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Financing Ayushman Bharat: Are States Ready?

Ayushman Bharat, which is one of the key initiatives of the Narendra Modi government, can necessitate a huge step up in public health spending in India, which currently ranks among the lowest in the world. Both the components of Ayushman Bharat—the National Health Protection Mission (NHPM) and the strengthening of the primary care system—together are capable of making significant demands for public funding. And both its components complement each other—while NHPM is aimed at providing financial protection to nearly 11 crore poor households against hospitalization expenses, the strengthening of primary care is aimed at controlling the emerging need for hospital care through the provision of comprehensive primary healthcare. Any public program providing financial protection against hospital care runs a potential risk of becoming a huge drain on public exchequer. But if the program is well-managed, it can keep costs low. And if a hospital care program is also accompanied by a robust primary care system, it can keep the program affordable, too. In that sense, Ayushman Bharat, which seeks to give a push to both these components, seems to be a well-thought-out strategy. Whether Ayushman Bharat, together with other health sector programs, can help the government achieve its goal of raising public health spending to 2.5 percent of GDP by 2025 is the moot point. But what can be said with certainty is that states will have to bear a significant cost of Ayushman Bharat and will continue to remain the dominant financer of public health spending in the country. Why is this so?

States currently incur two-thirds of total public health spending in the country. They are expected to bear 40 percent of the cost of Ayushman Bharat (10 percent in case of special category states)—up from 25 percent that states contributed in the key central health programs previously. The 14th Finance Commission award increased states’ share in the devolved central taxes, so that states can have a greater say in prioritizing their own spending, especially in areas that are their domain. Indeed, the National Health Policy 2017 expects states to hugely step up their health financing from 4.7 percent at present to 8 percent of states’ total spending by 2022, which is unprecedented—this share hasn’t crossed 4.8 percent in the last 15 years. Are states poised for it? To answer this, we need to understand the context a little better. There exists a huge variation across states not only in terms of size of economy (per-capita income) but also in terms of size of government (per-capita state government spending), their current health spending, and their commitment to the health sector, their capacity to fund and implement health sector programs and so on. Given these variations, states are placed differently in stepping up their public health spending.

Understanding states’ context

International experience tells us that public health expenditure tends to rise with income. This trend, however, is not exhibited by Indian states that do vary significantly in terms of income. For example, Haryana, which is among high-income states (with per-capita income of ₹177,723), spent only ₹925 per person on health in 2015-16. Compare this with Rajasthan—a state with substantially lower income (₹94,311 per-capita)—which spent higher (₹1070 per person) on health in 2015-16. Similarly, Tamil Nadu and Maharashtra have similar per-capita incomes (₹167,900 and ₹167,607, respectively) but their health spending per person varied markedly (₹1206 and ₹838, respectively) in the same year. This is mainly because public health spending in India is closely correlated not so much with the size of a state’s economy but with the size of the government as measured by a state’s per-capita spending. These being the case, one can immediately infer that an increase in a state’s total spending is a sure shot way to increase a state’s spending on health, too. While this general inference is correct, one can actually do better in terms of drawing finer inferences by placing states in different groups, depending on their context.

State-specific strategies

Categorizing states into different groups based on two parameters—per-person state health spending and the share of health spending in a state’s total spending—provides a useful perspective. In the accompanying table, states are placed in four different groups depending on their health spending vis-a-vis their collective averages on two parameters. Considered here are only 21 states, excluding the eight north-eastern states as they face a different set of challenges and are treated differently. On an average, these 21 states spent ₹876 per person on health, and these states spent 4.6 percent of states’ total spending on health in 2015-16. Bihar, Jharkhand, Madhya Pradesh, Maharashtra and Uttar Pradesh were below average on both the parameters, while Chhattisgarh, Goa, Gujarat, Himachal Pradesh, Jammu & Kashmir, Kerala, Tamil Nadu and Uttarakhand were above average. The remaining states were above average on one of the two parameters. This categorization helps in understanding that not all states are similarly placed in stepping up their health spending and need to pursue different strategies to increase it. Odisha and West Bengal need to increase state’s total spending that will lift state’s per-capita health spending too, given their already higher shares of health spending in state’s total spending.

Andhra Pradesh, Haryana, Karnataka, Punjab, Rajasthan and Telangana need to prioritize health spending out of state’s current total spending. Bihar, Jharkhand, Madhya Pradesh, Maharashtra and Uttar Pradesh need to increase state’s total spending and strive to prioritize health in their total spend. Chhattisgarh, Goa, Gujarat, Himachal Pradesh, Jammu & Kashmir, Kerala, Tamil Nadu and Uttarakhand need to prioritize health incrementally, i.e. spend higher proportion on health out of incremental state spending. This is consistent with the observed international trend of rising share of public health spending with the increase in total public spending. To conclude, health has gained political traction at the central level—as is evident from the announcement of an ambitious program, i.e. Ayushman Bharat. States can no longer afford to ignore partaking in it and making necessary investments. However, not all states are similarly placed in stepping up their health investments. Improved understanding of their current health spending is a necessary step in learning the broad strategies that different states need to follow to meet their funding commitments under Ayushman Bharat. – Financial Express

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