Where does India stand in ‘Private Health Expenditure’ compared to other countries?
Sai Krishna Muthyanolla
May 28, 2021
The COVID-19 pandemic has highlighted the weaknesses in the public healthcare system in India. The share of ‘private health expenditure’ out of the total health expenditure has been traditionally high in India. But how does it compare with other countries?
The second wave of the COVID-19 pandemic in India is deadlier than the first wave and overwhelmed the country’s healthcare systems. Shortage of oxygen cylinders, drugs, ICU beds, vaccines, and even medical practitioners was visible across the country. The pandemic exposed the deep underlying problems in the Indian healthcare system. In an earlier story, it was observed that India lagged behind many other countries in terms of its expenditure on health as a share of GDP. In 2018, as per figures of the World Bank, India’s current expenditure on healthcare accounted for 3.5% of the GDP.
Nearly three-fourths of India’s health expenditure is through private funding
India’s public spending on healthcare, that is, the money spent by the government, constituted little less than 27% of the current health expenditure in the country in 2018 and domestic private health expenditure constituted more than 72% of India’s current health expenditure as per the figures of the World Bank.  Private expenditure includes expenditure by households (out-of-pocket expenditure), corporations, and non-profit organizations. This may be prepaid to voluntary health insurance or paid directly to healthcare institutions. It is evident that private expenditure dominates the healthcare expenditure in India, which means that the people bear the maximum cost of their healthcare.
Domestic private health expenditure per capita refers to average current health expenditures funded from domestic private sources spent per person in the country. In order to make the comparison across countries uniform (so as to get the global perspective), per capita, private health expenditures are converted to a common currency (US dollar) and adjusted to take account of the different purchasing power of the national currencies. Current private expenditure on health per capita expressed in international dollars at purchasing power parity (PPP) from the World Bank database is used in this story. The latest data available is from the year 2018.
India’s private expenditure has nearly doubled since 2008
India’s domestic private health expenditure per capita in PPP terms has almost doubled from $101.8 in 2008 to $199.1 in 2018.  On average, there has been an annual growth of $9.7 in private health expenditure. While the growth was gradual in other years, there was a sudden increase of nearly $35 in the year 2013.
To understand India’s position vis-à-vis other nations, we compared the per capita expenditure among developed countries like US, UK, Australia, Denmark, and Sweden (which have a high per capita national income), Indonesia and Vietnam from Southeast Asia, BRICS nations, and India’s neighbours – Nepal, Bangladesh, and Pakistan.
India’s per capita private expenditure was higher than its neighbours
India’s private per capita expenditure in 2018 was higher than that in Nepal, Pakistan, Bangladesh, and Indonesia. The private per capita expenditure in the US was 26 times that of India, and in Australia, it was 7.7 times. UK and Denmark had an expenditure of more than $900 per capita while Brazil and Sweden had more than $800 per capita. Russia’s private health expenditure was more than $600 while South Africa’s was close to $500. China’s expenditure was more than double that of India. Among the 15 countries we compared, Bangladesh had the least private health expenditure at $84.
The US which had the highest per capita national income also recorded the highest private health expenditure per capita. Barring the Nordic countries- Sweden and Denmark, and China, Brazil, the general trend is that the private health expenditure increased with the national income.
It has to be noted that the per capita ‘Gross National Income’ (GNI) is different for each of these countries. A comparison of private health expenditure with per capita GNI indicates that in 2018, a person in the US spent 8.26% of per capita GNI on health while it was around 3.03% in India. This was least in the Nordic countries (around 1.5%).
Share of private health expenditure in India & Bangladesh among the top 12 in the world
The trend in the share of current health expenditures funded from domestic private sources has been compared for the 15 countries. It is seen that in 2018, Bangladesh and India were among the top 12 countries in the world with the most share of private expenditure in healthcare. Among the 15 countries considered here, Bangladesh had the highest share with 76% of health expenditure covered through private sources followed by India with 72%. Nepal and Pakistan too reported more than 60% of the total expenditure covered through private sources.  On the other hand, in Denmark, private expenditure was just around 16% of the total health expenditure while in Sweden, it was below 15%.
Trends since 2008 reveals that share of private expenditure in healthcare has remained consistent in Denmark with around 16% while in Sweden, it has dropped from 17% to 15%. In India and Bangladesh, private health expenditure was always more than 70% of the total health expenditure. Meanwhile, in Pakistan, China, Vietnam, and Indonesia, the share of private expenditure on healthcare declined over the years. Even in the US and South Africa, the share of private expenditure on health decreased over the years. However, the decline is marginal in these countries and not as apparent as in the case of the developing Asian countries. In Russia, UK, Brazil, and Australia, the share of private health expenditure increased marginally between 2008 & 2018.
Health system in US is mix of public and private
In the USA where the per capita private health expenditure is the highest, the health system is a mix of public and private insurers and health care providers. The federal government in the US funds the national Medicare program for adults aged 65 and above. For persons with disabilities as well as for veterans and low-income persons, there are programs such as Medicaid and the Children’s Health Insurance Program funded by the government. Private insurance which accounts for the bulk of health insurance in the country is provided by employers or funded by individuals from their own earnings.
In Sweden and Denmark, majority of the cost is borne by government
In Sweden, the bulk of health and medical costs are paid for by regional and municipal governments and contributions from the national government while patient fees cover only a small percentage of costs. Most of it is borne from the taxes paid by residents. Meanwhile, in Denmark, the financing is majorly from general proportional income tax for the central budget and proportional income tax at the local level. Out of pocket expenditure is mainly for paying for medicines, dental services, physiotherapy, and glasses. A significant proportion of the population is covered by some form of private health insurance (approximately 40% by complementary private insurance and 35% by duplicate private insurance). Spending through voluntary health insurance amounts to less than 3% of all health spending. Major government spending in these countries explains why the private expenditure is low in these two countries.
India’s out-of-pocket expenditure is very high, pushing many to poverty
In India, the private sector plays a key role in healthcare since the public healthcare system does not cater to all the needs. Not just in metros and big cities, private healthcare plays a significant role in tier I and tier-II cities. Hence, it is of no surprise that private expenditure accounts for a lion’s share of health expenditure in India, meaning a high share of out-of-pocket expenditure.
The high out-of-pocket expenditure (OOPE) is a major contributor to poverty in the country, according to the Economic Survey. The survey suggests an increase in public spending from 1% to 2.5-3% of GDP, as envisaged in the National Health Policy 2017, so as to decrease the OOPE from 65% to 30% of overall healthcare spend. Increasing public health expenditure is critical for an equitable, affordable, and the accountable healthcare system. According to the NCRB, 17.1% of the suicides in 2019 were due to illnesses, and one of the reasons could be the inability to afford treatment.
A NITI Aayog report from 2017 observed that low-income states with low revenue capacities were spending much lower on health-related services. India also lags behind in the targets with respect to Sustainable Development Goal No.3 which aims to ensure healthy lives and promote well-being for all ages. The COVID-19 pandemic has exposed the weaknesses in the public healthcare system and has highlighted the need for increased public spending on health so as to be better prepared for the future.
Featured Image: Private Health Expenditure