The Union Cabinet recently approved the launch of the National Health Protection Mission which was announced during Budget 2018-19. The Mission aims to provide a cover of five lakh rupees per family per year to about 10.7 crore families belonging to poor and vulnerable population. The insurance coverage is targeted for hospitalisation at the secondary and tertiary health care levels. This post explains the healthcare financing scenario in India, which is distributed across the centre, states, and individuals.
How much does India spend on health care financing vis-à-vis other countries?
The public health expenditure in India (total of centre and state governments) has remained constant at approximately 1.3% of the GDP between 2008 and 2015, and increased marginally to 1.4% in 2016-17. This is less than the world average of 6%. Note that the National Health Policy, 2017 proposes to increase this to 2.5% of GDP by 2025.
Including the private sector, the total health expenditure as a percentage of GDP is estimated at 3.9%. Out of the total expenditure, effectively about one-third (30%) is contributed by the public sector. This contribution is low as compared to other developing and developed countries. Examples include Brazil (46%), China (56%), Indonesia (39%), USA (48%), and UK (83%) (see Figure 1).
Who pays for healthcare in India? Mostly, it is the consumer out of his own pocket.
Given the public-private split of health care expenditure, it is quite clear that it is the private expenditure which dominates i.e. the individual consumer who bears the cost of her own healthcare. Let’s look at a further disaggregation of public spending and private spending to understand this.
In 2018-19, the Ministry of Health and Family Welfare received an allocation of Rs 54,600 crore(an increase of 2% over 2017-18). The National Health Mission (NHM) received the highest allocation at Rs 30,130 crore and constitutes 55% of the total Ministry allocation (see Table 1). Despite a higher allocation, NHM has seen a decline in the allocation vis-à-vis 2017-18.
Interestingly, in 2017-18, expenditure on NHM is expected to be Rs 4,000 crore more than what had been estimated earlier. This may indicate a greater capacity to spend than what was earlier allocated. A similar trend is exhibited at the overall Ministry level where the utilisation of the allocated funds has been over 100% in the last three years.
State level spending
A NITI Aayog report (2017) noted that low income states with low revenue capacity spend significant lower on social services like health. Further, differences in the cost of delivering health services have contributed to health disparities among and within states.
Following the 14th Finance Commission recommendations, there has been an increase in the states’ share in central pool of taxes and they were given greater autonomy and flexibility to spend according to their priorities. Despite the enhanced share of states in central taxes, the increase in health budgets by some states has been marginal (see Figure 2).
Consumer level spending
If cumulatively 30% of the total health expenditure is incurred by the public sector, the rest of the health expenditure, i.e. approximately 70% is borne by consumers. Household health expenditures include out of pocket expenditures (95%) and insurance (5%). Out of pocket expenditure dominate and these are the payments made directly by individuals at the point of services which are not covered under any financial protection scheme. The highest percentage of out of pocket health expenditure (52%) is made towards medicines (see Figure 3).
This is followed by private hospitals (22%), medical and diagnostic labs (10%), and patient transportation, and emergency rescue (6%). Out of pocket expenditure is typically financed by household revenues (71%) (see Figure 4).
Note that 86% of rural population and 82% of urban population are not covered under any scheme of health expenditure support. Due to high out of pocket healthcare expenditure, about 7% population is pushed below the poverty threshold every year.
Out of the total number of persons covered under health insurance in India, three-fourths are covered under government sponsored health schemes and the balance one-fourth are covered by private insurers. With respect to the government sponsored health insurance, more claims have been made in comparison to the premiums collected, i.e., the returns to the government have been negative.
It is in this context that the newly proposed National Health Protection Mission will be implemented. First, the scheme seeks to provide coverage for hospitalisation at the secondary and tertiary levels of healthcare. The High Level Expert Group set up by the Planning Commission (2011) recommended that the focus of healthcare provision in the country should be towards providing primary health care. It observed that focus on prevention and early management of health problems can reduce the need for complicated specialist care provided at the tertiary level. Note that depending on the level of care required, health institutions in India are broadly classified into three types: primary care (provided at primary health centres), secondary care (provided at district hospitals), and tertiary care institutions (provided at specialised hospitals like AIIMS).
Second, the focus of the Mission seems to be on hospitalisation (including pre and post hospitalisation charges). However, most of the out of the pocket expenditure made by consumers is actually on buying medicines (52%) as seen in Figure 3. Further, these purchases are mostly made for patients who do not need hospitalisation.
Minimum Support Price (MSP) is the assured price at which foodgrains are procured from farmers by the central and state governments and their agencies, for the central pool of foodgrains. The central pool is used for providing foodgrains under the Public Distribution System (PDS) and other welfare schemes, and also kept as reserve in the form of buffer stock. However, in the past few months, there have been demands to extend MSP to private trade as well and guarantee MSP to farmers on all kinds of trade. This blogpost looks at the state of public procurement of foodgrains in India and the provision of MSP.
Is MSP applicable for all crops?
The central government notifies MSP for 23 crops every year before the Kharif and Rabi seasons based on the recommendations of the Commission for Agricultural Costs and Prices, an attached office of the Ministry of Agriculture and Farmers’ Welfare. These crops include foodgrains such as cereals, coarse grains, and pulses. However, public procurement is largely limited to a few foodgrains such as paddy (rice), wheat, and, to a limited extent, pulses (Figure 1).
Figure 1: Percentage of crop production that was procured at MSP in 2019-20
Sources: Unstarred Question No. 331, Lok Sabha, September 15, 2020; PRS.
Since rice and wheat are the primary foodgrains distributed under PDS and stored for food security, their procurement level is considerably high. However, the National Food Security Act, 2013 requires the central and state governments to progressively undertake necessary reforms in PDS. One of the reforms requires them to diversify the commodities distributed under PDS over a period of time.
How does procurement vary across states?
The procurement of foodgrains is largely concentrated in a few states. Three states (Madhya Pradesh, Punjab, and Haryana) producing 46% of the wheat in the country account for 85% of its procurement (Figure 2). For rice, six states (Punjab, Telangana, Andhra Pradesh, Chhattisgarh, Odisha, and Haryana) with 40% of the production have 74% share in procurement (Figure 3). The National Food Security Act, 2013 requires the central, state, and local governments to strive to progressively realise certain objectives for advancing food and nutritional security. One of these objectives involves geographical diversification of the procurement operations.
Figure 2: 85% wheat procurement is from three states (2019-20)
Sources: Department of Food and Public Distribution; PRS.
Figure 3: 76% of the rice procured comes from six states (2019-20)
Sources: Department of Food and Public Distribution; PRS.
Is MSP mandatory for private trade as well in some states?
MSP is not mandatory for purchase of foodgrains by private traders or companies. It acts as a reference price at which the government and its agencies procure certain foodgrains from farmers.
In September 2020, the central government enacted a new farm law which allows anyone with a PAN card to buy farmers’ produce in the ‘trade area’ outside the markets notified or run by the state Agricultural Produce Marketing Committees (APMCs). Buyers do not need to get a license from the state government or APMC, or pay any tax to them for such purchase in the ‘trade area’. These changes in regulations raised concerns regarding the kind of protections available to farmers in the ‘trade area’ outside APMC markets, particularly in terms of the price discovery and payment. In October 2020, Punjab passed a Bill in response to the central farm law to prohibit purchase of paddy and wheat below MSP. Any person or company compelling or pressurising farmers to sell below MSP will be punished with a minimum of three-year imprisonment and a fine. Note that 72% of the wheat and 92% of the rice produced in Punjab was purchased under public procurement in 2019-20.
Similarly, in November 2020, Rajasthan passed a Bill to declare those contract farming agreements as invalid where the purchase is done below MSP. Any person or company compelling or pressurising farmers to enter into such an invalid contract will be punished with 3 to 7 years of imprisonment, or a fine of minimum five lakh rupees, or both. Both these Bills have not been enacted yet as they are awaiting the Governors’ assent.
How has MSP affected the cropping pattern?
According to the central government’s procurement policy, the objective of public procurement is to ensure that farmers get remunerative prices for their produce and do not have to resort to distress sale. If farmers get a better price in comparison to MSP, they are free to sell their produce in the open market. The Economic Survey 2019-20 observed that the regular increase in MSP is seen by farmers as a signal to opt for crops which have an assured procurement system (for example, rice and wheat). The Economic Survey also noted that this indicates market prices do not offer remunerative options for farmers, and MSP has, in effect, become the maximum price that the farmers are able to realise.
Thus, MSP incentivises farmers to grow crops which are procured by the government. As wheat and rice are major food grains provided under the PDS, the focus of procurement is on these crops. This skews the production of crops in favour of wheat and paddy (particularly in states where procurement levels are high), and does not offer an incentive for farmers to produce other items such as pulses. Further, this puts pressure on the water table as these crops are water-intensive crops.
To encourage crop diversification and thereby reduce the consumption of water, some state governments are taking measures to incentivise farmers to shift away from paddy and wheat. For example, Haryana has launched a scheme in 2020 to provide Rs 7,000 per acre to those farmers who will use more than 50% of their paddy area (as per the area sown in 2019-20) for other crops. The farmers can grow maize, bajra, pulses, or cotton in such diversified area. Further, the crop produce grown in such diversified area under the scheme will be procured by the state government at MSP.
