still, get indebted. National surveys show that loans for healthcare is the number one reason why families, especially the poor, are trapped into indebtedness . This is clear evidence that public financing is critical for good healthcare and health outcomes.
Only 15% of the Rs 1,500 billion healthcare sector is publicly financed
The total value of the health sector in India today is over Rs 1,500 billion, or US$ 34 billion. This works out to about Rs 1,500 per capita, which is 6% of GDP. Of this, 15% is publicly financed, 4% is from social insurance, 1% from private insurance (Mediclaim policies, 85% to public sector insurance companies) and the remaining 80% from the pockets of patients as user fees (85% of which goes to the private sector). See table below. Two-thirds of users are purely out-of-pocket users and 70% of them are poor. The tragedy is that in India , as elsewhere, those who have the capacity to buy healthcare from the market most often get healthcare without having to pay for it directly, and those who are below the poverty line or living at subsistence levels are forced to make direct payments, often with a heavy burden of debt. National data reveals that 50% of the bottom quintile sold assets or took loans to access hospital care. Thus, loans and sale of assets are estimated to contribute substantially towards financing healthcare. This further underlines the need for insurance and social security.
Financing healthcare in India (2003)
| | Estimated users in millions | Expenditure (Rs in billions) |
Public sector | 250@ | 252 (17)* |
Of which social insurance | 55 | 30 (2) |
Private sector | 780@ | 1,250 (83)** |
Of which social insurance | 30 | 24 (1.6) |
Private insurance | 11 | 11.5 (0.8) |
Out-of-pocket | 739 | 1,214.5 (80) |
Total | 1,030 | 1,552 (100) |
@ Estimates based on National Sample Survey 52nd Round, and Labour Year Book
* Finance accounts of central and state governments, and Labour Year Book
** Private final consumption expenditure from national accounts statistics figures in parentheses are percentages
About 80% of public financing of healthcare comes from state government budgets, 12% from the Union government and 8% from local governments. Of the total public health budget today, about 10% is externally financed in contrast to around 1% prior to the structural adjustment loan from the World Bank and loans from other agencies. Private financing is mostly out-of-pocket, with a large proportion, especially for hospitalisation, coming not from current incomes but from savings, debt and sale of assets. Insurance contributions, whether for social insurance schemes or as private insurance premiums, constitute a very small proportion.
Trends in public health expenditure
Public investment in the social sector in India has been a cause for concern. The attempt at a mixed economy that marries socialism and capitalism has not worked for either system. In retrospect, the large public sector economy failed to realise both economic and social goals. On the contrary, it helped the accumulation of private capital. The Indian bourgeoisie and the state did not have the vision to promote a welfare state. From the First Plan onwards the health sector has received inadequate resources and these resources largely benefited the small urban-industrial economy. Table 1 in the Factfiles section at the end of this journal profiles the investment and expenditures in the health sector since the First Plan period. It is evident that the state has, over the years, committed a mere 3% of public resources for the health sector and this has invariably been less than 1% of GDP. As a consequence, healthcare has been an out-of-pocket burden on households. Of the total health expenditure in India , the public sector contributes around one-fifth and this has remained more or less constant over the years, with a declining trend in the last decade. This level of state investment in health is not adequate to ensure universal and equitable healthcare access.
The post-SAP period saw a declining trend in public resources being committed to the health sector, and the stagnation in health outcomes is largely a consequence of this. Graph 1 and Table 2 in Factfiles show the trends in public health spending from 1976 to 2001 and it is evident from this that in the 1980s public health expenditure as a percentage of GDP as well as a proportion of total government spending peaked and then began to decline. Worse, the proportion of capital expenditure was halved during the '90s as compared to the '80s; this meant that new investment in public health had almost ceased. This was the period of private sector expansion in the health sector (post-SAP, even private health expenditure showed a decline, but in the latter half of the '90s it began climbing again and rapidly). (See Table 1 and Table 6 at the end of the article.)
While overall public health investment and expenditure have been low and inadequate to meet the healthcare needs of the population at large, there are hierarchies within this health spending. The most obvious hierarchy is the rural-urban dichotomy in public health investment and expenditure. Rural areas across the country have public health services that largely focus on preventive and promotive aspects. Thus, immunisation for children and pregnant women, antenatal care, surveillance of selected diseases and family planning services constitute the key focus of the primary healthcare system provided for rural India . The component for ambulatory curative services is grossly inadequate under the primary healthcare system. In contrast, the focus in urban healthcare is largely curative, with dispensaries and hospitals taking away most of the health resources. Since India lacks a national health accounting system, disaggregation of public spending across rural and urban areas, for the country as a whole, is difficult to compile. However, we have done this exercise for Maharashtra state to estimate rural-urban differentials in the allocation of resources (Table 3/Graph 2 at the end of the article).
The rural-urban distribution of resources at one level favours urban health facilities with over 60% of allocations for urban areas where 40% of the population resides. But, more important, at another level the service mix of healthcare in the two regions differs significantly. Rural areas get only half the resources urban areas get on a per capita basis, and within this low allocation only 4% is for medical care and a little over 1% for capital expenditure (Table 3). The rest is on the preventive and promotive programmes referred to earlier.
In contrast, in urban areas, resource distribution shows a good mix of curative, preventive and promotive services, with curative services comprising nearly half the urban health budget. While this data is from Maharashtra , in other states the rural-urban disparity should not be very different; in fact the allocation of resources to rural areas in the under-developed states is likely to be worse.
While rural-urban differential health expenditures are not available in the national health accounts, we do have data on expenditures across major health programmes. Table 4 shows that until the beginning of the 1990s the proportion across programmes maintained an astonishing consistency. What we see since then is a decline in the proportion of expenditure on hospitals and dispensaries, capital expenditure and disease programmes. One programme that has gained substantially is Mother and Child Health (MCH) now called Reproductive and Child Health (RCH) together with the family planning programme, because of an increased focus on antenatal care and child immunisation. Capital expenditures have taken a real beating (see Table 2) and as a result there have been virtually no new investments in the public domain during the 1990s and subsequently. However, the decline under the budget head 'hospital and dispensaries' and 'disease programmes' may not be actually so. In the finance accounts there have been changes in reporting in which external budgetary support is shown under a separate head, and since such resources have come largely to the hospital sector (health sector reform projects of the World Bank, European Union, etc) and to disease programmes like AIDS and tuberculosis, there is perhaps no real decline under these two heads. So the astonishing consistency seems to continue, perhaps reflecting that there is very little drive for change in the method of public health spending.
Further, when we look across states the declining trend in public health expenditure during the 1990s is almost universal (Table 5). The collapse is taking place across the length and breadth of the country and this is a very serious concern. Yet, one sees increased proportions being allocated in the central government's budget: this is also a matter of concern because most of this increase is due to external funding for vertical health projects like the health sector reform projects of the World Bank and EU, RCH projects of various bilateral and multilateral donors, HIV/AIDS funding, etc.
Another concern vis-Ã -vis public health budgets is that of allocative efficiency of resources. In the 1990s, budgets shrank, yet salaries (post-1996) increased substantially and this upset the availability of resources for non-salary components in most states and added salt to the wounds of the ailing public health system. It is only in the last few years that the ratio of salary to non-salary is returning to the pre-1996 period.
To sum up then, it seems clear that the collapse of the public health system during the last decade is linked to falling levels of public health investment and declining public health expenditure. In a situation of continuing poverty, this can only lead to increased adversities in health outcomes.
Source: Performance budgets, ministry of health and family welfare, government of Maharashtra 2002-03, Mumbai, 2003
| Table 1: | Pattern of investment and expenditure on health and family welfare (Rs in billions) and selected health outcomes (Click here) |
| Table 2: | Total public health expenditure (revenue + capital) trends 1975-2003 and selected ratios (Click here) |
| Table 3: | Maharashtra 2000-01 public health expenditures (Rs in millions ) |
| Table 4: | Disaggregation of national public health expenditure by major programmes (Click here) |
| Table 5: | Revenue expenditure on health: Union government and states (Click here) |
| Table 6: | Private health expenditure trends (Click here) |
(This is an abridged version of a paper titled 'Public Health Expenditures, Investment and Financing Under the Shadow of a Growing Private Sector')
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