Number Theory: Four Macroeconomic Trends in Health Spending in India

Last week, the Ministry of Health released National Health Accounts (NAH) data for 2019-2020. The obvious and immediate conclusions of the report – health expenditure per capita is the highest in real terms and the share of out-of-pocket health expenditure (OPO) continues to decline – has been largely covered. CNS statistics have been consistently available since 2013-2014. Is there a larger trend in India’s healthcare spending over this period? Here are four tables that answer this question.

Spending on health insurance has seen the strongest growth since 2013-14

Out-of-pocket spending continues to have the highest share in total health spending in India.

Despite a downward trajectory, out-of-pocket expenditure continues to have the highest share in total health expenditure in India. What about the growth of each type of spending over the past six years? NHA data shows that private health insurance spending is showing the strongest growth in this regard. OOP spending, in real terms, actually declined over this period (more on that later). While a growth in health insurance spending shows greater awareness of the importance of purchasing such coverage, 77% were still not covered by it in 2017-18, according to a survey by the National Sample Survey Office (NSSO).

The downward trend in expenditure excluding expenditure in absolute terms seems to have reversed in 2019-2020

Despite a contraction in terms of CAGR, absolute direct expenditures in real terms increased between 2018-19 and 2019-20. Does this mean that the downward trend in direct expenditure in real terms has reversed? It is unlikely that we will have the answer to this question in the next two years. The extraordinary health burden of the pandemic, if properly captured, is expected to keep health spending high in 2020-21 and 2021-22. Admittedly, unless comprehensive data on overall household expenditures and health expenditures are available, it is difficult to say whether out-of-pocket expenditures have led to an increase in the financial burden on households. This will require comprehensive consumer expenditure survey data.

States continue to outspend central government on health

The NHA provides health expenditure data from the Center and from state governments. A comparison of these figures over the past six years shows no clear trend, but state spending is 1.45 to 2.18 times central spending. However, as can be seen in the first graph, central spending has shown higher growth than state spending over this period. These figures also mean that the center and the states will have to increase their health spending if India is to meet its stated target of spending 2.5% of GDP on health.

And achieving this goal is key to addressing supply side issues in India’s public health infrastructure.

Will increasing the government’s footprint in the health sector help India’s poor? Data from a 2017-18 NSSO survey shows the answer is an unambiguous yes. The average medical cost in private facilities (for conditions not requiring hospitalization) is 2.4 times higher than in public facilities. Certainly, it could be argued that people voluntarily spend a higher amount to enjoy private facilities. Data from the same report shows that supply shortfalls are a bigger factor in driving people away from public health facilities than anything else. About two-thirds of people who choose a private facility over a public facility (70% did so for conditions that did not require hospitalization) cite factors such as the unavailability of a required service or quality issues, structure too far or too long waiting to use private facility rather than public facility. This number actually increases for the poorest segments of the population.