'Healthcare spending must increase to 2.5-3% of GDP'

Only an increase in public health spending can prevent Out-of-Pocket-Expenditure

With the Covid-19 pandemic demonstrating how a healthcare crisis can transform into an economic and social crisis, the Economic Survey 2020-21 has recommended an increase in public spending on healthcare services from the existing level of 1% to 2.5-3% of the GDP.

A year after the pandemic, the Survey notes that the crisis has highlighted the crucial inter-linkage between healthcare and other key factors of the economy. As the next health crisis could possibly be drastically different from Covid-19, the focus must be on building the healthcare system generally rather than a specific focus on communicable diseases.

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The Survey tabled by Finance Minister Nirmala Sitharaman in the Parliament on Friday also proposed an increase in health spending with the aim of significantly reducing the Out-of-Pocket-Expenditure from 65% to 35% of the overall healthcare spend.

India has one of the world's highest out of pocket expenditures resulting in poor households being disproportionately impacted by Out-of-Pocket-Expenditure and pushed below the poverty line. Only an increase in public health spending can prevent this.

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Since an increase in public spending to 2.5-3% of GDP can reduce Out-of-Pocket-Expenditure from the current level of 60% to 30%, the richer states should especially target increasing the healthcare spending.

Another factor that according to the Survey should change is the quality of healthcare in the private sector, which caters to a majority of the population, even though there is little information available in the public domain on the quality of care.

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Such an “assymmetric information” flow is also responsible for the cost difference in treatment even though there may not any significant difference in the quality of care in the private and public sector. Healthcare policymakers should therefore consider creating agencies to assess the quality of the healthcare providers – both doctors and hospitals.

In addition, a sectoral regulator that undertakes regulation and supervision of the healthcare sector must be seriously considered, notes the Survey. This is especially pertinent as regulation has grown in importance as a key lever for governments to affect the quantity, quality, safety and distribution of services in health systems.