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Financing better health outcomes

Improvements in health delivery systems in India must be supported by innovative tax reforms

Financing better health outcomes
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India is the fastest-growing major economy in the world with an average GDP growth rate of over 7.0 per cent in the recent past years and soon expected to be the 5th largest economy globally. Over the past seven decades, since independence, India has made phenomenal progress in access and availability of health services adding a network of 1,57,411 Sub Centres (SCs), 24,855 Primary Health Centres (PHCs) and 5,355 Community Health Centres (CHCs).

More than 30,000 SCs and PHCs have been upscaled to Health & Wellness Centres to provide comprehensive primary health care. India has achieved reduction in infant mortality rate (IMR) from 74 per 1,000 live birth in 1994 to 33 in 2017; maternal mortality ratio (MMR) from 600 per 1,00,000 live births to 122 per 1,00,000 live births in 2015-2017 and crude death rate (CDR) and crude birth rate (CBR) declined to 6.3 and 20.2 per 1,000 population. The life expectancy at birth has increased from 32 years to 69 years.

India has largely achieved MDG goals and committed to Universal Health Coverage (UHC) which is one of the targets of Sustainable Development Goals (SDG) by 2030. The SDG 3 targets to achieve UHC, including financial risk protection, access to quality essential health care services, and access to safe, effective, quality and affordable essential medicines and vaccines for all.

Health Financing in India

To address the entire gamut of disease burden, the public expenditure on health accounts for nearly one-third of the total expenditure at 1.2 per cent of the GDP and remaining is met Out-of-Pocket expenditure (OOPE) by the households which are exorbitant and puts extra pressure on the low socio-economic equity population. According to the latest National Health Accounts Estimates (2016-2017), the total spending on health in India is 3.8 per cent of the GDP. The Total Health Expenditure (THE) per capita has increased more than three times from 2004-05 to 2016-17. Out of THE, 32.4 per cent is Government Health Expenditure (GHE), 58.7 per cent household as OOPE, 7.3 per cent as social security insurance and 4.7 per cent as private health insurance.

Government Commitments

The National Health Policy, 2017 aims to double the government health care spending from the existing 1.2 per cent of the GDP to 2.5 per cent by 2025.

It would mean increasing the current budgetary allocation of Rs 69,000 crore in 2020-21 to about 4.6 times, meaning, Rs 3.17 lakh crore by 2025. However, to achieve the goals of Universal Health Coverage, the Government should aim to raise health care spending to the level of 4-5 per cent of the GDP over a period of 7 to 8 years from 2019. Furthermore, there is a need to enhance allocative efficiency of budget and finance to achieve a major impact on health status and well being.

Though the central health budget has increased in absolute terms, it is short by Rs 1.28 lakh crore. For the projected budgetary requirements to reach 2.5 per cent of GDP, India would need Rs 3.21 lakh crore whereas actual allocation is Rs 1.93 lakh crore.

In case of the second commitment of NHP to ensure an increase of state health spending to more than 8 per cent of their budget by 2020, the average of last 5 years shows that none of the states spent the defined amount. In the case of the third commitment to ensure primary health expenditure to be 2/3rd of the total health expenditure, NHA 2016-17 show that the share is only 45 per cent.

Health Outcomes and financial protection depend on public spending on health. Due to high OOPE, approximately nine crore citizens slipped below the poverty line.

Low health spending in India is also due to the low tax base, India's tax collection to GDP ratio in 2015 was 16.6 per cent, much lower than China, UK and Denmark.

Need for Reprioritisation

In India, to generate more resources for health, commodities that harm health have been suitably taxed but taxes need to be earmarked for preventive and promotive health care. In India, as per 2020-21 budget, Rs 2.28 lakh crore of government spending is earmarked for subsidies for food, fertilisers, petroleum, etc., which have direct and indirect health effects. The subsidies are more than the central, state and local budget on health. Hence, subsidies need to be reviewed periodically. Raising taxes on harmful commodities may not only improve health but can also generate more fiscal space for health. In the case of India, heavy taxes on alcohol, tobacco, salt and sugar will not only generate additional resources but would be preventing non-communicable diseases and contributing to easing the burden on health systems. Presently, non-communicable diseases cause more than 60 per cent of the total deaths, hence, the revenue generated through tobacco and other harmful products need to be earmarked for health sector to deal with cancer and cardiovascular diseases and for agriculture sector to shift farmers from tobacco cultivation to other crops which yield high returns and are ecologically sustainable.

Subsidies on commodities such as sugar, diesel, kerosene and coal need to be reviewed and savings need to be diverted to nutritious food and clean renewable energy sources. The government needs to heavily subsidise LPG instead of diesel, kerosene and coal for cooking. Fruits, dairy products and protein sources have to be promoted for a healthy lifestyle.

At the policy level, a marginal increase in taxes may not yield the desired outcomes. Therefore, the increase in taxes needs to be substantial to achieve the desired changes in consumption and move towards phasing it out from life. In a country like India, inflation suppresses small increases. Hence, inflation needs to be adjusted to avoid tax ineffectiveness. Planning of such taxation would yield outcomes if a mechanism of strict adherence of regulation at Centre and state is in place to avoid non-compliance on grounds of loopholes, especially against smuggling and bootlegging, as large tax collection allures pilferages. Formulation of policy on raised taxes may not achieve defined results unless its implementation and enforcement are monitored effectively and coordinated until it yields desired outcomes. The design of taxes must take into account all products leading to obesity and further diabetes and cardiovascular disease. Adolescents and adults respond most to price increases on unhealthy foods and beverages, tobacco and alcohol.

For the productive utilisation of tax resources, part of tax collection could be earmarked to preventive and promotive health care, improvement for air and water quality, nutrition and treatment of diabetes, cardiovascular diseases, cancer and chronic obstructive pulmonary diseases (COPD).

Time for 'more health for money'

Health budget during 2020-21 has increased by 4.1 per cent from 2019-20. Till now, the health sector had been focusing on "more money for health and more health for money" but in the current year, the sector has to focus on "more health for money", turning towards innovative financing by striving to do more with less. The health sector has tremendous potential to use digital technology, using the application of machine learning, artificial intelligence, the Internet of things and virtual reality in making quality health care accessible and affordable to masses.

The health sector in India is facing a shortage of infrastructure and manpower, especially specialists. This is the right time to use the power of technology in the reorganisation of health care and evolve a new class of care delivery models. The Indian health care system has huge growth potential. Initiations such as viability gap funding for setting up hospitals under PPP mode in aspirational districts offer an opportunity to innovate limited health allocation, which will push the sector to "do more with less", adopting innovations and replicating existing best practices. Proceeds from tax on medical devices to be used for funding government hospitals, converting existing district hospitals to medical colleges through PPP mode and attaching a medical college with a district hospital in the PPP mode are innovations to address the shortage of doctors and infrastructure.

We may also consider putting health cess of about 1 per cent on direct tax, particularly the income tax. Additional cess has been done earlier in regards to the education sector. This may mobilise about Rs 10,000 crore per annum.

Additionally, developing a partnership with the private health sector for co-financing secondary and tertiary health care, and working with the corporate sector for allocating CSR funds in health care are also optimal solutions.

There is also scope in introducing health insurance to finance hospitalisation to reduce OOPE and catastrophic health expenditure. 'Ayushman Bharat' has a great future promise but the coverage should be extended to the whole population. Additionally, people may contribute to their annual premiums.

The writer is the Director of Finance (NHM), Ministry of Health & Family Welfare, GOI. Views expressed are strictly personal

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