HEALTH CARE FINANCING
Presenter : Dr. Vishal Soyam,
Plan of presentation
Healthcare finance mechanism
Pattern of healthcare finance across world
Healthcare finance in India
Other model of financing
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)
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.
Health financing linked to the provision of services
and the system’s capability to achieve its stated
Health financing is raising of resources to support
to pay for goods and health services.
Scarcity of Resources – Need for judicious use
Sustainability of resources
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
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.
Economic slow down
According to definition health financing is
Allocation of money
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 :
3.Purchasing of health services
1. How is the money raised ???
Revenue collection :
4 main ways of raising money for health
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
2. How are funds pooled ???
Accumulation & management of Revenue
with respect to
Pooling to redistribute health risk
Cross subsidy for greater equity
(Across equal income)
(Across equal risk)
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.
Ministry of health (MOH)
Social security agencies
District health board
Individual or household
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
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.
Allocation of money
Through budgeting in public sector:
BUDGET : Estimating the requirement of money
to perform the activities during any particular
Line item budgets : budget allocation for functional
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.
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
In Europe, social insurance schemes bear most of the
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.
Budget allocation in India
Allocation of money through five year plan
Annual allocation within the available five year
Ministry of Finance
(State have their own fund also)
Ministry of health & FW
Dept of health
M of FW M of AYUSH
Govt Health provider
(Eg. Edu, social
Health Department in consultation with the Directorate
prepares the list of continuing schemes and new schemes.
Discussed with Planning Commission meetings before
Plan for setting up new CHCs, PHCs, determined not on
the need basis but centrally on the resource availability
Final allotment of plan budget is approved
Transfer of budget to state from the ministry declined
sharply from nearly 57% to 44%.
Plan vs Non-Plan budget.
Need based vs Resource based budget
Capital vs Revenue budget
Top-down vs bottom up approach
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
Details of the structure of the organisation, the
purpose and objectives, achievement, and work
needed to be done more specifically during the
II. The financial requirement under programme wise
classification and items wise expenditure.
III. Explanation for the financial requirements given in
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
In ZBB the activities of an organisation should be
viewed afresh and the priorities decided.
Indicators for assessment of
1. Total expenditure on health as % of GDP
2. Per capita total health exp. at average exchange
3. Govt exp. on health as % of total Govt exp.
4. Public spending on health as % of total health
5. Out of pocket spending as % of private
expenditure on health
6. Donor spending on health as % of total health
7. % of govt health budget spent on
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
Total expenditure on health as %
It is a share of a country’s total income that is
allocated to health by all public, private & donor
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%.
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
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.
Public health spending & indicators
% population Infant
< 1 doller/day
to total exp.
Distribution of total health expenditure
amongst public provider
Structure of Public health sector
spending by state govt.
OOP Spending as % of Pvt. Expenditure on
Share in Healthcare Spending
(World Health Statistics 2008,WHO)
Private exp of total
exp on health
OOP of private exp
OOP of total exp on
Despite poor health indicators, Govt spending on
health care is well below what is needed
– 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.
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.
OOP expenditure needs
to be reduced as it
aggravates the inequities
by impoverishing the poor
Therefore, the role of
the Govt. assumes
importance in this
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%.
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
– 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
Three drives of cost escalation in health
1.Resources for health care
2.Efficacious and affordable drug regime
3.Access and availability to appropriate
% of Household falling to BPL
Health expenditure by functions
Health Care Functions
Primary care (41.26)
b) Public Health programme
c) Family welfare
d) Rehabilitative care
Direction and Administration
Health statistics and research
Functions not specified
Health expenditure by functions
Health Care Functions
Rehabilitative & Long term Nursing Care
Ancillary Services related to Medical Care
Medical Goods Dispensed to Outpatients
Prevention and Public Health (20.79) Services
1. RCH & Family welfare
2. Control of communicable diseases
3. Control of NCDs
4. Other public health activities
Health Administration & Insurance
Health & related functions (17.3)
1. Medical Education and Training of Health Personnel
2. Research and Development
4. Nutrition Programme
5. Food Adulteration & Control
3. Capital Formation
Functions from other Sources
Functions not Specified
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.
Social health insurance
Private health insurance
Community based health insurance
Social Health Insurance
Supplemented by the Central and State governments.
Its own network of dispensaries and hospitals, supplemented
by some outsourced Authorized Medical Attendants and
Also has ‘Cash Benefits’ which compensate for loss of wages
due to disease/ disability/ death.
Covers over 50 million persons presently.
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.
Community Health Insurance
Small schemes, community-based and not-for-profit motive.
Managed by community members, and accountable back to
‘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
Private Health Insurance
Voluntary health insurance scheme, with over 300
products from over 30 insurers competing in the market
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
TPA to facilitate speedier expansion by providing an
State Health Insurance Scheme
Rajiv Arogyashri - AP
Vajpayee Aarogyashri- KA
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
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)
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
Increase efficiency of health services
Remove the long queue for free health care services.
Improve quality of services
Initiative by GOI
At National level
At State level
State health insurance
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
In 12th plan, there has been more than two fold increase
over 11th plan budget.
But failed to achieve 2-3% of GDP.
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.
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
12th plan initiative
Universal health coverage
Private sector has to be partnered for health care
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
Other Models of financing
Public private partnership (PPP)
FDI in Health sector
Resource generation by Facilities and
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
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.
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
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?
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
Community based research for credible burden of
Develop public private partnership.
Increase spending on health promotion: 10%- 20%
Rationalizing & restructuring public health
Integrating AYUSH-increase in human resource.
Raise additional resources by imposing taxes on
health degrading products, eg, tobacco.
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.
“Health systems financing: The path to universal coverage”