Distress financing of out‐of‐pocket health expenditure in India

• Author: Ramna Thakur,Varun Dutt,Shivendra Sangar
• Published date: 01 February 2019
• DOI: http://doi.org/10.1111/rode.12540
• Date: 01 February 2019

REGULAR ARTICLE

Distress financing of out‐of‐pocket health

expenditure in India

Shivendra Sangar

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Varun Dutt

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Ramna Thakur

School of Humanities and Social

Sciences, Indian Institute of Technology,

Mandi, Kamand (H.P), India

Correspondence

Ramna Thakur, School of Humanities and

Social Sciences, Indian Institute of

Technology, Mandi, Kamand (H.P),

175005, India.

Email: ramna@iitmandi.ac.in

Abstract

In the absence of a universal health insurance mechanism,

the increasing burden of out‐of‐pocket (OOP) health

expenditure has become a growing concern in India. To

cope with the cost of illness, people use either their sav-

ings and income, or they have to rely upon distress

means of finance such as depletion of household assets,

borrowings from banks and moneylenders, and contribu-

tions from family and friends. This paper analyses the

changes that have taken place in the incidence and

covariates of distress financing in India by using data

from National Sample Survey Organisation for the years

2004 and 2014. Results indicate that during this period

the incidence of distress sources as a means to finance

OOP health expenditure has hovered around 50%.

Further, the results reveal a significant socioeconomic

gradient in the incidence of distress financing. Socioeco-

nomic and health‐related covariates significantly impact

the likelihood of distress financing as a means to cope

with OOP health expenditure. The results indicate the

need for government action to formulate a comprehensive

plan through an increase in public spending on health

care that will improve the quantity and quality of the pub-

lic health‐care system and enhance the scope of health

insurance in India.

KEYWORDS

Coping, Incidence, Inequality, source of finance

DOI: 10.1111/rode.12540

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© 2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2019;23:314–330.

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INTRODUCTION

The health‐care system in every nation aims to provide inclusive and efficient care which can

maintain and improve the health status of the population (Bredenkamp, Mendola, & Gragnolati,

2010; World Health Organization (WHO), 2010). Countries all over the world design health sys-

tems so as to have a minimal adverse impact on the economic well‐being of individuals (Bovbjerg,

2001; Ransom, 2002). However, the experience of low‐and middle‐income countries (LMICs)

such as India reveals a different state altogether (Ramani & Mavalankar, 2006). Although in India

the government's efforts in public health have reduced the infant mortality rate and increasing life

expectancy, these initiatives are still only moderately successful by international standards (Min-

istry of Health and Family Welfare (MOHFW), 2002). On key health indicators, India's health‐care

system ranked 112th among 190 countries in the world (WHO, 2000). To a certain extent, the dis-

mal performance of India's health‐care system can be attributed to the level of government spend-

ing, which is is as low as 1.15% of gross domestic product (GDP) (MOHFW, 2016). In India, the

inadequacy of health‐care spending by the government has resulted in poor health‐insurance cover-

age (Selvaraj & Karan, 2012). Health insurance is an essential tool that safeguards people against

the economic burden associated with the cost of illness (Dilip & Duggal, 2002). But in India only

17% of the total population have health‐insurance coverage, which is abysmally low when com-

pared to other LMICs (Insurance Regulatory and Development Authority of India, 2016). Sections

of the society not covered by regular health insurance face a higher burden of health‐care costs

(Dilip & Duggal, 2002).

Over the years, the private health‐care sector has become an overwhelming choice in India,

especially outpatient visits (Sengupta & Nundy, 2005). The lack of responsiveness of public hospi-

tals to the health‐care needs of people is mainly responsible for the extraordinary growth of private

health care in India (Bajpai, 2014). Thus, the deficiencies in the public health‐care system. on the

one hand. and lack of a universal health‐insurance mechanism, on the other, have resulted in

higher out‐of‐pocket (OOP) spending in India (Jayakrishnan, Jeeja, Kuniyil, & Paramasivam,

2016). According to India's National Health Accounts, 2013–14, OOP spending accounts for

64.2% of total health spending (MOHFW, 2016). The unusually high share of OOP expenditure on

health care could drastically affect the economic condition of households and even push them

below the poverty line (Berman, Ahuja, & Bhandari, 2010; Ghosh, 2010; O'Donnell et al., 2008).

In these situations, people either use their savings and income or they have to rely upon alternative

sources of finance such as depletion of household assets, borrowings from banks and moneylen-

ders, and contributions from family and friends to cope with the cost of illness (Flores, Krishnaku-

mar, O'Donnell, & Van Doorslaer, 2008; Leive & Xu, 2008). Coping strategies aim to avert the

financial hardship associated with the economic burden of illness on households (Sauerborn,

Adams, & Hien, 1996). In LMICs, the financial risks of seeking health‐care services are higher

among the most deprived households in countries with less health insurance (Kruk, Goldmann, &

Galea, 2009). Socially vulnerable sections of society such as Scheduled Castes, Scheduled Tribes

minority religious groups, and females are more likely to use coping strategies to finance health

shocks, leading to greater welfare loss among these groups (Dhanaraj, 2014; Joe, 2014). Coping

strategies such as using savings, borrowing, the sale of assets and transfers finance three‐fourths of

the cost of inpatient care in rural areas and two‐thirds of the cost in urban areas in India (Dilip &

Duggal, 2002; Flores et al., 2008).

Earlier studies on coping mechanisms have mainly examined the incidence and correlates of

distress financing at a point in time. However, it is also imperative to analyze the changes that

have taken place over an extended period in the incidence and covariates of coping strategies used

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