Re-learning through the pandemic: India’s COVID-19 health financing response
- Grace Achungura, Technical Officer (Health Financing for UHC-HCF), WHO Country Office, India
- Rahul Reddy, Health Systems & Financing Expert, India
- Mita Choudhury, Associate Professor, National Institute of Public Finance & Policy
- Jaidev Anand, National Professional Officer (Health Financing), WHO Country Office, India
For Low- and Middle-Income Countries (LMICs), mounting an effective response to the COVID-19 outbreak was a daunting task chiefly due to resource constraints, weak health systems that were ill-prepared to respond adequately, and public health measures like lockdowns that exacerbated pre-existing macro-economic constraints. At the time of writing (14/04/2022), India has experienced three waves of the pandemic, with the first wave characterized by a prolonged national lockdown1, the second wave characterized by severe morbidity, higher mortality and much greater strain on the health system (infrastructure and workforce) and lastly, a more muted third wave. As a result of this, the country has had 42,894, 345 cases of COVID 19 with 134,235 active cases, 42,246, 884 recovered cases and 513, 226 deaths (2).
In India, health is a state subject and while the Union government does allocate a substantial amount of money for health, ~60 % of government health expenditure is done through state finances (3). In the evolving aftermath of the pandemic, Union and state finances have seen an erosion with mounting debt liabilities that will have to be serviced in the time ahead. This situation was further compounded by a wider slowdown in the economy even before the pandemic wreaked havoc on public finances. The dual pressure of loss of revenues and the need for increased spending is expected to hit hard the finances of the state and union governments, labelled as the ‘scissor effect’ by the 15th Finance Commission (4). Moreover, issues around centre-state coordination, health system gaps, weak private sector regulation and high OOPEs complicated the ability to mount an effective response(5). However, important lessons are to be drawn from India’s response and the anticipated implication on India’s long term macro-fiscal outlook. This blog describes some of the key health financing interventions put in place by the Government of India for responding to the COVID-19 pandemic and their implications for health financing going forward. Additionally, the blog also draws lessons for India from other countries vis-à-vis their health financing response to COVID-19 and provide recommendations for UHC for LMICS.
1 The Finance Commission is a Constitutionally mandated body that is at the center of fiscal federalism in India whose core responsibility is to evaluate the state of finances of the Union and State Governments, recommend the sharing of taxes between them and lay down the principles determining the distribution of these taxes among States.
Raising Revenues & Pooling for COVID-19
Reallocation across the government sectors: Emerging evidence suggests that in the first pandemic year (2020-21), aggregate receipts of the Union government and 26 Indian states declined by about 5% from the level of 2019-20. The bulk of this was on account of a sharp fall in tax and non-tax revenues. Low revenue buoyancy at the Union level resulted in lower tax devolution to states (6). This was, however, partially compensated by an increase in transfers to States in the form of grant-in-aid. The positive growth of grants-in-aid ensured that transfer of resources for major Centrally Sponsored Schemes like the National Health Mission (NHM) was not curtailed (7, 8). Additionally, Union government expenditure (excluding state transfers), grew by more than 30% and 5% on average across states in the pandemic year, primarily financed through borrowings, resulting in the rise of fiscal deficit by about 1% of GSDP.
Growth in expenditure within States was driven by an increase in spending on social services, which registered a growth of 6% primarily attributable to capital spending which recorded a sharp growth rate of 29% in the pandemic year(5).
The increase in public spending on health has, however, come at a cost of negligible or very low growth in several important sectors. Growth in education and nutrition was less than 0.5%. Interestingly, expenditure on water supply and sanitation grew at around 9%, probably due to the increased need for sanitization services during COVID 19 (5).
Multiple budget channels for COVID & allocation flexibility: Early in the response, before COVID-19 was notified as a disaster, the Ministry of Health & Family Welfare (MOHFW) relaxed the usual virement of 10% to enable states to reallocate resources within the health system flexipool and gave the states leeway to use untied funds for the development of isolation facilities (9). To facilitate this, new financial reporting codes were added to the information management system. Furthermore, the National Health Mission granted the flexibility to the states for the utilization of appropriated funds without prior approval from the central level. This served to reduce delays in disbursement that would affect timely response. In addition, publicly funded health insurance schemes such as Pradhan Mantri Arogya Yojana (PMJAY), the Central Government Health Insurance Scheme (CGHS) for the public-sector employees and some state health insurance schemes have also used their routine budgets to provide additional revenue for the response (10, 11).
Contingency funds: At the sub-national level, states collectively mobilized close to USD 1.5 billion under the State Disaster Response Fund (SDRF), following the notification of COVID as a disaster (12, 13). Other states have used their legally mandated routine allocations to their contingency funds to augment the funds from the SDRF. For instance, in Odisha, the State government affected a five-fold increase in the corpus of the Odisha contingency fund to USD 270 million through the Odisha Contingency Fund (Amendment) 2020 of the Act (14). Funds have been applied to unmet needs for the prevention and treatment of COVID cases (15). Similarly, in Jharkhand, USD 13.6 million was allocated from the contingency fund to the State Disaster Management Department for the response (16).
External financing sources were mobilized through fast-tracked loans from the World Bank (USD 1 billion) and the Asian Infrastructure Investment Bank (USD 500 million) (17-19). Mobilized funds have been prioritized for short term actions related to the response and long-term actions related to health system strengthening.
Philanthropic sources: Other non-government sources of revenue mobilized by the Union Government include a fund called “Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)” to which citizens, companies and other entities donated for the response (20). The government allocated USD 272.5 million from the fund to purchase locally made ventilators inter alia (21). Several states like Bihar, Kerala, and Odisha have raised additional revenue using similar funds for the prevention and treatment of COVID (22-24).
Purchasing COVID-19 services
Benefit design: In March 2020, the Union government announced free testing and treatment of COVID-19 for all cases managed through the public sector. The cost for care sought in the private sector would be borne by the household. Consequently, service provision for testing and treatment of COVID-19 has largely been through public facilities. Nevertheless, some states including Karnataka, Maharashtra, New Capital Territory Delhi, Odisha and West Bengal have engaged the private-for-profit sector as well to increase service availability and capacity (25-27). COVID testing and treatment services were included within the benefit packages of health insurance schemes such as Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) (10). This broadened service access through the private sector for beneficiaries in states running PMJAY. Other health insurance schemes like the CGHS and some state health insurance schemes like the Chief Minister’s Comprehensive Health Insurance Scheme (CMCHIS) in Tamil Nadu also included COVID-19 packages in the Health Benefits Package (HBP) with no co-payments required to access services (11, 28).
Provider payment mechanisms: While many states involved the private sector in service provision for COVID-19, only a few like Odisha, West Bengal and NCT Delhi elected to pay providers for the services, to reduce financial barriers for households. In Odisha, given the uncertainty of the situation, the government used blanket per diem payments for each COVID bed regardless of its actual use and a monthly lump sum to cover fixed costs (29). On the other hand, in West Bengal, fee-for-service payments were used to reimburse private providers (27). In NCT Delhi, the engagement of the private sector was limited to testing for COVID-19. In this case, the government established different payment rates for private laboratories based on whether they were receiving any supplies like test kits from the government or not. Payments were made on a fee-for-service basis following verification of the received paper claim from the laboratory. Additionally, under PMJAY, states were provided with the flexibility to develop payment models that were suitable to their context (30). There were various other price-setting mechanisms used by some states (25, 26, 31). Other important experiences from such engagement with the private sector show that states that started off negotiation early were able to drive down prices to a greater degree41. Moreover, states that adopted unilateral measures to determine prices faced challenges in the performance of private providers with some of them denying care to patients in some cases resulting in death.(32-34)
Impact of COVID-19 on the Economy and Implications for Health Financing in India
The COVID 19 pandemic imparted a negative shock to economies worldwide, and India is not an exception. Across the globe, countries have witnessed a sharp contraction in revenues following the pandemic leading to an anticipated decline in public spending and an increase in government debt (5) The increased spending on health may not last beyond the short or medium-term given the need to reprioritize other sectors from which funding was repurposed (education, etc.)
The recent Union Budget FY 2022-23 is an indication of this. The budget signals a return to the pre-COVID 19 perspectives to government priorities (FY 2019-20) in which sectors like energy, banking, aviation etc. were positioned to drive the development agenda of the country and the social sector was positioned as a more complimentary sector. Considering this development, India’s march towards building a strong and resilient health system and expanding fiscal space for health will largely depend on the larger economic recovery and growth rate of the economy in the short to medium run.
Lessons for Health Financing for UHC in India & LMICs
A review of health financing responses across the countries in Asia shows some commonalities that are worth noting. It also shows some nuances driven by local context (historical, geopolitical etc.) that may be important for local adaptation of health financing responses in LMICs and decentralized contexts are given the heterogeneity at the sub-national level.
Common features of the health financing response to COVID 19 in Asian countries included:
- Government stimulus packages to address economic crisis and delivery of essentials during the lockdowns
- Increased mobilization of domestic & external funds through reallocation of existing funds across sectors and within the health sector budget for emergency response (Japan and Indonesia).
- Amendment or revision of public financial management laws & regulations to allow flexible spending.
- Inclusion of COVID-related health services in benefit packages under publicly funded health insurance schemes (Thailand, Indonesia, South Korea, India)
- Progressive engagement with the private sector (especially in South Asia). This ranged from a spectrum of unilateral price capping to prospective payments for ensuring service delivery
More specifically, in Thailand, hospitals were ensured timely payments and same rates were fixed for both public and private providers to ensure quality of treatment (35). Co-pays were also factored into reimbursements. In South Korea the national health insurance scheme co-payments were eliminated completely and the equivalent amount was reimbursed to hospitals from government budgets(36). An interesting arrangement we see in Korea is lost income of medical institutions, pharmacies and allied organizations was compensated from government budgets. This was estimated based on monthly wages of the professionals and other fixed costs. In the Philippines, the existing health insurance program - Phil health was used to channel funds (37). Hospitals were reimbursed through case-based payments which were estimated based on the average value of past claims. Advanced payments were made to hospitals and accreditation period of health facilities was automatically extended to ease administrative engagements and ensure service availability.
Countries like Japan and Indonesia mobilized additional funds for the response through special funds set up to manage the response (38). In Japan, the government created a fund where new and reallocated budgets were pooled. Based on this, budgets were allocated to prefecture/ local governments based on criteria set up around number of COVID 19 patients and the severity of response required. This fund covered reimbursements for hospitalizations, health workforce rewards, new technology and drugs required. Co-payments for those covered by insurance & long-term care were continued. Some Local Governments also set up deductibles for high‐income groups to cross subsidize treatments for the poor. All out of pocket payments by low income and vulnerable groups were compensated by public funds. Similarly, in Indonesia, finances were pooled through a special fund – the PEN programme and channeled through the existing universal coverage program (JKN) (39). Hospitals were reimbursed through differential per-diem rates. Hospitals were differentiated based on service delivery criteria and the setting. The government also engaged with the private sector employers to fund the vaccination program for the employees & dependents.
China, uniquely, waived Health Insurance contributions to the decentralized health insurance schemes that cover over 95% of its population (40). in order to guarantee access, the insurance schemes were compensated by government budgets. Out-of-pocket payments for services not covered under insurance were paid by public medical assistance funds.
As can be gleaned from the examples above, responses to financial barriers varied with some making services completely free and, in some cases, removing co-payments, while others introduced co-payments. To facilitate purchasing of services and ensure service availability, we see that many countries engaged the private sector through various mechanisms for reimbursing providers. For countries where this did not exist, new mechanisms had to be instituted. For others like Thailand and Indonesia, pre-existing provider payment mechanisms were used (35, 39).
As a way forward it appears that for ensuring financing for the pandemic response, the following is critical not only for India but for other LMICs:
- First, health financing for emergency response should start during the steady-state and not during the emergency itself. The legacy of chronic underinvestment in health systems creates significant challenges in mobilizing additional revenue for the response including contracting health workers and private service providers.
- Second, there is a need for a predominant reliance on public financing for emergency response, as can be seen from the COVID experience. For LMICs, this may require complementing government funding with external financing, as occurred in the case of India. Countries and Indian states that provided public funding for services in the private sector have reduced financial barriers at the point of care. These mechanisms of contracting the private sector are crucial for LMICs where the private sector dominates service provision.
- Third, flexibility in the public financial management (PFM) system is critical for ensuring that mobilized funds are available at the implementation level to enable frontline workers to mount the right response as has been argued by others(41-43). In many cases rigidities created by PFM rules often affect the speed with which resources can be mobilized for the response. Relaxation of rules for appropriations whilst maintaining accountability for funds appropriated is essential to an effective and efficient response.
- The process and practice of setting prices for services are critical for guaranteeing service delivery, especially in the private sector. Fixing prices in collaboration with providers can help achieve a balance between the purchasers’ aim of reducing costs and increasing service availability and ensuring the commercial viability of prices for the private sector, especially in view of constrained demand as was witnessed in the case of COVID. Provider payment mechanisms that account for foregone revenue enabling the service provider to continue operating can help address this challenge. This has been the experience in other countries like Germany and Belgium where payments to providers helped ensure a continued flow of revenue (44, 45).
- Another related lesson is the need to fix prices with providers early in the course and do so in negotiation with the providers. Unilateral mechanisms for setting prices especially late in the outbreak are likely to discourage effective participation of the private sector which may result in denial of services or compromise the quality of care.
- Another lesson we see is that the response will necessarily be path-dependent on broader systemic factors such as the geopolitical context, pre-existing macroeconomic dynamics and the local political economy.
Last, an enabling legal environment is critical for triggering rapid measures for resource mobilization and disbursement. This is more so in a decentralized context where enabling coordination of the response across levels of government and across different sectors of government remains a key determinant of a systematic response in an emergency context.
The responsibility for opinions expressed in this blog lies solely with its author(s). This disclaimer applies to any means of dissemination, distribution or publication of said blog at any time.
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