FINANCING OF HEALTHCARE FINANCING OF HEALTHCARE IN INDIAIN INDIA

FINANCING OF HEALTHCARE FINANCING OF HEALTHCARE IN INDIAIN INDIA

Vision-‘ To foster a healthy society through provision of quality health care services to all citizens’.

Mission-‘creating an affordable and efficient health care system, balancing preventive and curative measures and establishing an enduring public-private partnership’.

Mobilization of funds for health care

Allocation of funds to the regions and population groups and for specific types of health care

Mechanisms for paying health care

• The prevention, treatment, and management of illness and the preservation of mental and physical well-being through the services offered by the medical and allied health professions.

Late 1970s Voluntary community based health insurance attracted considerable attention

1980’s financing of health care moved high on the agenda of the discussions on health policy

Recurring theme in ◦ Executive Board Meeting of the WHO

in 1986, ◦ World Health Assembly and the

Commonwealth Health Ministers Conference in 1986

User charges dominating the policy debates of 1970s and 1990s.

Attention back on community based health insurance

In developed countries the problem is containing the cost of health care

In some developing countries the problem presents itself as how to maintain health spending and how to achieve “health for all” initiative

•The government’s fiscal effort measured as the proportion of total government expenditure spent on health again identifies India as a low performer.

•In a global ranking of the shares of total public expenditure earmarked for health only 12 countries in the world had lower proportions spent on health.

•The out of pocket private spending dominates with 82 percent spending of all health spending from private sources. This is one of the highest in the world.

•Globally only five countries have a higher dependence on private financing in the health sector (WHR 2000). •About 10 percent of Indians have some form of health insurance mostly formal sector and government employees.

Tax based public sector Private sector including not

for profit sector Household through out of

pocket Insurance External sources

Financing of Health:Financing of Health:The Public SectorThe Public Sector

-Public Sector – Introduction-Sources of Public Financing-Allocation of Resources-Health Expenditure by Central & State Govts.-Trends in Public Financing-Issues in Public Financing

Public SectorPublic Sector

BY: SHWETA SHARMA

Public Sector – Public Sector – IntroductionIntroduction

• Part of the state that deals with the production, delivery and allocation of healthcare related goods and services by any form of government - whether national, regional or local/municipal.

• Health being a State subject, the sector is financed primarily by the State Governments.

• Out of the Total health spending in India (Over Rs 1,500 billion or US$ 34 billion), public sector spending accounts for less than a quarter.

PUBLIC FINANCING – PUBLIC FINANCING – SOURCESSOURCES

General tax and non-tax revenues. -Includes grants and loans received from both internal and external agencies

Central Government sponsors programmes to be implemented by

the State Governments, State Governments largely finance the local health programmes.

Central, State and local Governments together spend one-fourth of the total health expenditure. The share of other central ministries, which include railways, defence, posts and telegraphs, other civil ministries, etc. is estimated to be about 2.42% of total health spending in the country. The estimate is based on direct spending by the ministries as well as reimbursements provided to its employees.

Overall, the sector is underfunded, not without consequences.

AllocatiAllocationon

Department-wise break-up of health ministry’s budget suggests that- >1/3rd - The Department of Health

<2/3rd - The Department of Family Welfare. Around 2-3% of total budget - ISM&H

Health Expenditure by Central & Health Expenditure by Central & State Govts.State Govts.

Increased to about 0.9% of the GDP as per the estimates for 2003-04, from 0.8% in 1975-76 as seen in Fig 4.

During the decade 1975-85, it registered a substantial increase and reached a high of 1.05%.

Thereafter, it deteriorated steadily due to the general fiscal stress during the late 1980s followed by the reform measures initiated in the 1990.

The improved allocations could not be sustained beyond 1999-2000 when deceleration set in again. By the year 2001-02, the relative allocation to the sector reached levels closer to those prevailing in 1975-76.

Trends in public spending on Trends in public spending on health in Indiahealth in India

Public sending on health in India gradually accelerated from 0.22% in 1950-51 to 1.05% during the mid-1980s, and stagnated at around 0.9% of the GDP during the later years and then declined to around 6% of the GDP lately.

Of this, recurring expenditures such as salaries and wages, drugs, consumables, etc. account for more than 90% and is on the rise in recent years. In terms of per capita expenditure, it increased significantly from less than Re 1 in 1950- 51 to about Rs 215 in 2003-04.

Estimates, irrespective of the definition, reveal that the per capita spending by the Government is far below the international aspiration of US$12 recommended for an essential health package by the World Development Report 1993 (World Bank) and, again by the Commission on Macroeconomics and Health (World Health Organization 2002) for low-income countries.

IssuesIssues• Public support for healthcare has been historically low in India, averaging less

than 1 per cent of the GDP.

• Another issue in public finance is that rural health budgets largely come from plan expenditures, usually as part of vertical programs sponsored by the Centre. Unlike non-plan funds, plan funds are not internalised expenditures and hence may not have long term commitment. This makes rural public funding highly precarious.

• Low priority for preventive health care, as also preventive and promotive education including not just disseminating disease-specific messages to raise awareness among people for behaviour change but also a range of other aspects such as providing nutritional information to consumers regarding food products, on risky behaviours and exhorting people to adopt healthy lifestyles such as non-consumption of addictive substances such as tobacco, daily exercise, healthy diets, etc.

• While taxation is considered the most equitable system of financing, as tax is a means of mobilizing resources from the richer sections to finance the health needs of the poor, under a system dominated by out-of-pocket expenditures, the poor, who have the greater probability of falling ill due to poor nutrition, unhealthy living conditions, etc. pay disproportionately more on health than the rich and access to health care is dependent on ability to pay.

The Private sectorThe Private sectorin medical carein medical care

BY: GITESH SHELAR

Berman (1997) has proposed that private care provision can be characterized with three dimensions: Financial orientation, therapeutic orientation (allopathic, ayurveda, homeopathy etc.) and complexity of organization(informal, part time to large specialty centers).

According to Financial orientation private health sector consists of-

1.For-profit organization.Includes Individual practitioners from various systems of medicine ,private clinics ,dispensaries ,Private Hospitals and Health Insurance companies etc.

2.Not-for-profit organization. Includes NGO’s ,Trust hospitals and Charitable hospitals etc.

Kind of services provided by Kind of services provided by non-profit organizationsnon-profit organizations

30%

70%

Distribution of Service provided by non-profit-organization

Dispensaries & Health centres Hospitals

Also 84% of the organizationsprovide general health services, 54% maternal healthservices and almost 30% paediatric services.

Financing of not-for-profit Financing of not-for-profit organizationsorganizations

Not-for-profit organizations draw on a wide variety of sources for finance.

1. Donations.2. government funding as grants-in-aid.3. funding from foreign donors.4. corporate funding.5. user fees

Patterns of foreign fundingPatterns of foreign funding

Costs of care at not-for-profit facilitiesCosts of care at not-for-profit facilities

Average total expenditure per hospitalization in a charitable institution is less than in for-profit hospitals but higher than in public sector hospitals.

the 52nd round of the NSS also brings out the fact that there was a decrease in access to free care from 19% to 10% between 1986 and 1996. This reflects the fact that user fees have been introduced in several public and not-for-profit health institutions during this period.

For Profit organizationsFor Profit organizations

Defination:-A business or other organization whose primary goal is making money(a profit, as opposed to a non profit organization which focuses a goal such as helping the community and is concerned with money only as much as necessary to keep the organization operating.

For profit organizations consists of individual physicians, dispensaries and clinics private (for-profit) nursing homes and corporate hospitals. Dispensaries and the clinics are run by individual physicians (or by group of physicians) who provide health care on fee-for-service basis and for profit in different lines of medicine like allopathy, homeopathy, ayurveda etc.

For Profit Organizations in Private sector.For Profit Organizations in Private sector.

The Government contributes 20% to the total healthcare expenditure in India, the remaining 80% comes from the private sector.

India has one of the highest private spending in healthcare as compared to other countries.

Funding in Private for profit organisations.Funding in Private for profit organisations.

Private providers include private hospitals, clinics and pharmaceutical companies which are financed through-fee for service.

private and social insurance financed through individual or company premiums.

donations .contributions from both government and

private households. The direct or indirect support from government comes inform of subsidies, tax exemptions and trained medical staff.

Grants ,loans and support from multilateral agencies,banks and other corporates.

Since most of Private hospitals are either owned by sole ownership or by partnership or by stakeholders the capital is raised accordingly.

Several NRIs and industrial/pharmaceutical companies are investing money in hospitals like Medinova,CDR, Mediciti.

Apollo Hospitals raise a substantial proportion of their resources from the stock market.

Over half of the finances are obtained through long-term bank loans.

Collaborative model between Private Players and State Collaborative model between Private Players and State Governments Governments

Allocation of Land and Building by the State Operation and infrastructure management

undertaken by the private player. Profits are shared in an equitable ratio. Free of cost services to patients below the poverty

line.

Successful Example: Rajiv Gandhi Super Specialty Hospital ◦ Partnership between the Government of Karnataka and Apollo

Hospitals Group ◦ Financial support from the OPEC Fund for International

Development◦ Provides low cost specialty care to families below the poverty line◦ Land and Building provided by the State, 30% of profits retained by

Apollo

Venture Funds◦ Aavishkaar is a microfinance venture fund

that invests in commercially viable enterprises that have a social impact.

◦ Investees include Swas Healthcare, Vaatsalya.

Project Finance from Commercial BanksMedanta – MediCity received a tremendous

response to its debt syndication of Rs. 500 crores from PSU banks

Health insurance Definition and scenario in IndiaHealth insurance Definition and scenario in India

Definition in Indian context:-In its broader sense, it would be any arrangement that helps to defer, delay ,reduce or altogether avoid payment for health care incurred by individuals and households.

- in a narrow sense would be ‘an individual or group purchasing health care coverage in advance by paying a fee called premium.’

SOCIAL SECURITY FOR MEDICAL EMERGENCIES IS NOT NEW TO THE INDIAN ETHOS. -‘piruvu’ (a collection) to support a household with a sick patient.

The Indian health insurance scenario is a mix of-(1) Voluntary health insurance schemes or private-for-profit

schemes;(2) Employer-based schemes; (3) Insurance offered by NGOs / community based health insurance,

an(4) Mandatory health insurance schemes or government run

schemes (namely ESIS, CGHS).

Voluntary health insuranceVoluntary health insurance

Voluntary Health Insurance can be broadly divided into

a)Pubic sector b) Private sector.

Public sector includes the General Insurance Corporation (GIC) and its four subsidiary companies (National Insurance Corporation, New India Assurance Company, Oriental Insurance Company and United Insurance Company) and the Life Insurance Corporation (LIC) of India provide voluntary insurance schemes.

Private Insurance includes insurance companies such as Bajaj Alliance, ICICI, Royal Sundaram, and Cholamandalam etc.

Public sector of Voluntary Health InsurancePublic sector of Voluntary Health Insurance

The Medical Insurance Scheme or Mediclaim was introduced in November 1986 which is the main product of GIC and covers individuals and groups with persons aged 5 -80 yrs.

Premiums are calculated based on age and the sum insured, which in turn varies from Rs 15 000 to Rs 5 00 000. In 1995/96 about half a million Mediclaim policies were issued with about 1.8 million beneficiaries (Krause Patrick 2000). The coverage for the year 2000-01 was around 7.2 million.

The four public insurance companies collected a premium of Rs 1128.64 crore under Mediclaim from 97 lakh insured's out of total of 112 lakh.

Another scheme, namely the Jan Arogya Bima policy specifically targets the poor population groups covers reimbursement of hospitalization costs up to Rs 5 000 annually for an individual premium of Rs 100 a year and family discount of 30% is granted, but there is no group discount or agent commission.

The Jan Arogya Bima Scheme had only covered 400 000 individuals by 1997.

Voluntary health insurance Private Insurance Voluntary health insurance Private Insurance providers.providers.

The year 1999 marked the beginning of a new era for health insurance in the Indian context with the passing of the Insurance Regulatory Development Authority Bill (IRDA).

This bill not only promoted private players to enter the health insurance sector but also protected the interests of policy holders.

Examples for the same are Bajaj Alliance, ICICI, Royal Sundaram, and Cholamandalam among others are offering health insurance schemes.

Current scenario in Private Health InsuranceAt present, 12 general insurance companies and 25 TPAs.The total number of insurance holders is reported to be

112 Lakh with private insurance holding 10% of the total.

Health Insurance market shareHealth Insurance market share

Contribution of Public and Private Health Insurance to Contribution of Public and Private Health Insurance to Total Health insurance of IndiaTotal Health insurance of India

Individual and Group Insurance Coverage by Individual and Group Insurance Coverage by Government and Private Companies 2002-03 and Government and Private Companies 2002-03 and

2003-042003-04

Break-Down of Health Premium between Government-Break-Down of Health Premium between Government-owned and Private Non-Life Insurersowned and Private Non-Life Insurers

Employers offered insurance coverageEmployers offered insurance coverage

Employers in both the public and private sector offers employer-based insurance schemes .

1. lump sum payments.2. reimbursement of employee’s health

expenditure .3. fixed medical allowance.4. monthly or annual irrespective of actual

expenses. 5. covering them under the group health insurance

policy(it could be public or private health insurance company).

For example-railways, defense and security forces, plantations sector and mining sector.

The population coverage under these schemes is minimal, about 30-50 million people.

NGOs / community-based health insuranceNGOs / community-based health insurance

Community-based funds refer to schemes where members prepay a set amount each year for specified services.

Planning of the schemes and allocation financial resources depends on defining contribution level of target population and collecting mechanisms, defining the content of the benefit package.

Such schemes are generally run by trust hospitals or non governmental organizations (NGOs).  

The benefits offered are mainly in terms of preventive care, though ambulatory and in-patient care is also covered.

Financing in NGOs / community-based health insurance.Financing in NGOs / community-based health insurance.

Such schemes tend to be financed through – 1)patient collection. 2)government grants 3) donations. CBHI schemes are negotiating with the for

profit insurers for the purchase of custom designed group insurance policies however coverage of such schemes are low , covering about 30-50 million.

Such schemes are struggling to meet their extensive financial requirement.

Case Study of CBHI.Case Study of CBHI.

Self-Employed Women’s Association (SEWA), Gujarat: Established in 1992, this scheme provides health, life

and assets insurance to women working in the informal sector and their families in collaboration with National Insurance Company(NIC). The enrolment in the year 2002 was 93,000.

a premium of Rs 85 per individual is paid by the woman for life, health and assets insurance. At an additional payment of Rs 55, her husband too can be covered. Rs 20 per member is then paid to the National Insurance Company (NIC) which provides coverage to a maximum of Rs2 000 per person per year for hospitalization.

The expenses incurred for treatment /hospitalization are settled in/by reimbursement.

The responsibility for enrolment of members, for processing and approving of claims rests with SEWA. NIC in turn receives premiums from SEWA annually and pays them a lumpsum on a monthly basis for all claims reimbursed.

Other Community Based health Insurance Schemes.Other Community Based health Insurance Schemes.

The Mallur Milk Cooperative in Karnataka .Tribhuvandas Foundation (TF),

Anand(Gujrat).Similar scheme was established in 1972 at

Sewagram, Wardha in Maharashtra.The Action for Community Organization,

Rehabilitation and Development (ACCORD), Nilgiris, Tamil Nadu .

Kadamalai Kalanjia Vattara Sangam (KKVS), Madurai.

Raigarh Ambikapur Health Association (RAHA), Chhatisgarh

Household Household (out-of Pocket)(out-of Pocket)ExpensesExpenses

BY: SATISH TAJNE

Out-of-pocket payments are those payments

into the health care system that are made

directly at the point of service.

This include,

1. Private Sector Fees

2. Public Sector Fees

Contd…..Contd…..

Health care finance in developing and low income countries is still predominantly based on out-of-pocket (OOP) payments.

India is one among the developing countries where households spend a disproportionate share of their consumption expenditure on health care, with the Government’s contribution being minimal.

Facts and Figures in IndiaFacts and Figures in India82.4% of health care expenditure

occurs in the private sector of which 77.5% is from out-of pocket payments.

Of the 5% of GDP spent on health care the government contribution is only 17.8% which amounts to 0.9% of GDP.

Health care in India is the most privatized in the world

Factors Determining the OOPFactors Determining the OOP

1. Insufficient health coverage

2. Poor health services

3. Low public health spending

Bangladesh 57% Cambodia 68% Ghana 65% India 72% Pakistan 70% Yemen 55% Malaysia 30% Slovak Republic 10% South Africa 9% Belgium 20% Luxembourg 6% Netherlands 7%

Medical expenses and Medical expenses and impoverishmentimpoverishment

In the absence of insurance, an illness not only reduces welfare directly, it also increases the risk of impoverishment due to high treatment expenditures.

It is now widely acknowledged that health care expenditures can drive individuals and households into poverty.

Medical expenses and Medical expenses and impoverishment(contd..)impoverishment(contd..)

Survey conducted in 3 districts in Gujarat and Andhra Pradesh - 85% of the households in Gujarat and 74% of those in AP, health expenses was the main reason for their economic decline.

World Bank estimates that OOP pushes 2.2 % health users in poverty and one in four among those hospitalised.

OUT OF POCKET (OOP) EXPENSES AND

INDEBTEDNESS IN INDIA (Amount

in $US) ALL INDIA

1. Average OOP Payments made per hospitalization in Govt. facilities

70

2. Average OOP Payments made per hospitalization in private facilities

158

3. % of people indebted due to OP Care

23

4. % of people indebted due to IP Care

52

SOURCE: NSSO, GOI

BY : SHILPA JAIN

Financing of National Financing of National Programmes-not as per Programmes-not as per needneedDecentralization of funds to

district socities didn’t solved the purpose.

Little flexibility in issues such as procurment of critical supplies.

Budget allocations are not need based and in consonance with the extent of disease burden.

e.g.National Malaria Program.

Mismatch between policy Mismatch between policy and practiceand practiceSuboptimal functioning of the

delivery system due to gross underfunding.

Development of social health insurance schemes to address the financial barriers that hinder woman from seeking good quality care.

E.g. A survey of households conducted by the IIHMR, Jaipur(2000)

Weak absorption capacity Weak absorption capacity in the Governmentin the GovernmentDisconnect between a shortage

of funds and an inability to spend.

Money not getting translated into an outcome.

Reasons for slow pace being both systemic and institutional as well as poor designing and sequencing of expenditure items.

Lack of stability in Lack of stability in budgetary processesbudgetary processesLeads to following : 1. lapsing of funds and its spend

on inessential items. 2.lumping of releases

3.non-timeliness of availability of drugs or other inputs for meaningful utilization. 4. lack of synchronization of mix of inputs.

5. interruptions in the supply of essential drugs .

Dysfunctional system of Dysfunctional system of financingfinancingDepartmental budgets are made

in a five-year cycle, categorized into various heads and subheads.

capital planNon plan

Dysfunctional system of Dysfunctional system of financing contd…financing contd…Fixing budgetary allocation on five-year and

annual plan cycles not based on any meaningful programme audit.

Targets have little to do with the professed goals that in turn have little to do with financial allocations.

Health sector needs are different, requiring a measure of flexibility as,barring some broad heads of expenditure where advance planning can be done, under operational costs, the level ofunpredictability could be high.

Health managers cannot therefore be tied down to a five-year plan of activities nor can they foresee their needs five years in advance.

E.g. SARS epidemic condition.

Externally aided funds and Externally aided funds and loans shortcomingsloans shortcomingsComplex design1. Funds not spent as design of the scheme or intervention is very complex and process-oriented.2.participatory system3. donor-funded projects,theemphasis is on spending.

Inadequate allocation of funds--- slow pace of expenditure due to:1.funds made available under the ‘EAP’

(Externally Assisted Projects) component are normally short of the amounts agreed to.

2.procedures for implementing activities are cumbersome and require multiple clearances at several stages.3.complex procedures are involved in the recruitment of staff, and the processn of selection is highly time-consuming, taking over a year.

Budgeting not functionalBudgeting not functionalBased on artificial plan and non

Plan system .Budget lines formulated are

useful only for accounting and not for policy making.

Misallocation of resources.Large allocation of budget

allocation for salaries.

Weak financial Weak financial capabilitycapabilityStaff dedicated for financial and

oversight functions are few and have weak capacity.

None trained on either financial management or on health needs.

Computerization is poor and so is the capacity for planning and budgeting.

Health budgets of centre and state Govts.

Remedies and conclusionRemedies and conclusion“It’s not your salary that makes you rich,It’s your spending habits.”Health sector in India suffers from gross inadequacy

of public finance and therefore is a) an immediate and significant scaling up of resources is an imperative.b) Further, there is an urgent need to restructure the budgeting system.c) Rules and procedures for actual release of funds, appointment of persons, labor laws, procurement systems all need a thorough review.d) Greater decentralization of funds.Decentralization to be done only after developing requisite financial capability and laying down rules and procedures for accounting systems.

Contd…Contd…Hospital managers need to take

multiple decisions thus maintaining flexibility and autonomy in financial decision making.

Greater professionalism of the finance set up.

Changing mindset from account keeping to being facilitators for achieving certain goals.

Proper identification of cost centers so that policy makers can exercise the control needs.

To achieve the mission recommendation in To achieve the mission recommendation in the field of Healthcare Financingthe field of Healthcare Financing In health care financing, different segments of the population

should contribute to the cost of healthcare, according to their ability to pay. The current system of individual spending should migrate to collective spending on health care.

The organised sector should be mandatorily covered though social insurance. The existing schemes (such as CGHS & ESIS) should be consolidated at the state level.

The rural population should be covered through community insurance operated at the panchayat level.

Voluntary social insurance should be encouraged for people employed in the unorganised sector.

In addition, private insurance for people who can afford and want better facilities should be available.

A safety net, fully sponsored by the government, should be available for the poor and the vulnerable sections of the society.

Additional tax on areas which will increase the health care costs, such as use of tobacco and liquor, have to be levied and dedicated to meet the increased demands for public expenditure on health care.

The total expenditure on health in 2015 is The total expenditure on health in 2015 is estimated at Rs 1,81,120 crores, at current estimated at Rs 1,81,120 crores, at current pricesprices

At last most importantly all this is expected to make Indians healthier as :

“He who has health has hope,

And he who has hope has everything.”