Out-of-Pocket Health Expenditure, Reasons and Consequences

Out-of-Pocket Health Expenditure, Reasons, Consequences and Government Initiatives

Out-of-pocket health expenditure refers to direct payments made by individuals for healthcare services, highlighting affordability, access, and policy challenges.

Table of Contents

Context: In India, out-of-pocket expenditure is the primary method by which households pay for healthcare. However, while official data (NHA) indicate a decline, other surveys suggest a rise, revealing a significant data gap.

Out-of-Pocket Health Expenditure (OOPE)

OOPE in health refers to direct payments made by households at the time of using healthcare services.
It includes costs of consultations, medicines, diagnostics, hospitalisation, informal charges, etc.
It excludes prepaid mechanisms like government subsidies, social insurance, or employer-based coverage.

Data Discrepancy on OOPE in India

National Health Accounts (NHA): Reports OOPE share of total health expenditure has declined from 64% (2013-14) to 39% (2021-22).
NFHS-5 (2019-21): Shows very high OOPE per hospitalisation – ₹4,452 in public and ₹26,475 in private facilities.
Consumer Expenditure Survey (2022-23): OOPE share in household consumption rose (rural: 5.9%, urban: 7.1%).

Reasons behind high OOPE in India

Low Public Health Spending: India spends ~2% of GDP on health (Union + State), far lower than the global average of ~6%.
Dominance of Private Healthcare: Nearly 70% of outpatient and 60% of inpatient care is delivered by the private sector, which is costly.
High Medicine Costs: Medicines and diagnostics contribute to 60-70% of OOPE.
- Price regulation is limited to a fraction of drugs under the National List of Essential Medicines (NLEM).
Insurance Gaps: Low penetration of health insurance, especially in the informal sector.
- Even schemes like Ayushman Bharat–PM-JAY cover only ~50 crore people, with significant exclusions.
Limited Primary Health Infrastructure: Weak primary care forces patients to seek expensive tertiary facilities even for minor ailments.
Pandemic Effect: COVID-19 led to spikes in OOPE due to high costs of hospitalisation, oxygen, and medicines, which NHA estimates were largely missed.
Informal Costs: Under-the-table payments, non-standardised charges, and high outlays for diagnostics in urban centres.

Consequences of Increasing OOPE

Impoverishment and Poverty Trap: Households liquidate savings, borrow, or sell assets to meet healthcare costs.
Catastrophic Health Expenditure: Families spending >10% of household consumption expenditure on health.
Inequity in Healthcare Access: Poor households often forgo care, delay treatment, or opt for informal providers, which worsens outcomes.
Intergenerational Effects: Children are pulled out of schools; women bear an extra workload to cover medical costs.
Nutritional and Social Impact: Families cut down on food, housing, or education expenditure to finance treatment.

Way Forward

Raise Public Health Spending: To 5% of GDP by 2025 (NHP target).
Strengthen Primary Care: Fully functional Health & Wellness Centres with diagnostics and medicines.
Universalise Insurance: Expand PM-JAY coverage and include outpatient care.
Affordable Medicines & Diagnostics: Scale up Jan Aushadhi; expand NLEM coverage.
Private Sector Regulation: Enforce standard treatment costs, reduce overbilling.
Financial Protection: Micro-insurance and community-based insurance for informal workers.
Improve Data Quality: Combine NSS, NFHS, CES, LASI, and CMIE surveys for realistic OOPE estimates.
Leverage Digital Health: Ayushman Bharat Digital Mission for portability, transparency, and cost efficiency.