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Insights into Editorial: Reasons to invest in health: an OECD perspective + MINDMAPS on Current Issues

Insights into Editorial: Reasons to invest in health: an OECD perspective + MINDMAPS on Current Issues

14 December 2015

A recently conducted study highlighted that India spends very little on health: $215 in terms of purchasing power parity per person, which is lower than comparable middle-income countries such as China, Brazil and South Africa. The study also notes that the majority of this spending is made directly by Indian households. Such out-of-pocket payments for healthcare can cause severe financial hardship and impoverishment.

  • In recent years, there has been a strong political commitment to treating health as a social goal either through legislation or mandating and prioritizing expenditure on health. The push by the Indian government for universal health coverage in this regard is commendable.

But while spending more on health is essential in India, value for money also needs to be demonstrated. According to OECD, additional expenditure places pressure on already scarce resources. Then, how can we tackle this problem?

  • Some of the most successful examples of expanding coverage among middle-income countries in recent years have addressed this challenge by defining a limited set of essential, cost-effective services.
  • For example, Mexico’s Seguro Popular programme provided an explicit package of cost-effective interventions, including pharmaceuticals. Chile identifies about 70 essential services that are fully covered by public and private insurance.
  • This problem can also be tackled by allocating resources across geographic localities based on need. A number of OECD countries have been using this.
  • For example, in the UK, a weighted capitation formula that accounts for a locality’s socio-economic characteristics is used to equitably allocate funds to clinical commissioning groups (the units responsible for health services in specific localities).
  • Government can also resort to cost-effective interventions, such as preventive and primary care activities, rather than less cost-effective interventions, such as construction of new hospitals.

The underlying principle of the weighted capitation formula as demonstrated in the National Health Service is to distribute resources based on the relative needs of each area. This is to enable similar levels of healthcare for populations with similar needs, with the further objective of helping to reduce avoidable health inequalities.

Role of state governments:

Given India’s federal structure, special attention needs to be given to ensure that health remains a priority for states and Union territories.

  • In the backdrop of the 14th Finance Commission’s recommendation wherein the state’s share in the central divisible pool has been enhanced from 32% to 42%, a key challenge is to ensure that a sufficient level of funds transferred from the centre to states and Union territories is spent on health.
  • To this end, state governments should be incentivized to expand health coverage to the poor, focusing on cost-effective interventions.
  • State Governments also need to work closely together with the Centre so that minimum quality standards are maintained, and specialist resources are used efficiently.
  • Effective policies, which ensure that states and Union territories’ incremental spending goes to health, should be put in place.
  • Higher financial allocation will ease some of the chronic shortages but additionally government health care staff will have to do a lot better. This will require a significant improvement in the quality of state administrations which are responsible for the entire public-facing structure from the primary health centre to the district hospital.

Role of the Central Government:

The central government plays a stewardship role, and has a key planning and oversight role, with a consolidated national information infrastructure necessary to adequately monitor health outcomes, while the states are responsible for the implementation of programmes.


Investing in the health system not only saves lives, it is also a crucial investment in the wider economy. This is because ill-health impairs productivity, hinders job prospects and adversely affects human capital development. The central government defining the minimum standards of care is an important first step in this direction. However, the implementation of minimum standards requires coordinated political will at both the central and state levels. Accountability mechanisms for healthcare outcomes and balancing responsibilities across central and local authorities are few steps which can be adopted in this regard.



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