India must balance its healthcare financing to lower out-of-pocket expenses

The India Union Health Ministry recently released the National Health Account (NHA) estimates for India 2021-2022. Total health expenditure (THE) as a percent of GDP is 3.8%, accounting for INR 7,89,760 crore (~$94 billion). The latest healthcare financing data reveals that out-of-pocket payments by households dominate healthcare spending despite efforts by the government and insurance sectors to improve financial coverage. While state and central governments play significant roles, with combined contributions exceeding 28%, the low penetration of insurance schemes highlights gaps that still need to be addressed. Striking a balance between public funding, insurance growth, and private sector support is essential for India’s more equitable healthcare system. Below are key findings from the data points:

• Out-of-pocket payments dominate healthcare financing. Despite various public schemes, households bear the largest financial burden, leading to economic hardship and medical debt in many families. Reducing this reliance is critical to ensuring equitable healthcare access.
• State governments play a larger role than the union government, emphasizing the importance of regional efforts while also highlighting the need for better coordination between state and central governments. Examples of state government schemes are the Chief Minister’s Comprehensive Health Insurance Scheme (Tamil Nadu), Karunya Health Scheme (Kerala), and Mahatma Jyotiba Phule Jan Arogya Yojana (Maharashtra). Examples of union government programs are the National Health Mission (NHM) and the National AIDS Control Program.
• Low penetration of social and government-financed insurance leaves a large segment of the population without financial protection, underscoring the need for insurance reform and expansion. Examples of social health insurance include the Employees’ State Insurance Scheme (ESI) and the Central Government Health Scheme (CGHS). Government-financed insurance includes Ayushman Bharat—PM-JAY and Rashtriya Swasthya Bima Yojana (RSBY).
• Employer-based insurance provides good coverage for its employees, indicating that formal sector employees benefit the most. However, this leaves a significant gap for those working in the informal sector, who rely heavily on out-of-pocket expenses. Examples of employer-based insurance include TCS, Infosys, Wipro, and Accenture. They offer health insurance plans managed by insurers such as HDFC ERGO, ICICI Lombard, and Bajaj Allianz for their employees and dependents.
• Limited impact of local government bodies on healthcare funding reveals a weak local governance structure for healthcare financing, suggesting the need to empower municipalities and panchayats to improve grassroots healthcare access. For example, municipal corporations in urban areas may operate primary health centers and clinics but with limited budgets. Panchayats in rural areas play a role in sanitation and health outreach but lack substantial healthcare funding.

The Bottom Line: India’s healthcare financing system needs reforms to shift the burden away from households.

India must expand insurance coverage, better coordinate between state and central governments, and empower local bodies to play a more active role in healthcare financing. Enhancing insurance coverage will reduce out-of-pocket spending, alleviating financial stress on households. Better coordination between governmental layers can streamline resource distribution and policy implementation to address specific regional needs, potentially improving healthcare services’ reach and effectiveness, making care more accessible, and reducing disparities in healthcare access.