India’s Healthcare Financing: Decline in OOPE and Future Challenges

Source: ABP Live & pixabay 

Recent research over the past few years has revealed that out-of-pocket expenditure (OOPE) on healthcare pushes 3 to 7 percent of Indians below the poverty line each year. This impact is more pronounced in rural areas and poorer states, where vulnerable groups bear the brunt of OOPE’s negative effects. Recently, India has placed significant focus on its health policy. On September 25, 2024, the Government of India (GoI) released the National Health Account (NHA) reports for the years 2020-21 and 2021-22.

According to the new NHA report for 2021-22, various shifts in healthcare financing indicators have been observed over the past years. Between 2013-14 and 2021-22 (as seen in Figure 1), there has been a sharp decline in OOPE in healthcare, dropping from 64.2 percent in 2013-14 to 39.4 percent in 2021-22, the latest year for which data has been released. While the pandemic increased the need for healthcare expenditure, historical data shows that this has been a consistent trend over the decade. During this period, government health expenditure (GHE) rose from 28.6 percent to 48.0 percent. The fact that GHE has overtaken OOPE is a landmark moment for India’s health policy, reflecting years of effort.

This past decade has also seen a decline in total health expenditure (THE) as a percentage of GDP. In other words, the increased public spending by both state and central governments has been the primary driver reshaping India’s health financing landscape, leading to a significant reduction in the burden of healthcare costs on Indian households. However, despite these improvements, 39.4 percent of total health spending is still out-of-pocket, presenting a major policy challenge in the coming years. Looking at the 2021-22 data, India still has a long way to go to meet its National Health Policy (NHP) 2017 target of increasing government health expenditure to 2.5 percent of GDP by 2025.

Around two-thirds of total GHE is borne by the states, while the central government covers the remaining one-third. During the pandemic, the central government’s increased spending slightly altered this balance. However, post-2022, the utilization of the central government’s health budget allocations has not been reassuring, with a large amount of funds remaining unspent by the end of the year compared to budget estimates.

Despite disruptions within the health sector and a reduced need for pandemic-induced emergency funds, the central government’s actual allocations have not reverted to pre-pandemic levels, suggesting that further reductions in OOPE, driven by government action, are possible in the future. With the ambitious expansion of Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) to cover all citizens aged 70 and above, and plans for public hospitals to reinvest funds into the public system, the capacity of the public sector to absorb more funding is likely to improve.