health care financing

1. HealthCare Financing
Dr. Devendra Kumar

2. Health care financing
• WHO – “function of a health system concerned with the
mobilization, accumulation and allocation of money to
cover the health needs of the people, individually and
collectively, in the health system”
• To ensure that all individuals have access to effective
public health and personal health care.

3. Principles of a health financing system

4. • Ideally a Financing system should be able to
 Generate revenue
 Pool the funds
• So that there is cross-subsidy between the rich and
the poor and also between the healthy and the sick.
 Purchase appropriate and efficient health care
services.

5. Health expenditure, Total ( % of GDP)
4.296 4.401 4.247 4.28
4.685
8.875
9.767 9.681 10.018 9.921
0
2
4
6
8
10
12
1998 2002 2006 2010 2014
INDIA
WORLD
World Bank. Health Expenditure, 2014

6. International Comparison Spending on Health
(% of GDP)
15.2
8.4 8.7
4.3 4.2
8.3
0
2
4
6
8
10
12
14
16
USA Brazil UK China India Global
%ofGDP
Source: UNDP, Human Development Report 2008

7. Health expenditure, Public ( % of GDP)
1.104 1.026 1.111 1.161
1.407
5.229
5.634 5.701
6.069 5.986
0
1
2
3
4
5
6
7
1998 2002 2006 2010 2014
INDIA
WORLD
World Bank. Health Expenditure, 2014

8. Public Expenditure on Health as % of GDP
8.2
7 6.9
4.8
3.5
2 1.8
0.9 0.9
0.4
1.9
0
1
2
3
4
5
6
7
8
9
Source: UNDP, Human Development Report 2008

9. Public expenditure on Health as % of GDP
among BRICS nation
4.3
3.8
1.3
3
4.2
0
1
2
3
4
5
Brazil Russian Fed India China South Africa
India spends least on healthcare among BRICS nation
World bank. Health expenditure, public (% of GDP)2012

10. Public and Private Expenditure on Health
26.2
33.6
47.5
70
73.2
81.7
73.8
66.4
52.5
30
26.8
18.3
0 20 40 60 80 100 120
India
Bangladesh
Sri Lanka
Canada
Thailand
Uk
Public spending
Private spending

11. Out of pocket health expenditure (% of total
expenditure on health)
68.234 70.496
65.747 63.371 62.417
18.652 17.706 17.967 17.901 18.174
0
10
20
30
40
50
60
70
80
1998 2002 2006 2010 2014
INDIA
WORLD
World Bank. Health Expenditure, 2014

12. Total health exp.
(4.9 % of GDP)
Private Exp.
(4% of GDP)
OOP Exp.
(3.6% )
Employee &
Comm.
Financing
(0.4%)
Govt. Exp.
(0.93% of GDP)
Centre
State
Local govt.
GDP spending on health in India
Source:World Health Statistics, (2007 &2008),WHO

13. Contribution to Health Expenditure by Central
and State Government (as % of GDP) Of India
72.92 72.11 69.32 68.04 65.54
27.08 27.89 30.68 31.96 34.36
0
20
40
60
80
100
120
2001-02 2003-04 2005-06 2007-08 2009-10
Central Govt
State Govt
Source: RBI Bulletin 2012, Expenditure Budget, GOI

14. Sources of Financing Healthcare in
India
Source of Funds % Distribution
(a) Public Funds
Central Government 6.4
State Government 12.6
Urban Local Bodies and PRIs 1.3
Total (a) 20.3
(b) Private Funds
Households 72.0
Firms 5.3
NGOs 0.1
Total (b) 77.4
(c) External Support
Grants to Central Government 1.5
Material Aid to Central Government o.1
Grants to State Government 0.2
Total (c) 2.3
Total funds 100.0

15. Trends in health services utilization in IndiaPercentage distribution of cases of hospitalized treatment in urban areas
by type of hospital during 42nd, 52nd and 60th NSSO rounds
0
10
20
30
40
50
60
70
42nd 52nd 60th
NSSO rounds
Percentage
Government
Non-Government
The NSSO 60th round mentions an increase in both utilization of private
sector utilization and hospitalization expenses

16. Mechanisms for financing the health care services
• Out of Pocket Payment
• General Tax Revenue
• Insurance : Social Health Insurance
Private Health Insurance
Community Based Health Insurance
• External Finance: Loans, Grants

17. Out of Pocket Payments (OOP)
• Simplest form of health care financing
• In India, this is the most common form of financing
health care.
• The main financer of health services in India is the
individual household.
• They meet 72% of the total health care costs by
paying out of pocket at the time of service.

18. Contd....
• Adverse consequences of OOP:-
• They lower access to health care by creating
financing barriers.
• They impoverish the households because of
high medical costs.

19. General Tax Revenue
• Second most important mechanism.
• Governments collect revenue through taxes, both
direct and indirect.
• This revenue is allocated to various sectors including
the health sector
• Out of the total expenditure, 20.3 % was public/
government expenditure.

20. Insurance
• The revenue is generated either by individuals paying
a premium or by employers contributing towards
their employees or even the government paying on
behalf of the poor.
• Health insurance could be an alternative health
financing mechanisms
• Limitations:- Demand side
Supply side

21. Contd...
• Demand side limitations:- Protection from the real
cost of ill health may make individuals less risk
averse, causing them to neglect precautionary/
preventative measures. Or, being covered, an
individual may consume excessive amounts of health
care.
• Supply side limitations:- With insurance, excess
demand can be supplier - induced as well -- the
provider has fuller information on health status than
the patient and could have used this asymmetry in
information to over-prescribe services covered under
the insurance plan.

22. • Broadly there are three major types of health
insurance:
• Social Health Insurance (SHI)
• Private Health Insurance
• Community Health Insurance

23. • In India, there two major SHI schemes:-
• Employees State Insurance Scheme (ESIS)
• Central Government Health Scheme (CGHS)

24. Employees State Insurance Scheme (ESIS)
• All workers and their dependent relatives are eligible
for the benefits.
• Comprehensive cover:- Out Patient
In Patient and
Rehabilitation
• Its own network of dispensaries and hospitals,
supplemented by some outsourced Authorized
Medical Attendants and private hospitals.
• Covers over 50 million persons presently.

25. • Contribution :-
• Employer - 4.75 % of the total wages
• Employee - 1.75 % of his /her wage
• Sate government - 1/8 th of the total expenditure of
medical care.
• Central government - 7/8 th of the total expenditure
of medical care

26. Central Government Health Scheme (CGHS)
• Moral hazard :- Demand side limitation, self referred
patients.
• It appears that most patients prefer to bypass the
dispensaries and directly avail of specialist services.
• Covers 3.2 million persons, has its own dispensaries
while hospital services are outsourced.
• Both provide comprehensive ambulatory and
hospital care without any annual limits.

27. Private Health Insurance
• Emerges from voluntary actions in a market where
buyers are willing to pay premium to private
insurance companies
• Major strength are that as a prepayment and risk
pooling mechanism it is generally preferable to out of
pocket expenditure.
• Main weaknesses are : it is associated with high
administrative costs and profit, it is generally
inequitable

28. Community Health Insurance
• Mostly not-for-profit prepayment plans for health care,
with community control and voluntary or compulsory
membership
• Care is generally provided through NGO or private
facilities.
• Managed by community members and accountable back
to members.
• CHI schemes have had some success in providing
financial protection to the poor in the informal sector.
• Helpful complement

29. The Public Health Care System in India
• Three most important features:-
i) Low levels of public spending: Between 1996-06,
the public expenditure with respect to GDP was at
0.94%.
• NRHM, the expenditure increased only marginally to
1.2 percent of GDP in 2009-2010.

30. ii) A resulting poor quality of preventative care and
poor health status of the population
iii) The inadequate level of public health provision has
forced the population to seek private health
providers resulting in high OOP spending.

31. Recent Reforms for Increasing Allocation to
Health Care
• National Rural Health Mission (NRHM)
• Rashtriya Swasthya Bima Yojana (RSBY)

32. Healthcare financing across the world.
• Broadly, there are three patterns: -
• The United States relies on private insurance paid for mostly by
employers
• Almost half of the health spending (16 % of GDP) is financed by
tax money for the care of the old and the very poor.
• The United Kingdom uses tax finances to pay for 80 per cent of
its healthcare spending.
• In Europe, social insurance schemes bear most of the financial
burden.

33. Challenges
• Rapid population growth with limited resources and to balance
the conflicting demands of increased coverage of health care
• Raising resources for investing in health is one challenge and
Spending these resources equitably and efficiently is another.
• In the Indian situation where a majority of the people are self-
employed, universal coverage will remain a mirage
• The majority of the Indian population is unable to access high
quality healthcare provided by private players as a result of
high costs.

34. Challenges
• Many villages in India do not have a hospital worth the name
within accessible distance, so what use would insurance cover
be for people living there
• Insurance companies provide health cover to the young, the
employed and the rich, and avoid those who are elderly,
unemployed and poor.
• NHA statistics show that close to 70 per cent of the out-of-
pocket expenditure of the household is for outpatient care,
which will not be covered by insurance.
• Cost escalation:- Invariably expensive drugs and procedures
are prescribed.