Rising Healthcare Costs – Consequence of Declining Public Health Investments and Expansion of Private Healthcare and Insurance

As a strong advocate of public health systems, especially public financing of health care, recently I found my self in an embarrassing and helpless situation when I was forced to resort to a private health facility for a surgery of my haemorrhoids.  I had a long standing problem and since last year the severity and frequency of bleeding had increased as had my travel for work. So it was clearly time to deal with them radically because in the past two decades I had tried various homoeopathic, ayurvedic, naturopathy etc.. therapies, apart from allopathic interventions, which did not give any substantive relief.

 I consulted a surgeon friend, an erstwhile employee of a public teaching hospital but now working in the private sector after having suffered severe frustrations within the former. He suggested haemorrhoidectomy of the three large haemorrhoids and he was willing to do the surgery at one of the private hospitals (a hospital registered as Trust and Research Centre implying that it was getting tax waivers and rebates) to which he was attached. We agreed to the particular hospital because it had a cashless facility for the health insurance policy that I thought I had the fortune to have over the past two decades through my employment. Well one thought that with the insurance cover all would be well and I would get my surgery and treatment without any direct costs and that finally there was an opportunity to use the benefit of the insurance premiums I was paying for over twenty years. For the current year the premium I had paid was over Rs.16,000 for myself, my wife and daughter. 

 I informed the insurance company and their third party administrator (TPA) about my surgery and they said that I should request the hospital to send an estimate of the cost and they would accordingly sanction the amount. The hospital sent an estimate of a whopping Rs. 100,000 as I had selected an ‘A’ Class room. The TPA responded by sanctioning only Rs.40,000. I discussed this with the hospital and the TPA and then I was told that as per my policy cover and sum assured which was Rs. 250,000 I was entitled to 1% of that as daily room and nursing charges, that is my “class” was restricted to Rs 2500 per day for room and nursing care. (this was the fine print that I had not read in the policy document). So I got my class changed to ‘C’ Class which was a triple sharing room, instead of the single deluxe room of Class ‘A’. What I also learnt was that the other charges for the hospital like OT, surgeons fees, anaesthesia, diagnostics etc.. were charged according to class, so greater the room rent the greater the charges for all other services and facilities.

 On admission day I went to the hospital with the assurance that I was going to get cashless service against the insurance cover I had. The first shock was the hospital demanded a security deposit of Rs. 10,000. Since I was already mentally prepared for surgery I went to the ATM in the hospital and withdrew Rs. 10,000 and deposited it with the hospital and they assured that this would be returned once the insurance company cleared their bill. With this assurance I went through the surgery and had to spend 4 nights at the hospital.

 A day before discharge I got shock number 2 that my bill had exceeded the Rs.40,000 that the insurance company had sanctioned for the surgery and I should pay the difference of Rs. 9000 something. I told them that they had my deposit of Rs. 10,000 already and that on day of discharge with the final bill we will talk to the TPA and settle the amount. On day of discharge I got the final bill of Rs. 59,722 and the hospital demanded Rs. 19,722 as payment for the discharge. I discussed the bill with the billing section as I found it a little excess and they turn around and tell me that from April 1 the charges of their hospital had increased, that is the Rs.2500 for the ‘C’ class room had become Rs. 2800, as also other charges too had increased. I was admitted on 31^st March and I told them that my contract was for that day and that they had not even informed me of the changes in their rates. But they said that their computers were set for the new rates and they could not do anything about it. We had sent the final bill to the TPA by fax and they were to get back in two hours, so with all the pain I waited two hours but the TPA did not send the final sanction. I was in tremendous pain and waiting to get home at the earliest so I decided to pay the Rs 19,722 using my debit card and leave the hospital. When I reached home the hospital calls me and informs me that the TPA had actually reduced the sanction to Rs. 31,000 without assigning any reason and I now owed the hospital another Rs 9000. I could not believe that this was happening to me. The little respect I had for the private sector and insurance just vanished.

 The above cited personal experience is the true reality of private health financing in India. You are not sure what you will be charged, you are overcharged, the insurance cover you may have may actually not cover you fully, the cashless insurance cover is a fraud and to top this all the quality of service, especially nursing care, is grossly poor despite paying a whopping Rs. 60000 for 4 days or a unit cost of Rs. 20,000 per haemorrhoid excised. All this happens because of a complete lack of regulation, standards and norms for treatment and pricing, exploitation by both the hospital and the insurance company (especially the TPA) of the vulnerability of the patient and the absence of an organized healthcare and health financing system.

 The trend in public health financing over the last two decades clearly shows inadequate investments and declining expenditures across states and this has led to the collapse of the public health system in most states, including states like Kerala which were doing very well prior to that (see Table 2). In most states again within the public health system privatization has taken root – you are charged, albeit less than market rates, for almost all services that you seek. You may have a waiver if you are below the poverty line or are SC or ST or a government employee or politician. But even when you pay you may not get satisfactory care. With user fees in public facilities quality has certainly not improved but what has definitely happened is that the access of the poor has got reduced. Further, human resources within the public health system have been out-migrating to the private sector or abroad because of the frustrations they face and the lack of resources for delivering appropriate care. For example the Mumbai Municipal Corporation’s (BMC) hospitals which were regarded as one of the best in the country and attracted patients from all over the country are in bad shape because they have been starved of funds and investments for the last two decades. In the seventies and eighties nearly 30% of the BMC budget went to healthcare but today it is only 13%. The consequence of this under-financing has resulted in a loss of credibility with the middle classes migrating to private care, committed doctors and nurses quitting and moving to the private sector or going abroad, and user fee being levied which reduces the access of the poor to these hospitals. Twenty years back my daughter was born in a public hospital and we got excellent service but today I was unwilling to take that risk. Well if our Prime Ministers, politicians and bureaucrats dont have faith in them and use private providers or hospitals then how can the “aam aadmi” risk using public facilities.

 The consequence of the above is that the out-of-pocket spending for hospital care has also zoomed (see article by this author in Health Action, January 2008). There is some absorption of this through private health insurance for the middle and upper middle classes but the poor regulation keeps the out of pocket burden high. Infact private health insurance in such an unregulated environment may not be such a good deal for the consumer and this realization is dawning on them. For instance, over the last two decades I have paid nearly Rs. 300,000 as mediclaim premiums for my family and made one claim of Rs. 30,000 for my wife afew years ago and the current one that I am trying to negotiate presently. Alternatively if I had invested the premiums into a recurring deposit account, this Rs. 300,000 would have been worth Rs. 12 lakhs – the capital would have been mine and I could access it for any medical needs that I may have had. Infact, governments should rethink the tax rebate given for mediclaim premiums and extend this to bank deposits that may be assigned as medical savings accounts, similar to PPF accounts with periodic withdrawals permitted as and when medical needs arise. Thus having a medical savings account during ones earning years is a far better option than buying mediclaim kind of insurance cover (Singapore has demonstrated this very well and have rejected insurance as an option). And one could top this for the high risk medical problems with life insurance risk cover through critical care policies, wherein again most of the capital remains with the insured and does not accrue to the insurance company.

 So given the above scenario with public health financing and systems collapsing and private insurance not being a viable option we have no alternative but to be left to the mercy of the market and the private health sector and this can only mean rising healthcare costs on individual households which during catastrophic illnesses would invariably lead in most cases to pauperization, as evidenced by NSSO data that over half the population seeking healthcare takes loans or sells assets to access hospital care.

 As a country the health sector in India presently grosses 6% of GDP or Rs. 3500 billion and of this only Rs. 600 billion or 17% is financed by ministries of health. Upto another 5% comes from social insurance and local government funds. This means that 78% or Rs. 2730 billion is privately financed and of this a whopping 98% is out-of-pocket. Given the wide scale poverty and malnutrition in the country this is indeed the most regressive way for financing healthcare and makes cost of healthcare to individuals unaffordable.

 Of the total government spending about one-fourth comes from the Central budget and three-fourths from the state’s own resources. The Central government’s budget pays for the national disease control programs, family planning, maternal and child care (RCH, immunization etc..) through the NRHM and apart from this some central government hospitals, CGHS, AYUSH and Medical education and research is also included. The state governments’ budgets largely finance medical care and medical education through hospitals and dispensaries as well as some primary health care. Table 1 summarises the priorities of the Central government in the health sector.

 Table 1: Health Sector Allocations for the Union Ministry of Health and Family Welfare (Rs. Crores) Budget 2010-2011

Health Program	2009-10 BE	2009-10 RE	2010-11 BE
A.Medical and Public Health	21113	20217	23530
B. AYUSH	922	863	964
C. Health Research	606	600	660
Total Health	22641	21680	25154 EAP 3986
Of which Priority Programs
1. Hospitals & Dispensaries	844	1020	982
2. Medical Education and Training	3256	2699	2678
3. HIV/AIDS	993	888	1266 EAP 1229
4.NRHM	12529	12096	13910 EAP 2389
Key Components  under NRHM
a) Disease Control	1063	1008	1050 EAP 435
b)RCH	99	151	193 EAP 180
c)Rural FW	2335	2540	2793
d) Urban FW	157	145	172
e) Contraception	370	268	358
f) Routine Immunisation	388	388	417 EAP 37
g) Pulse Polio	1102	1163	1017 EAP 561
h) Flexipool NRHM	3034	2743	3569
i) Flexipool RCH	3049	2958	3396 EAP 1074

EAP= externally assisted programs; BE=Budget Estimates; RE=Revised estimates

 What the above table also tells us is that in most instances the revised estimates are lower than budget estimates and generally previous years’ expenditure data also reveal that actual expenditures tend to be even lower. Thus the budget estimates for 2010-11 may appear to give the impression that over the previous fiscal it is higher by nearly 14% we know that this will be much lower when expenditures are accounted for. Further given an inflation of over 9% even this increase is not really impressive. 

 One interesting feature of the 2010-11 budget is that for the first time the externally aided component is being shown within the line budgets of the Ministries. This is certainly a positive development in the direction of transparency clearly telling us where donor interests lie in financing health budgets. This is important to know because, while donor financing is very small as a proportion of the health budget, it contributes significantly to skewing health policies and programs in line with global vested interests.

 At the state level Table 2 indicates the declining state investments and expenditures, especially post 1991 across all states and this is certainly not because cost of healthcare has gone down but clearly an indicator of continued under-financing of public health services, mostly medical care. This trend has facilitated the growth of the private health sector because demand for healthcare has increased manifold. The private health sector is completely unregulated and has a complete absence of ethics in practice. Infact the recent arrest of Dr. Ketan Desai, President of the Medical Council of India, epitomizes this lack of ethics and the widespread corruption in the health sector. 

 What the state level trends also imply that the public health provision is also declining and given the privatization policies, including user fee charges in public facilities for various health services, the states are making way for the strengthening of the private health sector across the board.

 Data from consumption expenditure surveys by NSSO and CSO estimates for National Accounts provide evidence for this trend indicating rapid growth of private health expenditures, mostly out-of-pocket, especially post 1995 which is exactly the period that witnessed the expansion of the private health sector, especially corporate hospitals and medical cities, medical tourism, private health insurance, TPAs etc..

 So we live in a time where the private health sector fully dominates, public health sector is declining and the private health insurance is emerging and trying to take control of the private health markets. Our close neighbour Thailand also witnessed the same trend in the nineties but political will and sense prevailed at the turn of the millennium and Thailand swiftly took control of the health system, organized it, changed the financing strategy to a single payer mechanism and today has almost achieved universal access to healthcare. India is doing much better on the economic front than Thailand and there is no reason why it cannot do what Thailand was able to do in 5 to 6 years time. We were given to believe that NRHM was going to make thes architectural corrections in the health system but 5 years down NRHM we don’t see any significant change. The recent audit report on NRHM by CAG highlights its poor performance and inability to achieve its goals. Our bureaucrats have failed once more but they have failed because our politicians have not provided the political will to change for the benefit of its citizens. Both the bureaucrats and politicians engage in patronage and hence come up periodically with schemes and that is what the NRHM seems to be, another scheme. And schemes will only lead to scheming and benefiting the bureaucrats and politicians because when it comes to their own healthcare needs and costs public money is used freely to get them the best available care form the elite hospitals of this country.  But for those whom they govern they throw up crumbs from time to time, create segmentation for the purposes of appeasement and their political gains and take us even further away from realizing universal access and health for all. 

 Table 2: Health Expenditure of State governments as a percent of total Government Expenditure 1981-2008

State/Year	1981	1987	1991	1996	1998	2001	2003	2005	2008	2009
Andhra Pradesh	5.80	7.88	5.53	4.65	5.44	4.74	3.96	3.53	3.3	3.3
Arunachal Pradesh	5.91	9.77	4.89	4.66	5.04	NA	4.68	4.45	3.0	2.7
Assam	3.96	10.21	NA	5.84	5.87	4.66	3.69	3.06	6.0	5.6
Bihar	3.78	8.49	5.10	5.79	5.24	4.01	3.17	3.24	4.1	4.2
Chhattisgarh	-	-	-	-	-	4.13	3.99	3.74	4.7	4.7
Delhi	-	-	-	-	-	7.16	6.34	6.65	7.8	7.2
Goa,Daman & Diu	7.19	13.45	8.70	5.39	4.89	3.90	4.02	3.27	3.7	4.2
Gujarat	4.38	9.58	5.03	4.70	4.57	3.38	3.21	3.05	3.1	3.1
Haryana	4.33	8.25	4.11	2.95	3.27	3.26	2.88	2.59	2.8	2.7
Himachal  Pradesh	6.63	13.50	3.32	6.16	7.04	5.64	4.50	5.08	4.5	4.7
Jammu & Kashmir	3.79	12.50	5.56	5.50	4.97	4.89	5.30	4.78	5.1	5.3
Jharkhand	-	-	-	-	-	NA	4.18	3.65	5.6	5.3
Karnataka	3.79	8.23	5.40	5.28	5.85	5.11	4.17	3.49	3.9	4.1
Kerala	6.56	9.85	7.21	6.53	5.68	5.25	4.74	4.71	4.6	4.7
Madhya Pradesh	4.94	10.11	5.16	4.81	4.57	5.09	4.11	3.39	3.9	3.9
Maharashtra	4.85	9.38	5.13	4.56	4.29	3.87	3.71	3.51	3.3	3.1
Manipur	2.60	12.61	4.38	4.83	4.48	4.82	2.89	3.72	2.8	4.0
Meghalaya	6.25	13.25	6.26	6.19	6.86	5.65	5.88	5.23	4.6	4.4
Mizoram	7.89	11.85	3.50	4.18	NA	4.96	5.01	3.96	4.0	6.3
Nagaland	5.39	10.88	5.96	5.95	5.68	4.87	4.65	4.68	4.8	4.6
Orissa	5.17	8.50	5.13	5.16	4.82	4.15	3.75	3.90	3.6	3.8
Pondicherry	9.05	10.01	7.82	0.03	0.04	NA	NA	5.4	7.2	5.0
Punjab	3.67	10.52	6.73	4.62	4.93	4.54	3.54	3.10	3.1	3.2
Rajasthan	4.85	14.48	6.50	5.70	7.97	5.16	4.24	3.94	4.3	4.6
Sikkim	4.49	6.44	7.89	2.72	1.92	3.67	2.03	2.56	2.6	2.7
Tamil Nadu	6.18	10.04	6.91	6.29	6.28	4.86	4.10	4.20	4.2	4.2
Tripura	2.51	7.37	5.18	14.74	4.79	4.04	3.79	3.79	5.8	5.0
Union Government	0.22	0.29	0.56	0.46	0.52	0.77	0.76	0.83	1.53	1.44
Uttar Pradesh	4.69	9.08	6.31	6.03	1.74	3.98	3.75	4.49	5.2	5.6
Uttarakhand	-	-	-	-	-	3.08	3.77	4.34	2.9	4.9
West Bengal	6.30	9.73	8.37	6.43	NA	5.63	4.95	3.94	4.4	4.4

Sources: Upto 1987 is Combined Finance and Revenue Accounts, Comptroller and Auditor General of   India GOI, respective years; For year 2001 is State Finance A Study of Budget, RBI, 2003; for 2003-2009 Public Finance, CMIE, 2005 and State Finances, RBI, 2008 and 2009. Please note that 2005, 2008 and 2009 are budget estimates