Healthcare spending: Need sharper distinction between consumption and investment

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Updated: August 1, 2019 7:31:46 AM

Is healthcare spending a consumption expenditure or an investment expenditure?

Generally, health expenditure on preventive and primary care is investment, while hospitalisation expenditure is consumption in nature.

The Economic Survey 2018-19 has projected the number of elderly population (60 years and above) to increase to 239.4 million in 2041, more than double the 104.2 million in 2011. So, the need for making ‘investments’ in healthcare for the elderly is one of the two policy prescriptions noted in the Survey (the other being raising retirement age).

Is healthcare spending a consumption expenditure or an investment expenditure? The answer is not as black and white. It depends on the kind of health spending one is talking about, from whose perspective, for what population, and who the funding agency is. The Indian context adds another layer of complexity to this.

Generally, health expenditure on preventive and primary care is investment, while hospitalisation expenditure is consumption in nature. Because primary healthcare expenditure helps avert disease escalation, it is considered investment, while hospital expenditure because of its ‘avoidable’ nature is regarded as consumption. By this logic, all expenditure on yoga—because of its role in promotion of health and well-being—is investment. Healthcare expenditures can be looked at through other lenses, too. For example, through the lens of human life cycle, expenditure on women and child healthcare and nutrition is considered investment, while expenditure on elderly healthcare is considered consumption.

Likewise, whether it’s consumption or investment depends on who the funding agency is. Generally, all spending by a private firm in healthcare provision for profit is investment, while public health spending can be consumption or investment. Health spending by not-for-profit firms, too, can be consumption or investment.

Of course, these generalisations hold at the macro level. At the micro level, healthcare expenditures can mean a very different thing. For example, expenditure on healthcare of an elderly may be considered investment by a family if the elderly is regarded as a source of enormous moral strength. By this logic, expenditure on maintaining the health of a young person suffering from a terminal illness may be considered consumption. So, you see, the classification of healthcare expenditure as consumption or investment is not that straightforward. So, how does it matter?

One might argue that regardless of whether healthcare expenditure is consumption or investment, if a person needs healthcare, he/she should be able to access it without experiencing financial hardships. This is the spirit behind the concept of Universal Health Coverage (UHC) that has become the priority objective of the WHO. But for developing countries like India, UHC cannot be achieved all at once. Instead, it is about defining a pathway to progressively achieving UHC, as greater resources become available. This implies prioritisation of services to be provided and of the people who are to be covered along the path to UHC. This is where the distinction between consumption and investment comes handy in prioritising expenditures that are investments as a country marches towards UHC. Hence the notion of ‘best buys’ that is so common in the health sector—spending on nutrition, on health promotion to reduce non-communicable diseases, on birth attendants, on childhood immunisation are examples of ‘best buys’. People who advocate ‘right to healthcare’ miss this central point of affordability and prioritisation.

In their worldview, they overlook the fact that health is first and foremost an individual’s own responsibility, then of his/her immediately family’s, thereafter of the local governments for ensuring public goods such as clean surroundings, clean drinking water and so on. Surely, the government can’t be caring about the health of individuals more than the individuals’ themselves! How can the healthcare system be made responsible for keeping people healthy if people themselves indulge in unhealthy behaviour? Talking of behaviour change, much of it lies outside of the health sector. Asking for healthcare is perhaps as important as asking for redressal of determinants of health such as clean air, hygienic public spaces, safer roads. Expenditures on these is mostly investment in nature.

Giving health sector a boost: At 1.3% of GDP, public health spending in India pales in comparison to peers such as Vietnam that spends close to 3% of its GDP. But the good news is that the Narendra Modi government is committed to raising this share to 2.5% of GDP by 2025.

The principal vehicles for stepping up government health spending are Ayushman Bharat and National Health Mission. Ayushman Bharat comprises of (1) PM-JAY that entitles 110 million low-income families to free hospital care benefit, and (2) establishing 150,000 HWCs as the first point of contact for people to avail primary healthcare. The National Health Mission, on the other hand, is aimed at strengthening public health facilities, providing lower level of care in the country. States have a major role to play in both financing and implementing these, and, in the process, realising the health financing goal.
At a time when India is experiencing growth and job pangs, voices from private healthcare industry are getting shriller. The industry is making a case for higher public health spending as well as extending incentives. Healthcare is known to be a human resource-intensive sector and is also a major contributor to India’s GDP growth. But not all levels of health service delivery contribute equally to jobs and GDP growth. The government needs to adopt a graded strategy—one that requires a sound understanding of what constitutes investment and consumption in healthcare. This is particularly challenging when India is also aspiring to emerge as a destination for medical tourism.

As the government steps up spending to meet health financing goals, it’s important not to lose sight of the consumption versus investment distinction. Health expenditure that is mostly consumption in nature can be a slippery slope because of its populist appeal. The rationale for giving the health sector a boost also calls for a sharper distinction between consumption and investment. This distinction is necessary so as to prioritise investment over consumption in healthcare spending.

(The author is a development economist, formerly with the Bill & Melinda Gates Foundation and the World Bank)

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