This document provides an overview of healthcare financing in India. It begins with definitions of health care financing and outlines the key functions of accumulating, mobilizing, and allocating money for health needs. It then discusses the main mechanisms of healthcare financing globally and in India, including how money is raised through taxes, insurance contributions, and other means. It also addresses how funds are pooled and how health services are paid for. The document reviews India's current healthcare financing indicators and challenges, such as low public spending and high out-of-pocket costs. It concludes with initiatives by the Government of India and recommendations to improve healthcare financing in India.

1. HEALTH CARE FINANCING
IN INDIA
Presenter : Dr. Vishal Soyam,
03/09/14
1

2. Plan of presentation
Introduction
Healthcare finance mechanism
Pattern of healthcare finance across world
Healthcare finance in India
Initiatives GOI
Other model of financing
Challenges &
Recommendation
03/09/14
2

3. Health Care Finance
Definition : “Function of a health system
concerned with the accumulation, mobilization
and allocation of money to cover the health needs
of the people, individually and collectively, in the
health system.” (WHO)
 Purpose :
 Make funding available
 Set the right financial incentives for providers
 To ensure that all individuals have access to effective
public health and personal health care.
03/09/14
3

4. Cont…
 Health financing linked to the provision of services
and the system’s capability to achieve its stated
goals.
 Health financing is raising of resources to support
to pay for goods and health services.
 NEED?
Scarcity of Resources – Need for judicious use
Sustainability of resources
Resource efficiency

5. Health is a human right.
India is at an exciting and challenging period in its history.
key focus area : Making healthcare affordable and
accessible for all
 The challenges:
Nearly 73% of the country’s population lives in rural areas
and 26.1% is below poverty line.
India lacks strong healthcare infrastructure,
Several inherent weaknesses in its healthcare system
Dominant private sector in India, with 70% catered by it.
Epidemiological transition
Demographic transition
Economic slow down
Etc.

6. According to definition health financing is
 Accumulation/collection
 Mobilization
 Allocation of money
03/09/14
6

7. Health Financing Mechanism
Health care financing is about 3 questions:
1.How is the money raised?
2.How are funds pooled? And
3.How are services paid for?
ANSWERS ARE :
1.Revenue Collection
2.Risk pooling
3.Purchasing of health services
03/09/14
7

8. 1. How is the money raised ???
Revenue collection :
4 main ways of raising money for health
care:
1. Taxation-most equitable system of financing
2. Health insurance contributions
 Social health insurance
 Private health insurance
 Community based health insurance
1. User pays (out of pocket, no reimbursement)
2. Donor funding/Grants
03/09/14
8

9. 2. How are funds pooled ???
Mobilization :
Accumulation & management of Revenue
with respect to
Health Risk
Subsidy
Cross Subsidy
Pooling to redistribute health risk
Cross subsidy for greater equity
03/09/14
9

10. POOLING
CONTRIBUTION
(Across equal income)
NET TRANSFER
Low
Risk
High
CROSS SUBSIDY
(Across equal risk)
Low
Income
High
03/09/14
10

11. 3. How are services paid for ???
Purchasing of health services :
It is done by public or private agencies that spend
money either to provide services directly or to
purchase services for their beneficiaries.
Purchaser :
–
–
–
–
–
Ministry of health (MOH)
Social security agencies
District health board
Insurance organization
Individual or household
Purchasing
03/09/14
Passive
strategic
11

12. Purchasing model
It is based on the organizational relationships and
contractual or purchasing relationships :
First model : where the government owns the buildings and
employs the staff directly.
Second model: the patient provider contract, The patient
pays the provider and then seeks re-imbursement from their
insurer.
Third model: the purchaser provider contract, The provider
have to provide services to the patient but the payment is
paid by funder (Govt & insurer).
Fourth model: the patient pays the provider out-of-pocket
and because the cost is not covered by insurer & it is not reimbursable.
03/09/14
12

13. 03/09/14
13

14. Allocation of money
Through budgeting in public sector:
BUDGET : Estimating the requirement of money
to perform the activities during any particular
period.
Line item budgets : budget allocation for functional
category,
Global budgets : allocation to health facilities & typically
depend on the type of health facility, historical facility
budget, no. of beds or utilization rates for past years.
Capitation : is a payment method that allocates
predetermined amount of funds per year for each person
enrolled with given provider or resident in a catchment area.
03/09/14
14

15. Patterns of healthcare financing
across the world.
Broadly, there are three patterns:
The National Health Service (NHS) of the U.K. is a stark
example of a state-run and publicly-funded system.
the U.K. uses tax finances to pay for 80 per cent of its
healthcare spending.
In Europe, social insurance schemes bear most of the
financial burden.
The U.S. relies on private insurance, paid for mostly by
employers: almost half of the supersized health spending
(16 per cent of GDP) is financed by tax money for the care
of the old and the very poor.
03/09/14
15

16. HEALTHCARE FINANCE IN INDIA
03/09/14
16

17. 03/09/14
17

18. Budget allocation in India
Allocation of money through five year plan
Annual allocation within the available five year
funds.
State
Ministry of Finance
(State have their own fund also)
Ministry of health & FW
Dept of health
MOH
M of FW M of AYUSH
Govt Health provider
03/09/14
Other sector
(Eg. Edu, social
Welfare)
Private provider
18

19.  Health Department in consultation with the Directorate
prepares the list of continuing schemes and new schemes.
 Discussed with Planning Commission meetings before
finalization.
 Plan for setting up new CHCs, PHCs, determined not on
the need basis but centrally on the resource availability
basis.
 Final allotment of plan budget is approved
 Transfer of budget to state from the ministry declined
sharply from nearly 57% to 44%.
03/09/14
19

20. Budget Process
 Plan vs Non-Plan budget.
 Need based vs Resource based budget
 Capital vs Revenue budget
 Top-down vs bottom up approach

21. Performance Budget
In which the purpose and objectives for which
funds sought are very clear
To bring out the programmes and
accomplishments in financial and physical terms.
Better understanding and better review of the
budget by the legislature.
To facilitate the process of decision making at all
levels of government.
To enhance the accountability of the management
To render performance audit more purposeful and
effective.

22. Cont..
I.
Details of the structure of the organisation, the
purpose and objectives, achievement, and work
needed to be done more specifically during the
budget year.
II. The financial requirement under programme wise
classification and items wise expenditure.
III. Explanation for the financial requirements given in
part II.

23. Zero base Budgeting
 It focuses on a thorough review of expenditure to
evaluate its continued utility to serve a specific
purpose or a clearly stated objective.
 In conventional budget ‘base’ to which increment
is added is treated as authorised and is not
reviewed.
 In ZBB the activities of an organisation should be
viewed afresh and the priorities decided.

24. Indicators for assessment of
healthcare financing
1. Total expenditure on health as % of GDP
2. Per capita total health exp. at average exchange
rate
3. Govt exp. on health as % of total Govt exp.
4. Public spending on health as % of total health
exp.
5. Out of pocket spending as % of private
expenditure on health
6. Donor spending on health as % of total health
spending
03/09/14
24

25. Cont…
7. % of govt health budget spent on
outpatient/inpatient care
8. % of govt health budget spent on1. Salaries of worker
2. Medicine and supplies
3. Other recurrent cost
8. Health Insurance:
1. % of population covered by various insurance scheme
2. Social security exp on health as % of general govt exp
on health
03/09/14
25

26. Total expenditure on health as %
of GDP
It is a share of a country’s total income that is
allocated to health by all public, private & donor
services
It should be between 2-15% of GDP
The provisional estimates from 2005–06 to 2008–
09 shows that it has come down to 4.13% in 2008–
09 from 4.25% in 2004. (source- NHA 2004-05)
India’s total expenditure is comparable with other
Asian countries .
Global average - 8.3%.
03/09/14
26

27. International Comparison of GDP
Spending

28. GDP spending on health in India
03/09/14
Source:World Health Statistics, (2007 &2008),WHO
28

29. Contributors
Public expenditure
 Central
 State
 Local bodies
 Private expenditure
 Household
 Insurance companies
 Firms
 NGOs
 External flow
 Bilateral/multilateral
agencies
03/09/14
29

30. Per capita total health exp.
The per capita health expenditure for India in
2004–05 was Rs. 1201 of which the share of
public was Rs. 242 (20.18%) and that of
private was Rs. 959 (79.82%). (NHA 2004-05)
Inequity in rural-urban allocation by state
and central govt.
Majority exp by private sector
03/09/14
30

31. Public exp. on health as % of
total govt exp.
The share of public expenditure in GDP has
increased to 1.10% in 2008–09 from 0.96% in
2005–06. and again decrease to 1.04 in 2011-12.
Even this small public expenditure is skewed
towards the richer groups, particularly those living
in urban areas
Public exp. As share of GSDP <1% for all states.
03/09/14
31

32. Public health spending & indicators
Indicators
% population Infant
with income
mortality
< 1 doller/day
% health
expenditure
to GDP
% public
expenditure
to total exp.
INDIA
44.2
70
5
17.3
CHINA
18.5
31
2.7
24.9
SRI LANKA
6.6
16
3
45.4
UK
-
6
5.8
96.9
USA
-
7
13.7
44.1
03/09/14
32

33. Distribution of total health expenditure
amongst public provider
03/09/14
33

34. Structure of Public health sector
NCMH 2005
spending by state govt.

35. OOP Spending as % of Pvt. Expenditure on
health
03/09/14
35

36. Share in Healthcare Spending
2005(%)
(World Health Statistics 2008,WHO)
COUNTRIES
Private exp of total
exp on health
OOP of private exp
on health
OOP of total exp on
health
Bangladesh
70.9
88.3
62.6
Brazil
55.9
54.6
30.5
China
61.2
85.3
52.2
India
81
94
76.1
Indonesia
53.4
66.4
35.5
Malaysia
55.2
75.7
41.8
Mexico
54.5
93.9
51.2
Pakistan
82.5
98
80.9
Philippines
63.4
80.3
50.9
Sri Lanka
53.8
86
46.3
South-east Asia
71
90.4
64.2
South Africa
58.3
17.4
10.1

37. 03/09/14
37

38. Despite poor health indicators, Govt spending on
health care is well below what is needed
Reason being:
– Low revenue collection
– Competing demand for revenue
– Relatively low spending priority
Consequently, limited access to public health care
facilities forces people to go to Pvt. Provider,
resulting in substantial out of pocket (OOP)
spending, specially for the poor.
03/09/14
38

39. Around 24% of all people hospitalized in India in
single year fall below the poverty line due to
hospitalization (WB, 2002)
Those in the bottom four income quintile borrow
money or sell assets to pay for hospitalization.
(WB, 2002)
 OOP expenditure needs
to be reduced as it
aggravates the inequities
by impoverishing the poor
further.
 Therefore, the role of
the Govt. assumes
importance in this
context.
03/09/14
39

40. Of the total OOP expenditure by household in
2004–05: rural - 62% ; urban - 38%
Among various components highest expenditure
was incurred on medicine both in public and
private health care institutions
– public health care - 66% of expenditure in rural areas
& 62% in urban areas.
The component wise analysis showed that about
Out patient care - 66.10%
In patient care - 23.48%,
Delivery - 3.43% and on
Family planning services - 2.83%.
03/09/14
40

41. Reasons of Rising OOP Exp.
A major expenditure item is drugs:
– With the patent regime and the deregulation of
administered pricing regime,
– Irrational use of drugs
– Prices of new drugs and
– Drugs for many NCDs - unaffordable to majority of
the poor
– Non availability of drugs to outpatient & inpatient in
the public sector.
Doctor’s fee was another critical component.
Non availability of investigation facility in public
sector
03/09/14
41

42. Three drives of cost escalation in health
care system.
1.Resources for health care
2.Efficacious and affordable drug regime
3.Access and availability to appropriate
technology
03/09/14
42

43. % of Household falling to BPL
NSSO 2004
Inpatient
Outpatient
Total
Rural
1.3%
5.3%
6.6%
Urban
1.2%
3.8%
5.0%
Total
1.3%
4.9%
6.2%

44. Health expenditure by functions
Sr no.
Health Care Functions
% Distribution
1
Tertiary care
22.45
2
Secondary care
15.32
3
Primary care (41.26)
a) SC/PHC/Dispensaries
b) Public Health programme
11.27
c) Family welfare
13.04
d) Rehabilitative care
4
16.58
0.38
Direction and Administration
10.07
Health statistics and research
2.25
6
Medical stores
1.76
7
Medical reimbursement/compensation
4.13
Functions not specified
2.76
Total
100
03/09/14
44

45. Health expenditure by functions
Sr no.
Health Care Functions
% Distribution
1
Curative Care
42.67
2
Rehabilitative & Long term Nursing Care
0.28
3
Ancillary Services related to Medical Care
2.33
4
Medical Goods Dispensed to Outpatients
0.92
5
Prevention and Public Health (20.79) Services
1. RCH & Family welfare
12.07
2. Control of communicable diseases
6.82
3. Control of NCDs
0.91
4. Other public health activities
0.98
6
Health Administration & Insurance
9.69
7
Health & related functions (17.3)
1. Medical Education and Training of Health Personnel
2. Research and Development
5.33
4. Nutrition Programme
0.08
5. Food Adulteration & Control
9
2.03
3. Capital Formation
8
9.56
0.30
Functions from other Sources
4.99
Functions not Specified
1.1
03/09/14
45

46. Health insurance
Mutual support system based on notion that “ I will
help you in your current need , you to give me help
when I need it.
Insurance : means it ensures every individual
contributors that they don’t have to pay full cost of
care out of pocket in the event of illness
16 % population covered by any form of insurance.
Types:
 Social health insurance
 Private health insurance
 Community based health insurance
03/09/14
46

47. Social Health Insurance
ESIS :
 Supplemented by the Central and State governments.
 Its own network of dispensaries and hospitals, supplemented
by some outsourced Authorized Medical Attendants and
private hospitals.
 Also has ‘Cash Benefits’ which compensate for loss of wages
due to disease/ disability/ death.
 Covers over 50 million persons presently.
CGHS :
 Covers 3.2 million persons. It has its own dispensaries while
hospital services are outsourced.
Both provide comprehensive ambulatory and hospital
care without any annual limits.

48. Community Health Insurance
Small schemes, community-based and not-for-profit motive.
Managed by community members, and accountable back to
members.
‘Facilitators’, usually NGOs, may play an important role.
May outsource part (or all) of risk and/or health services
provision through tie-up with hospitals, insurers.
 Gujarat: Self Employed Women’s Association (SEWA)
 Maharashtra: Sewagram, Wardha
 Gujarat: TribhuvandasFoundation (TF), Anand

49. Private Health Insurance
 Voluntary health insurance scheme, with over 300
products from over 30 insurers competing in the market
today.
 Exclusions, wait periods, sub-limits and other policy
conditions are structured by insurers to avoid adverse
selection, information asymmetry and moral hazard. Not
well understood by customers-issue of confidence.
 Cover about 60 million people presently (excluding
Government-funded schemes), roughly equally shared
between Corporate (group) insurance plans and Retail
(individual/family) plans.
 TPA to facilitate speedier expansion by providing an
administrative-intermediary.

50. State Health Insurance Scheme
 Rajiv Arogyashri - AP
 Kalaignar -TN
 Vajpayee Aarogyashri- KA
 Yeshaswini -KA

51. User fees/community financing
User fees: Any payment made by beneficiaries
directly to the health care service providers at the
time of delivery of health care services
Alternative cost recovery mechanism of health
financing
Mudaliar committee : 1st advocated levying of
small fee on availing hospital services, except poor
NHP 2002 : recognize the practical need for user charges
Obj :To generate ‘revenue’ for ‘cost recovery’
When the community pays for services, it learns to
demand and value them (remove unnecessary demand)
03/09/14
51

52. Currently, almost all states in India have
introduced user fee in Govt. health facility for
people above poverty line.
The collected revenue is deposited in Govt.
treasury or used for improving those facility.
Few states formed society to collect and utilize
fund locally.
Implications:
–
–
–
–
–
03/09/14
Increase efficiency of health services
Remove the long queue for free health care services.
Improve equity
Improve quality of services
sustainable
52

53. Initiative by GOI
At National level
NRHM
RSBY
At State level
State health insurance
03/09/14
53

54. NRHM
Launched in 2005 – to provide universal access to
equitable, affordable and accountable quality health care
Better staffing as per IPHS and human resource
developmental policy, untied fund etc.
Rogi kalyan samiti
User charges started at CHCs and higher level hospital.
Bottom up approach has adopted
During 11th plan there was 4 fold increase in budget
allocation to health sector. Out of this 65.7% was proposed
for NRHM.
In 12th plan, there has been more than two fold increase
over 11th plan budget.
But failed to achieve 2-3% of GDP.
03/09/14
54

55. Rashtriya swasthya bima yojana
It is a central Govt. health insurance scheme to meet
the health needs of the poor
Centre: state – 75 : 25. in North east 90:10.
The maximum premium by the central Govt. is
limited to 750 per insured family/yr.
Benefits:
–
–
–
–
–
03/09/14
Hospitalization expenses upto Rs 30,000
Maternity newborn care
Day care services
Transportation cost (Rs.100/visit, limit of 1000/yr)
Cover all preexisting diseases
55

56. 12th plan initiative
Universal health coverage
Private sector has to be partnered for health care
delivery.
Government Sponsored HIS should enroll private
providers for in-patient care & ambulatory care,
via ‘contracting-in’ mechanism
Essential Medicine List needs to be brought under
price control mechanism,
Incentivization of states
Flexibility in central funding for state
03/09/14
56

57. Other Models of financing
Public private partnership (PPP)
Medical Tourism
FDI in Health sector
Resource generation by Facilities and
colleges
03/09/14
57

58. Medical tourism
India’s medical tourism is also booming
It is the provision of cost effective medical care
with due consideration to quality for foreign
patients who need specialized treatment surgery
Indian health market growing at a rate of 30%
annually. Medical tourism alone can contribute Rs
5000 to 10,000 crore additional revenue by 2012 &
will account for 3-5% of the total health care
delivery market.
03/09/14
58

59. Challenges
PPP: cost escalation. Invariably expensive drugs and
procedures are prescribed.
Insurance companies provide health cover to the young, the
employed and the rich, and avoid those who are elderly,
unemployed and poor.
There is a cozy relationship between the insured, the
insurance company and the healthcare provider.
03/09/14
59

60. Challenges
Insurance covers only the cost of hospitalisation and not
expenditure on outpatient care. 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.
In the Indian situation where a majority of the people are
self-employed, universal coverage will remain a mirage
Many villages in India do not have a hospital worth the
name within accessible distance. What use would insurance
cover be for people living there?
03/09/14
60

61. Recommendations
The future has to be tax funded. Preventive,
primary and some part of secondary treatment has
to be completely free, cashless and provided by
the government and funded through taxes.”
Systems to track & audit expenditures against
budget authorization
Community based research for credible burden of
disease.
03/09/14
61

62. Recommendations
Develop public private partnership.
Increase spending on health promotion: 10%- 20%
Rationalizing & restructuring public health
delivery system.
Integrating AYUSH-increase in human resource.
Raise additional resources by imposing taxes on
health degrading products, eg, tobacco.
03/09/14
62

63. References
National Commission on Macroeconomics & Health 2005.
World Health Report 2003
Trends in healthcare financing 2010
National Account Statistics
NSSO and Consumer Expenditure GoI
Healthcare in India: Changing the Financing Strategy
Financial Resource Management (Nihfw) Module
Health Policies and Programmes in India, Dr D K Taneja
National Health Programmes of India, Dr J Kishore
Shivakumar A K, chen L C, chaudhary M et al Financing
health care for all: challenges and opportunities. Lancet
2011; 377: 668–79.

64. “Health systems financing: The path to universal coverage”
03/09/14
64