India's healthcare-economy mismatch is glaring

The NSS 80th round report from MoSPI highlights an important change in India’s health scenario through the complex connection between increased access and continued financial burden.

What is significant about the findings of the report is the 13.1% of the population who reported illness in the previous 15 days, with the rate being significantly higher in urban (14.9%) areas compared to rural (12.2%) settings. Despite institutional deliveries being 96.2%, the issue of finances looms large, with an estimated cost of ₹34,064 spent per case of hospitalisation.

As per MoSPI data, there is a marked demographic skew regarding India’s morbidity structure, wherein the 60+ age category suffers from 43.9% ailment frequency, almost four times the national average rate. The silver burden reflects the rising incidence of non-communicable diseases (NCDs), especially hypertension and diabetes, that have emerged as predominant chronic causes above age 30.

Despite achieving a remarkable feat of 96.2% institutional delivery, a structural dichotomy continues to exist, wherein public health centres manage 61.7% of deliveries, but 64.6% urban hospital admissions continue to be channelled through private institutions. As a country ranked among the world’s top seven economies, its overreliance on expensive private healthcare services can be detrimental to savings and lead to financial crises in families due to costly hospitalisation expenses (median hospital cost of ₹11,285).

The issue becomes even more complicated by a huge regional disparity, defying the traditional economic reasoning. While Kerala records a morbidity of above 25%, which is almost twice as much as in economically backward states such as Bihar and Uttar Pradesh, where morbidity is below 10%, it indicates the ‘morbidity paradox’, when greater morbidity in more economically developed states could mean that better awareness about illnesses and diagnoses, whereas lower morbidity elsewhere might be the result of underreporting.

This dependence on private providers raises the issue of ‘quality-access paradox’, wherein the emerging middle class utilises private services for their primary healthcare needs, even when the public services are being enhanced significantly through government-provided health insurance plans that currently cover 47.4% of the rural population.

The government has already taken steps to counteract this phenomenon of ‘siphoning’ through an increase in health insurance coverage. There has been a significant improvement in health insurance coverage, which by 2025 was estimated at 47.4% in rural India, primarily through schemes provided by the state governments such as AB-PMJAY. Through these schemes, the patient can afford private healthcare services without having to pay the total cost out-of-pocket.

Healthcare finance continues to be highly dependent on Out-Of-Pocket Medical Expenditure (OOPME), leading to a huge contrast in public and private costs. In a single hospitalisation episode, the average OOPME in private hospitals (₹50,508) is about eight times more than in public hospitals (₹6,631).

In 2023, out-of-pocket (OOP) health expenditure stood at 43.89% of total health spending, markedly higher than the average for high-income countries (13.35%) and well above the means for low- and middle-income (33.18%), and overall middle-income groups (33.06%). India’s OOP burden is also considerably greater than regional averages for Sub-Saharan Africa (30.36%) and Sub-Saharan Africa excluding high-income countries (29.62%). Even when compared with the lower-middle-income group (46.46%), where India is typically classified, its performance reflects limited financial risk protection relative to many peers. In contrast, China reduced OOP spending to 32.7% through expanded public insurance coverage, underscoring that India’s comparatively high OOP share is less a function of income level and more indicative of gaps in public health financing and insurance depth.

In addition, the median cost of healthcare provision in India, amounting to ₹11,285 per hospitalisation event, emphasises the susceptibility of a large portion of the population. While India ranks among the top seven economic powers globally, its health indicators are more akin to those in low-middle income countries rather than developed nations, with out-of-pocket costs for medical treatment not exceeding 15% in high-income countries. In noting that close to half of the outpatient treatment cases in public institutions incur zero costs, it becomes apparent that public healthcare institutions can play a pivotal role in lowering costs. However, reliance on expensive private inpatient institutions remains a challenge.

It is vital to develop a strong public healthcare system to reduce financial vulnerability arising out of the prevalence of the private healthcare sector. The development of secondary and tertiary public healthcare centres can ensure the affordability of health services and protect families from costs related to healthcare, especially older people who would lose their savings because of healthcare costs.

In other words, public policy should transcend the stage of subsidisation of the private healthcare sector to public development.

Atman Shah is Assistant Professor, Department of Economics, St. Xavier’s College (Autonomous), Ahmedabad.

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.