Healthcare financing needs attention

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Healthcare financing which deals with the generation, allocation, and use of financial resources in the health system has become an area of major policy relevance globally in order to achieve Universal Health Coverage (UHC). In India, public financing of healthcare comes largely from state government budgets (about 80%), and the balance from the Union government (12%) and local governments (8%).

Although effective healthcare financing is essential, it has been difficult to achieve, so far. The thrust of healthcare financing should be on devising mechanisms to improve access, reduce out-of-pocket expenditures (OOPE) for the general population, and thereby lessen economic hardships and impoverishment.

Most importantly, it should focus on creating an evenly distributed healthcare infrastructure as well as a streamlined protocol that makes treatment payouts align with the right treatment approach and right outcomes.

Reducing OOPE
According to the Economic Survey 2022-23, Indians still pay almost half of all health spending directly at the point of treatment. However, this has been dropping over the course of last few yearswith the government’s spending on health rising significantly from 28.6% in 2013-14 to 40.6% by 2018-19. In recent years, OOPE as a percentage of total health expenditure has declined from 64.2% in 2013-14 to 48.2% in 2018-19. But it is still much higher than the global average of 18.1% as of 2019, according to the World Bank.

Despite the government’s recent push through the Ayushman Bharat scheme (PM-JAY) to cover the treatment of the poorest 40% of the population at empaneled tertiary care private hospitals, the overall penetration of health insurance in India remains low at 37%. A large part of this is attributed to lower-middle class slice of the population, called the ‘missing middle’. According to a Niti Aayog report, this population set constitutes 30% of the over all population and lacks any financial backing for healthcare treatment. It is because they are not poor enough to be covered by government-subsidized schemes but not rich enough to afford private health insurance. Private insurance penetration is less than 4% mainly due to the high cost of insurance. Government-sponsored schemes that primarily extend to the lowest income strata of the population cover 25% of the population but the middle class is left with the highest exposure to OOPE.

Stakeholders must devise new health insurance schemes to bring 60-70% of the population, the ones covered under Ayushman Bharat and the missing-middle, under the insurance net and thereby help in reducing OOPE further. Health insurance coverage for missing middle can be increased in various ways including co-pay model, and mandatory corporate coverage for employees mainly targeted at SMEs.

Creating infrastructure
So one hand, while we sort the insurance cover, there is also a need to build more infrastructure, particularly in tier 2/3 towns so that people who are insured don’t have to travel long distances for treatment and can have affordable access. India’s healthcare infrastructure is lopsided with top-quality medical facilities concentrated in major cities. We must focus on increasing the number of hospitals and healthcare centers across regions evenly with an adequate number of qualified medical professionals, beds, equipment, medicine supply, and all other operational facilities.

The Public Private Partnership (PPP) model can be leveraged to boost healthcare infrastructure, particularly in non-metro areas, and reduce regional disparities. The main obstacles to a robust PPP model in creating healthcare infrastructure have been less private investment due to low demand and resourcing challenges exemplified by a shortage of lack of doctors, nurses, and paramedics.

A PPP model to boost health infra should initially focus on locations that can provide a good resourcing base and strong demand channelization, akin to road or airports traffic, in which govt/insured patients mandatorily must go to PPP hospitals in the catchment areas. Viability gap funding (VGF) can help bigger private hospitals expand into the hinterland, while small clinics manned by doctors could make use of these funds to set up smaller primary health centers with 15-20 beds and leverage local demand. Healthcare players must also build hub-and-spoke models to enable better, quicker access and diagnosis. We should complement this with digital healthcare models that can be leveraged for triaging patients according to their needs and to lessen the load on existing secondary and tertiary infrastructure.

Quality at right price
While the cost of treatment in India is almost one-third compared to countries such as the US and the UK, Indians pay more out of their pockets than some of the poorest countries in the world for availing healthcare, mainly for lack of health insurance and inadequate funding for public health.

In 2021, India recorded the highest medical inflation rate of 14% among Asian countries, as a result of which health insurance premiums also increased. In FY 2022, while the retail premiums went up by c.16.5%, group health premiums increased by c.30%. The country needs new healthcare models to ensure that medical treatment payouts are made for the right approaches and layouts. The National Health Policy recognizes some key dimensions of high-quality healthcare – consistency, positive health outcomes, patient-centeredness, equity, and trustable service delivery.

Coverage and quality might need not be a trade-off, and an effective combination of the two is imperative for better healthcare delivery. This involves training and capacitation towards building an end-to-end protocol system comprising correct diagnosis, surgical intervention, and appropriate medication for best patient outcomes.

Way Forward
Much of the problems of access and affordability can be addressed by increasing the insurance base which will also instill discipline in the fragmented healthcare sector.

The COVID-19 pandemic forced a paradigm shift in healthcare in India with massive technology adoption. While technology will dominate healthcare post-pandemic, the challenge of financing and delivering universal access to healthcare to India’s population is immense, and the public sector on its own cannot plug the gaps. The private sector must be co-opted to pool in capital and expertise for new-age solutions to meet the challenges of healthcare financing.


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