Daily Editorials for UPSC IAS Exam Preparation

Daily Editorial – Issue of Healthcare financing in India


  • Issue of Healthcare financing in India

  1. So what are the challenges in making India healthy?

  2. How is it affecting the individuals?

  3. Why free market solution doesn’t work for healthcare?

  4. Analysis of RashtriyaSwasthyaBimaYojana

  5. Learning from other countries

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Issue of Healthcare financing in India

Every country needs a healthy human force, which is high on productivity, then only it can achieve the intended goals of development. But India’s health care system is not doing well, due to many causes resulting into less productive human force.

This is despite India’s status as the third-largest economy in the world, with annual spending of over Rs6 trillion on healthcare on its 1.3 billion population.

So what are the challenges in making India healthy?

There are several finance related factors that are creating hurdles in the healthcare sector development:-

  • India spends about 1 per cent of its GDP on public health compared to 3 per cent in China and 8.3 in the US.
  • India’s tax-based funding of healthcare is far too low and barely supports a government-owned health system.
  • Government-owned health system is almost exclusively focused on basic maternal and child health, leaving others on their own.
  • India’s health insurance covers less than 5% of total health expenditure.
  • Formal private network is very small, that too mainly in the urban areas.

How is it affecting the individuals?

  • Individual expenses on the health care constitute almost 60% part of the total healthcare expenditure in India.
  • People spend their money for their healthcare needs on the informal sector.
  • It also led the people to end up purchasing large quantities of irrational medicines directly from pharmacies.
  • Over 63 million persons are faced with poverty every year due to healthcare costs alone.

Why free market solution doesn’t work for healthcare?

There is always need of the government help and assistance due to various reasons:-

  • Healthcare expenses tend to have a high degree of variability, as the human does not think about their health until they do not get sick.
  • Most of the individuals are not aware of their health status.
  • This uncertainty prevents people from purchasing health insurance, ending into heavy expenditure in hospitals.
  • Thus government needs to build a successful healthcare system.

Analysis of RashtriyaSwasthyaBimaYojana

On April 1, 2008, the Indian government launched the RashtriyaSwasthyaBimaYojana (RSBY) to provide health coverage to informal workers and those living below the poverty line (BPL).


  • Sum assured/ cover of up to Rs. 30,000 on a floater basis for a family consisting of 5 members.
  • (RSBY) empowers the beneficiary, i.e., the BPL households and workers in the uncategorized sectors, to choose health care options from private hospitals and public hospitals.
  • Beneficiaries will receive a smart card which is biometric-enabled and it also contains the photo and fingerprint of the individual.
  • This scheme provides the benefit of paperless and cashless transaction to its beneficiaries.
  • Scheme has set up an efficient system for monitoring and evaluating the transactions made by beneficiaries.

Criticisms of the scheme

  • The criterion for inclusion is based on a Below Poverty Line (BPL) list, the problematic criterion.
  • Responsibility of the spreading awareness by state governments has been handed over to insurance companies.
  • Hospital-based health coverage is only effective in reducing household expenditures when there is a robust, supportive primary health system, which is still at nascent stage.
  • In the absence of coverage for outpatient visits or drugs, the RSBY risks being a band-aid solution to a much larger problem.

Learning from other countries

There are several successful examples of building a healthcare system, which actually works.

According to a study, there are three essential principles that are central to the design of each of these successful health systems:-

  • Pre-payment with pooling; concentrated purchasers with organized providers; and the government’s role

Let’s have look into some of the models:-

Taxation based financing or making insurancemandatory 

  • Countries have either used higher taxation levels to finance the healthcare systems.
  • They also have required residents to mandatorily purchase some form of health insurance.


  • Britain is an example of a largely tax-financed health system while Germany is largely reliant on mandatory health insurance.
  • Japan mandates citizens to enroll with one of its several insurers for universal coverage.

Money thus collected is then aggregated into large pools

Fund Pooling

  • Countries have used the money pooling system, managed by one or more large agencies for health care financing.


  • Britain uses public trusts, Germany sickness funds, Japan uses multiple insurers.

Many countries have differentiated between the purchaser of the health services and providers of the health services.

While the trust or any designated organization can works as a purchaser of the healthcare services, Providers could be a mix of public and private accredited facilities that compete for contracts based on high-quality services.

Health insurers provide a wider suite of innovative products, covering outpatient and primary care.

Government role

  • Government should play an active role in designing and supervising the entire health system, instead of focusing only on the management of a health system owned by itself.

Many countries such as Thailand, Brazil and South Korea had health statistics similar to or worse than India’s in 2010, but they have transformed their health care system based on the above principles. India should also try to follow these principles in designing its healthcare policies.


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