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For
some time now, it has been accepted among economists
that health is one area which should be dominated by
public activity. Even the most diehard market-worshippers
recognise that health spending is a clear merit good,
because of the substantial presence of ''externalities''.
And there are other characteristics of health care which
are associated with ''market failure'', such as information
asymmetry, which also require state intervention and
regulation.
An
externality results when an action of an agent has an
effect not only upon the agent but also upon others.
A positive externality occurs when the production of
a good or service benefits not only those who purchase
it but others as well. In such cases, obviously, if
production is left to market forces alone, the amount
produced would be less than what society would consider
spending to be optimal. State intervention - either
directly through public provision or indirectly through
subsidising private provision - is then required to
ensure that sufficient resources are directed to this
activity.
Externalities are very evident for ''public health'',
that is interventions targeted at overall conditions
of nutrition and sanitation that determine health, as
well as communicable diseases which are passed either
directly among humans or indirectly through the physical
environment. An action taken by one person (e.g. ensuring
clean, safe water, immunizing oneself against, or seeking
treatment for, a communicable disease) generates direct
health benefits for other individuals, through reduced
rates of disease.
However, even general health care services that apparently
affect only individuals have positive externalities,
not only because of the social costs of morbidity, but
because inequalities in health care create other social
concerns. It is now recognised that overall health conditions
are not just socially desirable but also play an important
economic role in generating higher labour productivity
and creating suitable conditions for growth.
These positive externalities make government intervention
in health essential. Such intervention can take the
form of price subsidies to encourage or spread the consumption
of health care services, or direct public provision
of such services.
Asymmetric information reflects any situation in which
one party to any contract or exchange has access to
some information that is not known to the other party.
Such information asymmetries, primarily between the
service provider and patient, pervade the health sector
and cause market failure in both health care and health
care insurance markets. For example, in any society,
patients know best how improvements in health affects
their own well-being, while providers have better information
regarding both the causes of ill-health and the effectiveness
of alternative health care services in restoring health
or preventing the further deterioration of health.
There are also problems of ''incentive incompatibility'',
in which the interests of the patient and the health
care provider need not coincide. Both of these point
to the need for government intervention in the form
of regulation. Such regulation can take the form of
licensing of health care providers, limits on advertising,
insistence on some professional norms that prohibit
low quality, etc. Such regulation has to ensure balance
between the need to increase welfare by improving or
ensuring quality, and the welfare reducing effects of
inadvertently granting monopoly powers to providers.
Therefore from both the efficiency and equity grounds
there, is no alternative to the public provision of
health care. Even for the success of an insurance system
based on private provision, increased public health
spending and reforming of public health facilities are
necessary.
Despite all this, which is now standard knowledge across
the world, health expenditure in India is dominated
by private spending. And this is essentially because
of the inadequate public spending that has been a constant
if unfortunate feature of Indian development in the
past half century. What is even worse is that matters
appear to have deteriorated further in the past fifteen
years.
Even in the mid-1980s, the health expenditure of central
and state governments taken together was pitifully small
at just above 1 per cent of GDP, but now it is only
around 0.9 per cent. Further, it fell to as low as 0.8
per cent in 2001-02. It is also significant that in
recent years a greater proportion has been taken up
by revenue expenditure (essentially, the payment of
salaries) rather than capital expenditure for creating
much-needed basic physical infrastructure for health
facilities.
The ratio of central government spending to total state
government spending is currently around 1:2. In the
past decade, central government expenditure on health
and related areas has been relatively flat at around
0.35 per cent of GDP, with a small downturn in the mid-1990s
and a small increase in the very recent period. Within
this, expenditures on health alone have been completely
flat at only 0.1 per cent of GDP. There has been some
slight increase in expenditures on family welfare, which
include some expenditure for reproductive health.
However, spending on women and child development has
remained relatively constant as share of GDP. This is
very surprising considering that this budget head is
dominated by the ICDS, and the Supreme Court's orders
make it incumbent upon the central government to increase
dramatically the spending on ICDS in order to make it
universal.
This completely inadequate government expenditure has
forced citizens to bear the brunt of health spending
in the country. According to the National Health Accounts
of India for 2001, households accounted for more than
two-thirds of health spending in the country, and around
three times the amount of all government expenditure
taken together, by central, state and local governments.
Employers (firms) account for only 5 per cent, but what
is especially notable is the negligible role played
by both external sources and others including NGOs.
Despite the reported increase in foreign aid for dealing
with HIV-AIDS and similar issues, all external sources
taken together accounted for only 2 per cent of total
health spending, while NGOs accounted for only 0.3 per
cent. (However, some foreign aid - that portion going
directly to governmental sources for defined programmes
of the government - is included in the health expenditure
of central and state governments.)
More recent estimates suggest that the role of households
has increased even more substantially in the most recent
period. According to the Report of the National Commission
on Macroeconomics and Health, 2005, households undertook
nearly three-fourths of all the health spending in the
country. Public spending was only 22 per cent, and all
other sources accounted for less than 5 per cent.
This means that India has the lowest ratio of public
to private health expenditure among almost all countries
in the world, both developed and developing. Compared
to India's public-private health spending ratio of 1:4,
the ratio in China was around 2:3, while even Pakistan
had a ratio of 1:3. In most developed countries, of
course, public health spending is much greater than
private spending.
Further, there is a trend of gradually increasing household
expenditure on health care, even as a share of household
budgets. Preliminary results from the latest NSS survey
data for 2004-05 suggest that for rural households spending
on health now accounts for as much as 6.6 per cent of
their total consumption expenditure, up from 5.4 per
cent in 2003-04. For urban households, the increase
has been from 4.6 per cent to 5.2 per cent.
This in turn probably reflects three separate trends:
the greater valuation placed on health such that even
poor households are willing to spend and incur debt
to ensure minimal health care; the worsening quality
and spread of, and therefore the reduced access to,
reliable public health services; and the increase in
user charges and other effective charges upon consumers
even in the public health system, as government-run
hospitals and clinics that are starved of public funds
resort to making citizens pay more for medicines, diagnostic
procedures and surgical aids.
Further, all the private expenditure in India (as in
some other countries) is constituted by out-of-pocket
expenses. This is inherently regressive and puts a disproportionate
burden for health care on poor households. The burden
on citizens is particularly high because, even as households
bear the brunt of aggregate health spending in the country,
systems of affordable health insurance are non-existent
or poorly developed.
It has already been seen that employers (both public
and private) account for relatively little in terms
of spending on health. In any case, with more than 90
per cent of Indian workers having ''informal'' or unorganised
status, there are few possibilities of ensuring that
employers bear at least part of the costs of medical
treatment. Therefore instances of accident or severe
illness requiring hospitalisation have drastic effects
upon the households of the affected persons, even among
middle-income households.
This is equally true of urban and rural households but
the effects may be particularly sharp among the rural
population because of the relative paucity of any publicly
provided treatment. Recent studies of agrarian distress
have also found that health expenditures have been significant
in causing or increasing the indebtedness of farmers,
which has in turn been a proximate cause of farmers'
suicides.
Obviously, government health expenditure has got to
be increased substantially from the current abysmally
low levels, if India is to achieve even a small part
of the potential that our leaders are so proud of declaring.
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