Financial hardships arising from health expenses continue to be high in India despite many reforms by the central and state governments. Out-of-pocket expenditure (OOPE) as a proportion of household income or expenses has been the most used indicator for denoting financial hardship. With a significantly large informal economy in India, we commonly use OOPE as a percentage of household expenses, which is less than ideal compared to household income. The poor often forego spending on essential healthcare due to unaffordability. In addition, poor families may curtail their expenses on food or children’s education to meet their healthcare expenses. Many resort to borrowing money from friends and relatives or selling their assets to meet their health expenses. Hence, any assessment of financial hardship faced by households should investigate these facts.
The public healthcare system provides free outpatient and inpatient healthcare through a vast network of primary, secondary, and tertiary healthcare facilities managed by the governments. Due to chronic neglect of this sector over the years by successive governments, public healthcare has fallen short of providing the needed services. This has resulted in the growth of an unregulated private healthcare sector to meet the unmet demands for healthcare services. Healthcare costs in private healthcare have steadily risen, owing to demand outpacing supply with demographic shifts, fee-for-service systems, the rising trend of private equity investment in hospital chains, and maldistribution among others. Highly fragmented purchasers of services are often unable to demand the right value for the money from the providers.
Employee Social Insurance evolved in India at the dawn of independence. Today it offers health and social protection to close to 130 million low-income formal laborers and their dependents. Many central and state-level public health insurance programs have been implemented over the last two decades, culminating in a nationwide, portable public health insurance program under Pradhan Mantri Jan Arogya Yojana (PMJAY). The PMJAY aims to cover 500 million poor people identified as per data collected in 2011 under the Socio-Economic Caste Census (SECC). So far, it has issued 360 million beneficiary cards. In addition, many states have expanded the coverage to families identified by other social welfare programs. In addition, private health insurance has been growing, more so since the COVID-19 pandemic. Today, it covers nearly 150 million people. In addition, both central and state governments and public sector undertakings have health coverage programs for their employees. Central Government Health Scheme (CGHS) is a classic example of this.
Despite growing coverage, there are close to 400 to 500 million people – the so-called ‘missing middle’ – who do not possess any form of health financial coverage in India. Governments have been exploring various options to bring these ‘missing middle’ people into the coverage net at the earliest. Some states like Rajasthan and Andhra Pradesh have announced schemes that aim at universal coverage of their population. However, there is a growing concern about the future financial sustainability of these schemes given the poor fiscal state of many states.
A majority of all health insurance products, both public and private, cover hospital-based care only and insist on overnight hospital stays. However, more than 95 percent of healthcare needs can be provided by outpatient and ambulatory care. Hence, a sizeable amount of health expenses are incurred outside the coverage net offered by these insurance products. Studies have underscored that many insurance schemes did not result in a reduction in OOPE. This is another area requiring policy attention in our quest to achieve UHC by 2030.
Due to various measures taken by both central and state governments and evolving market dynamics, OOPE as a percentage of total health expenses (THE) has been steadily declining from a high of 63 percent in 2014-15 to 47 percent in 2019-20 as per National Health Accounts released in 2023. The decline may be attributed to the increasing proportion of insurance coverage, strengthening of public healthcare systems, especially in primary healthcare, price regulation of essential drugs, popularization of generic medicines through Jan Aushadi outlets, and the advent of online platforms offering huge discounts for drugs and diagnostics, among others.
India can adopt multiple strategies to eliminate financial hardship in accessing essential healthcare. The priority shall be on strengthening public healthcare services across the care continuum with special emphasis on strengthening comprehensive PHC services. While more than 160,000 Ayushman Arogya Mandirs (AAM) – previously termed Health & Wellness Clinics (HWC) – have been commissioned, their effective and efficient functioning will define their impact on overall population health and health accounts. In addition, governments can enlarge the coverage to more economically and socially deserving people and more outpatient services, provided they have adequate fiscal space and have undertaken sound research on future economic sustainability.
Digital technologies have been transforming information systems in India across sectors. Unified Payment Interface (UPI) is transforming the dominantly informal Indian economy into a formal economy. This is expected to improve the tax-to-GDP ratio which continues to be low compared to other large economies, which in turn will improve the fiscal space for the governments to increase the public health expenditures, which at 1 percent of GDP is one of the lowest even among the low- and middle-income countries (LMICs). Formal economy may also influence the proportion of formal labor leading to a higher number of working families being brought under ESI coverage. The advent of disruptive user-friendly fintech and insurtech products may further accelerate the growth of contributory health insurance in India.
Drugs and diagnostics account for a major portion of OOPE. WHO has recently released the list of essential diagnostics in addition to essential drugs. In addition to mandating all public healthcare facilities to ensure the supply of these, governments will be equipped to regulate these in the private sector. Public education on generic drugs and strengthening quality regulatory systems for these products will increase the uptake of generic drugs, leading to reduced OOPE. Policy reforms aimed at self-reliance in drug development and manufacturing, diagnostics, and devices will have a long-term impact on health expenses.
While the major focus is on reducing financial hardship, it is equally important to ensure that everyone has timely access to sufficient quality healthcare services. Hence, there is an urgent need to improve the supply of essential quality services, especially in underserved rural areas and urban slums. Ayushman Arogya Mandirs (AAM) and public health systems strengthening initiatives under the Ayushman Bharat Health Infrastructure Mission (ABHIM) are expected to improve access in underserved areas. The doubling of medical and nursing colleges in recent years will improve the supply of health workforce which is vital to improving access to services. Telemedicine is overcoming certain limitations in access to doctors, especially for specialty consultations. Homecare services are rapidly being expanded even to rural and remote areas. In addition, self-care digital applications and point-of-care devices are improving access to services around the clock.
As India evolves from a highly fragmented purchasing system towards pooled payer systems both in public and private, there is an opportunity to leverage the power of pooling and strategic purchasing to drive quality and cost of services to what is feasible and optimal. Ongoing Ayushman Bharat Digital Mission (ABDM) will become essential to implement value-based care across provider systems, which is essential for financial sustainability in the long term.
Fortunately, India has the political intent to achieve the goals of National Health Policy 2017, UHC, SDG, etc., for the ultimate goal of ‘health for all’. There is a need to strengthen administrative capacity to implement policies, especially in policy implementation research and strategic decision-making for the political intent to translate into a transformed health system.