Page 169 - ES 2020-21_Volume-1-2 [28-01-21]

152 Economic Survey 2020-21 Volume 1

5.2 Increased prioritization of healthcare in the central and state budgets is important as it
crucially impacts how much protection citizens get against financial hardships due to out-
of-pocket payments made for healthcare (WHO 2010). OOP for health increase the risk of
vulnerable groups slipping into poverty because of catastrophic health expenditures (O’Donnell
et al. 2007; Berki 1986; van Doorslaer et al. 2006). Figure 3 shows that at low levels of public
health expenditure, i.e. were public healthcare expenditure as a per cent of GDP is less than
3 per cent, OOP expenditure as a share of total health expenditure drops precipitously when
public health expenditure increases. For instance, an increase in public health expenditure from
the current levels in India to 3 per cent of GDP can reduce the OOP expenditure from 60 per cent
currently to about 30 per cent.

Figure 3: Small increase in public health expenditure
can drastically reduce OOP expenditure

Source: WHO (Global Health Expenditure Data Base)

5.3 In fact, an increase in government healthcare spending over a decade in varied countries
such as China, Indonesia, Philippines, Pakistan and Thailand significantly decreased the out-of-
pocket expenditures of its citizens (Smith et al, 2020).

GIveN SIGNIFICaNT MaRKeT FaIlUReS, HealTHCaRe NeeDS
CaReFUl SySTeM DeSIGN

5.4 Healthcare systems do not self-organise using the force of free markets because of three key
inherent and unchanging characteristics (Arrow, 1963): (i) uncertainty/variability of demand;
(ii) information asymmetry; and (iii) hyperbolic tendencies. Hence, any active system design of
healthcare must be mindful of these inherent characteristics.

Uncertainty/variability of demand

5.5 The need for health care is driven often by factors that cannot be controlled or predicted.
This is also coupled with the nature of demand, which is inelastic especially for emergency care.