Why Growth Matters (27 page)

According to DasGupta et al. (2009), Tamil Nadu, which retained public health services under a separate department, has been more successful in improving health outcomes than other states. But the evidence in this regard is mixed. Tamil Nadu does come out on top in terms of vaccination. But its performance along other indicators, while generally among the top five out of the fifteen larger states, is less compelling. Nevertheless, there is some merit in the argument Dasgupta et al. (2009) make. In principle, establishing a separate agency entrusted with public health services with its own budget should help boost the provision of these services.

Two additional public health measures are worth implementing. First, governments at all levels must carry out regular campaigns to inform the public of the benefits of a healthy local environment.
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When people live in neighborhoods with unhygienic conditions for several years, even decades, they become so used to the unhealthy conditions that they do not even notice them. Demonstrating that cleaner conditions are possible and are both healthier and nicer may go some distance toward generating beneficial public action at the individual level.

Second, it is important to make the Food Safety and Standards Authority of India (FSSAI), established under the 2006 Food Safety and Standards Act, more effective. The Authority lays down science-based standards for articles of food and regulates their manufacture, storage, distribution, sale, and imports. But the implementation of these standards requires the consolidation of food supply chains. Currently the
supplies come from innumerable and unknown sources and are distributed by as many retailers spread over a vast territory. It is not possible for any administrative unit to monitor these small units all across the country. Consolidation is required at the processing and wholesale stages, which will pave the way for the emergence of branded products, even though the retail distribution continues to consist mainly of small shopkeepers. From this perspective, the recent reform opening multi-brand retail to foreign retail chains, such as Walmart and Tesco, is a step in the right direction. As large buyers of processed foods, these retailers can potentially help consolidate food processing and introduce and popularize branded products meeting FSSAI standards.

Let us next turn to health care, which we shall divide into two categories: routine health care and major illnesses. The former involves ailments such as cold, cough, fever, and minor injuries. These ailments afflict nearly all, often several times a year, and are not hugely expensive to treat per episode. Major illnesses, including those requiring prolonged treatment at home, surgeries on an outpatient basis, and hospitalization, occur with unpredictable frequency and are costly per episode.
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Setting aside considerations of poverty for the moment, the case for free public provision of, or subsidy on, routine health care is extremely weak. Routine health care directly benefits the recipient of the service with no significant positive or negative implications for the rest of the population. Therefore, the arguments for government intervention, such as those applying to vaccination or cleaning of the swamps discussed earlier, do not apply here.

An argument for government provision is, however, made by some on the alternative grounds of asymmetric information. These analysts argue that the patient is unable to assess the quality and price of the service, so that private providers may dupe the patient into paying high prices for worthless service. Government provision of the service can overcome this problem.

But this argument has at best limited force when it comes to routine health care since repeated interactions with the provider and conversations with other patients provide the patient an opportunity to observe and assess the quality and price of the service. Moreover, even if one accepts the information asymmetry as a serious issue, it is far from clear that the Indian government has the ability to deliver high-quality routine care at a reasonable price. According to a National Sample Survey Organization (2006, p. H-2) survey conducted during January–June, 2004—the latest such survey available—81 percent of urban and 78 percent of rural patients in India sought private providers for non-hospitalized care in preference to the government subcenters and primary health-care centers in rural areas and government dispensaries and hospitals in urban areas.

In their important work, Das and Hammer (2007) provide even more direct evidence questioning the ability of the public sector to provide quality service. They show that although the public sector employs well-qualified doctors and pays them relatively high salaries, this hardly translates into quality care. The benefits of better qualifications of these doctors over those in the private sector are offset by a lack of effort on their part to fully apply their knowledge to providing patient care. The government may be able to use its access to public money to hire better doctors but it cannot make them deliver better service.

A different case for government intervention is sometimes made on the grounds that better health service improves the ability of individuals to work and therefore helps produce a healthier workforce. But once again, this increase in productivity should generate private benefits to the recipients of the service in terms of higher wages. Therefore, this argument also falls short of providing a persuasive case for intervention by the government.

In the ultimate analysis, the principal plausible justification for government intervention in providing routine outpatient care stems from poverty. A large chunk of the population at the bottom of the income distribution in India is too poor to afford even a minimum socially acceptable level of health care. To the extent that financial resources permit
it, a modern welfare state must strive to provide a minimum level of health care to those unable to afford it. This view is reflected in the aim to provide access to “comprehensive primary health care” in the National Rural Health Mission, launched in 2005.

The key policy question, however, is whether such care is provided through the government
provision
of outpatient care or by other means. We noted in
Part I
that India had begun to build up the primary health-care infrastructure as early as the 1960s following the recommendations of the Health Survey and Planning Committee (Mudaliar Committee 1961). But nearly fifty years of efforts in building this infrastructure have not led to the provision of effective health care in rural India. As just noted, no more than one-fifth of the rural patients seek routine outpatient care at public health facilities. The remaining four-fifths of the patients go to rural medical providers who are largely unqualified providers of routine health care in rural India.

Given the government's inability to deliver the service after a half century of efforts, alternative models must be given a chance. In our view, the best course is to place the financial power to buy health services in the hands of the patients: give cash transfers to the poor to meet their routine health-care expenses. The government can continue to provide services but its facilities must compete against the private providers and meet all their costs from the revenues they earn by charging the patients. Once the poor are given the financial resources, public health-care facilities will be justified in charging for their services, which will enable them to recover their costs. This will force market discipline on the government facilities while giving patients a greater choice of providers.

An important question in this context is whether the transfers should be contingent on meeting certain requirements or given unconditionally. According to the bulk of the empirical evidence from Latin American countries such as Mexico and Brazil, requirements such as regular medical checkups are useful devices to ensure that the financial transfer is spent as intended. Nevertheless, the benefits of the conditional approach must be weighed against the corruption they are likely to engender in Indian conditions. Given the extreme shortage of doctors,
certification of regular checkups could itself turn into a business. Doctors would extract a part of the transfer from patients just for providing certification. Therefore, it is our view that the best course is to make transfers to the poor without conditions, perhaps to the senior-most female member of the household. This way, households may even be encouraged to maintain a healthy lifestyle to avoid visits to the doctor, thereby releasing the funds for expenditures on items such as milk and fruits that improve the body's natural immunity.

It is easy to see that if the government were to opt for cash transfers, it could accomplish its objectives well within the current fiscal constraints. Make the generous assumption that the transfers will be given to the entire bottom half of the population—to approximately 600 million individuals. Assume further a cash transfer of 500 rupees per individual. These figures imply 300 billion rupees at 2010–2011 prices in total expenditure. With a GDP of 79 trillion rupees at market prices in 2010–2011, the transfer amounts to 0.38 percent of the GDP. Even doubling the transfer to 1,000 rupees can be accomplished for less than 0.8 percent of the GDP.

Major illnesses, in which we include childbirth and maternity care as well as prolonged illnesses even when they are treated at home, differ from routine health-care in two important respects: their frequency is much lower but the cost per episode is high, and their frequency, as well as the magnitude of the associated expense at the individual level, is unpredictable.
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These characteristics make the market for the care of major illnesses a perfect candidate for insurance. In common with other insurance markets, we face the adverse selection problem: those already hit by an illness or suffering from a prolonged illness would seek insurance while those in good health would avoid it. The common solution to the problem is group insurance. Since the poor in India cannot afford the insurance premiums, the government will have to foot the bill.

A beginning in this direction has been made in recent years. Stimulated by the opening of insurance to the private sector, including 26 percent foreign direct investment in 2001, a nascent private market for insurance has been emerging. Within this context, the government has also tried to address the needs of the poor by requiring private entrants to issue a specific proportion of their policies to the rural populations. This provision has led some private insurers to team up with self-help groups such as SEWA to insure entire groups in rural regions. One scheme along these lines, Yeshasvini Cooperative Farmers Health Care Scheme in Karnataka, was launched in 2003 and covered approximately 3 million farmers against the risk of expensive surgeries. The scheme is funded partially by premiums and partially by government subsidy. Members receive medical services for listed procedures at approved public and private hospitals and nursing homes, which numbered 462 in 2010–2011.
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A far more ambitious scheme aimed at the poor is the Rashtriya Swasthya Bima Yojana (RSBY), launched by the Indian government on April 1, 2008. The scheme is funded in 3:1 ratio by the central and state governments and is available to households below the poverty line. Under the scheme, the government pays the premium for five members of each covered poor household and issues the family a smart card that can be used to access approved public and private hospitals. A long list of illnesses requiring hospitalization is covered up to a maximum expenditure of 30,000 rupees per year for a family of five. As of December 8, 2011, 25.6 million smart cards were in circulation across twenty-three states.
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State governments have introduced similar schemes; these include Arogyasri in Andhra Pradesh, Vajpayee Scheme in Karnataka, and Kalainger Scheme in Tamil Nadu.

In our view, these schemes are on the right track. They target the poor, cover major illnesses, carry significant but fiscally manageable coverage, and allow private and public providers to compete for patients. They also seem scalable. The operation of several schemes rather than a single national one allows for experimentation according to local needs as well.

The eventual fiscal costs would depend on who is covered and the benefit provided. As an example, suppose we make the generous assumption that half of the population in India is poor. This implies coverage to 600 million individuals at the state's expense. Making the further generous assumption that 5 percent of the individuals require hospitalization in any year, which is higher than the current rates, insurance will have to pay for 30 million hospitalizations per year. Assuming the cost of hospitalization on average is 10,000 rupees at 2010–2011 prices, the total expense would be 300 billion rupees. With a GDP of 78,779.47 billion rupees, this represents 0.38 percent of the GDP. Assuming five members per household, it is thus possible to provide coverage of 50,000 rupees per household for less than 0.4 percent of the GDP.

The provision of
universal
health coverage by the state has been proposed by civil society groups, which have now captured not just the National Advisory Council headed by Congress President Sonia Gandhi as well as the Planning Commission. Thus, a recent report by a high-level expert group appointed by the Planning Commission (2011), consisting of relatively few economists and chaired by a medical doctor turned activist, recommends a national health package accessible to all Indian citizens free of charge by 2022.
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It is our view that before jumping on this “right-to-health” bandwagon, the government must take a hard look at the rationale behind it and, more important, at the government's ability to provide universal coverage.

Astonishingly, the expert group report provides no satisfactory rationale for its proposals for a package equally available to all. Nor does it document how it proposes to transform the public health infrastructure from its current debilitated state to a level that would attract rather than repel patients from seeking hospitalized as well as non-hospitalized care in the rural as well as urban areas. We find ourselves largely agreeing with the scathing critique of the report by Rao (2012), who pointedly comments, “The HLEG [high-level expert group] report neither recognizes the problems, constraints and compulsions of the departments of health at the national, state and district levels, nor offers any solutions on how to deal with them” (p. 16).