Health financing

Health financing is a vital component of Health Systems that entails the formulation and adoption of an evidence-based approach for enhancing financial protection and driving down household out-of-pocket payments. For countries to progress towards universal health coverage (UHC), health financing focuses on three key functions:

• How revenue is raised (government budgets, payroll deduction, voluntary payments)
• How revenue is pooled (degree of risk equalization and diffusion)
• How services are purchased (incentive or payment systems to promote key policy objectives)

Based on existing service delivery arrangements and other socio-economic and cultural contexts, different approaches can be adopted for implementing key functions of health financing policies. These policies, however, always aim to maximize parity in service access and reduce financial barriers to provide care for the population while promoting efficiency, quality and equity as guiding principles and being explicit in the level and extent of service and financial coverage.

In India, public health is co-financed by both the central- and state-level governments, with the central government accounting for 41.8% of government health expenditure (GHE) and state governments contributing 58.2%. In 2021-22, the total expenditure on health (THE) in India accounted for 3.83% of gross domestic product (GDP), of which the government spending on health accounted for 48% of THE and 1.8% of GDP. Household expenditure on health (including voluntary health insurance) accounted for 44.1% of THE and 1.51% of GDP, while external financing for health was 1.1% of THE. 

To accelerate progress to UHC, India has implemented several initiatives for expanding comprehensive primary health care through Ayushman Arogya Mandirs (AAM). Other initiatives include investments in infrastructure through the Ayushman Bharat Health Infrastructure Mission (PM-ABHIM), the digital mission (ABDM) and finally, the publicly subsidized health insurance scheme, Pradhan Mantri Jan Arogya Yojana (PMJAY) for cashless inpatient secondary and tertiary care. Since the launch of PMJAY in 2018, the government has expanded population coverage from covering the most vulnerable to include all older people over the age of 70 years, irrespective of income, and community health workers (ASHAs). 

Countries that have made substantial progress on UHC rely predominantly on public financing for health that is sustainable and confers greater financial protection for people. Out-of-pocket expenditure has been shown to be regressive, resulting in catastrophic health spending and impoverishment, which ultimately undermines effective access to health services. 

The Government of India’s commitment to achieving UHC is evidenced by the decline in out-of-pocket expenditure over time. There is still room to improve public allocation to health as these presently fall short of the government target of 2.5% of GDP. This would reduce reliance on household expenditure and further improve financial protection. There is scope to improve efficiency in spending to optimize budget execution and provider payments for better health outcomes. Evidence-based interventions for including the informal sector in the subsidized scheme may be explored to ensure greater population coverage and equity. 

WHO Country Office for India supports the implementation, monitoring and re-engineering of the health financing reforms. This includes policy guidance on provider payment mechanisms, benefit package design, public financial management systems, institutional strengthening for sustainable financing, and financial protection.