Bose, Montu (2017). 'Innovative Health Financing in India: A Comparative Study from Equity Perspective' Paper presented at the annual conference of the HDCA, Cape Town 2017.



Role of public sector is very important to arrest the financial burden on households and to meet healthcare needs of the population. Public spending on health is historically low in India. Such, low level of public investment on health, forces people to spend a large share of healthcare expenditure from their pocket. For last few years, to achieve the Universal Health Coverage, Indian States have implemented different strategies to arrest high out-of-pocket expenditure and to increase equity into healthcare system. State Governments and the Union Government have started spending through National Health Mission since 2005. To provide financial protection against high out-of-pocket expenditure, National Health Insurance Policy (RSBY) has been introduced. As medicine constitutes the maximum share in total health expenditure, Tamil Nadu (TN) implemented free medicine distribution scheme for all who are utilizing public health facilities. Rajasthan (RAJ) has also implemented the same strategy following TN. However, West Bengal (WB) has implemented a public-private partnership model to provide medicine at a very high discount for all through fair-price medicine shop (FPMS)


In this background, the study attempts to critically examine the effectiveness of the policies in achieving the Sustainable Development Goals for three Indian states – TN, RAJ and WB. Specifically the objectives are to –

  1. Study the utilization pattern of public in-patient care facilities for the states,
  2. Examine the effectiveness of the strategies adopted by the states to arrest high OOP expenditure and
  3. Analyze the extent of equity in public in-patient care services in the states.

Data & Methodology:

National Sample Survey (NSS) 71st round (2014) and NSS 60th round unit-level data on health, Detailed Demand for Grants (DDGs) of the State Governments 2015-16, National Rural Health Mission (NRHM) Programme Implementation Plan (PIP) data of 2013-14 have been used for the present study.

To study the utilization pattern and effectiveness of the strategies on out-of-pocket expenditure, exploratory data analysis has been carried out. To verify the extent of equity in distribution of public subsidy, benefit incidence analysis (BIA) has been carried out using the NSS data. Here, we have followed the conventional methodology available from the literature. To cross-validate our result, we have devised a separate methodology to estimate the benefit incidence of public subsidy from Government Budget data and implemented it. Cost-of-care methodology has also been applied to measure the inter-state variation in cost of in-patient care service.


It has been observed that overall utilization of public facilities in Tamil Nadu and Rajasthan has increased substantially, whereas, utilization of public facility has decreased in West Bengal during this period. Moreover, when the utilization of the poorest class has increased for Tamil Nadu and Rajasthan, poorest class of West Bengal are experiencing decrease in utilization of public facilities for in-patient care. This scenario is uniformly observed in both the sectors of the states. It is well documented in the literature that patients who utilize public healthcare facilities in West Bengal don’t get other services (like consultation, diagnostic tests, medicines etc.) as a package which forces them to purchase these services from the market and impact of such poor provisioning of services is visible in the utilization of public facilities in the state. On the other hand, OOP expenditure for both medical and medicine is the highest in West Bengal among three states for public sector hospitalizations. If we compare the OOP expenditure figures (of public hospital) with 2004 estimates, we could see that, medical expenditure was the highest in Rajasthan. However, now in 2014, West Bengal is spending the highest amount during public sector hospitalization. Surprisingly, OOP spending on medicine is the highest for the poorest class of West Bengal. In Tamil Nadu and Rajasthan, on the other hand, OOP spending on medicine is the highest for the richest class and as we move towards the poorest class the OOP expenditure on medicine falls. Further analyzing the data we could see that non-communicable diseases, injuries and disabilities have increased substantially in both the sector of the states. Moreover, most of the people suffering from these diseases prefer to utilize public facilities in West Bengal. However, the mandatory list of drugs of the government for FPMS mostly includes medicines related to communicable disease or antibiotics. As a result most of the people utilizing healthcare facilities are forced to buy medicines from open market and end up with high OOP expenditure. Overall, benefit incidence of public subsidy is the highest among the poorest class in all the three states. However, when the poorest class of Tamil Nadu and Rajasthan are enjoying the highest benefit share in both rural and urban region, rural West Bengal shows the highest benefit share for the upper middle class. High utilization of public facilities and low public investment in health have resulted very low share of subsidy and high OOP expenditure during hospitalization in West Bengal. Rajasthan, on the other hand, is struggling with the high OOP expenditure in the private sector hospitalization. However, following Tamil Nadu, the state has managed to arrest the OOP expenditure in the public sector hospitalization.


Summing-up the results we can say that TN model has been successful in achieving its health goals after implementing various health financing strategies. Following the same strategies, RAJ is also reaping the benefit. However, focused policies are required to increase public sector utilization in WB. Procuring medicine or regularly updating the essential drug list is urgently required in the state. Improving access to related healthcare services would improve the health scenario of the state. As TN has achieved most of the health goals and poorest class enjoys the public health services the most, the state should now also focus on the lower middle MPCE class for better equity in the system. Rajasthan, on the other hand, after successful implementation of TN model, has improved the health financing indicators of the state drastically. However, the state should focus on the urban poor to enjoy better health outcome.

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