People pay for their own health in some form or the other. They either pay taxes that the government uses to pay for their health, or they contribute a part of their salary towards  social insurance, or they pay to buy private health insurance. Or they pay themselves to get the care they need.    

The government set up public hospitals and primary health centers to provide free healthcare to its people. The Finance ministry allocates budget from the revenues it collects to the public health system. Most often the allocation is basis the budget of the previous year, expected annual increases, and the pressure from allocations for ministries. The allocation is not based on how many patients were provided services, what was the quality of the services delivered, and what were the outcomes. It is agnostic to whether people’s health needs are being met. The allocation is detailed against each line item of expenditure. Allocation for one line item cannot be used for another. Moreover, the allocated budget is often disbursed towards the end of the year leaving no time to spend it. In fact, 20 to 30 percent of the budget remains unspent. Governments, which are entrusted with using public money to take care of people’s health, lose this trust as the public healthcare system fails to meet the needs of the people. 

Governments that spend on public healthcare based on the needs of people will much likely serve the responsibility entrusted with them. If public hospitals are made accountable for the money allocated to them, in terms of output and outcomes, people will start trusting the government. Tax-funded healthcare is ideal for pooling the risk of the entire population. It ensures that people have equitable access to healthcare. People who do not trust their government to use their money well will avoid paying taxes. 

People often pay to buy drugs that they cannot get from the public system. They start paying private doctors for better care. Public hospital doctors begin to practice in their own clinics after their work hours. Their patients are given priority in accessing whatever is available in public hospitals. Ward boys start demanding bribes. As the demand for better care rises, private providers start mushrooming. People start spending more and more money out of their pockets to buy better care. Those  who can’t afford to pay, delay or avoid seeking care. 

As people start paying from their own pockets, they become selective about the services they purchase. They spend money to get immediate relief from their suffering. In emergencies, they do not care whether the caregiver is an unqualified informal provider. They tend to defer purchasing services for silent diseases like diabetes and high blood pressure. They fail to see merit in spending on preventing diseases. They beg and borrow money to save their dear ones in an emergency. Those who can afford to pay, start paying for the experience they get from a provider. They equate quality with cost. They believe that higher costs mean better quality. They do not question whether it is medically indicated, whether it is safe, whether it reduces the risk from the diseases, or whether it is cost-effective. 

Providers sense what their patients want, what they know and what they do not know. If they are paid for each service they provide, they tend to provide more services whether they are needed or not. They invest in hospitality to attract richer patients. They choose patients and payers who are valuable. Hospital managers talk of optimizing case mix. Doctors prescribe procedures that are more remunerative. They choose patients who pay out of their pockets and private insurance payers who pay promptly. They start avoiding public and social health insurance payers who pay less for the same services and where the payments are delayed. Even if they accept these payers, they start using low cost drugs and devices and deploy students or junior staff to attend to them. They create general wards in cellars. 

Patients who have health insurance start demanding services they do not need. They tend to conceal their preexisting illnesses. They get hospitalized even when they do not need it. Providers readily oblige as they get paid for every service they deliver. Insurance payers introduce copayments and deductibles to counter these. They start routinely disallowing a percentage of claims. They make preauthorization more stringent. They deploy an army of people to detect fraud. Private health insurance witnesses the complex gaming of the system by each actor in their own way. It adds to the mounting administrative costs and wasteful expenditures. The US health insurance system is a classic example of this. 

Big providers start paying the referring doctors and hospitals. Pharmacies share a percentage of their profit with the doctors. Diagnostic labs share a percentage of charges to the referring doctors. Specialist doctors pay non-specialist doctors. Insurance and corporate payers resort to demanding a percentage of the claim to process it. The whole system reaches a state of complexity as markets regulate the whole world of private healthcare. 

Online services have started disrupting the provider and payer market. Unholy nexus that exists between doctors, pharmacies, and labs is being disrupted by direct customer marketing of online providers. As more and more people have access to internet, the information asymmetry that enabled the providers to exploit the patients is getting reduced. People are now able to better navigate the complex world of healthcare system. They are able to get better value for the money they spend. 

As governments move to bring more and more people under universal health coverage, they are becoming the single largest buyer of healthcare. PMJAY is expected to cover ~500 million people. Employee State Insurance covers ~130 million beneficiaries. CGHS, ECHS, and Railways are the other large public sector payers. As they move to consolidate their payer systems, another level of disruption will happen in the health systems. We are able to visualize the bifurcation of public healthcare into payer and provider system. The National Health Authority (NHA) will become the largest healthcare payer. Public hospitals will get paid on the same terms as private providers. As public hospitals start earning revenue for the services they provide from NHA and its network of SHAs, they will shift more and more towards demand-side financing than the current form of annual budget based supply-side financing. As supply-side budgets get reduced, public hospitals will be required to compete with private providers for the patients who now have the choice of the empaneled provider. As UHC enlarges the coverage to more than two-thirds of population, private providers will be compelled to get empaneled by the largest payer. 

Health systems are continuously evolving towards a state of optimal equilibrium. In an evolved ideal system, risk pooling gets optimized either through taxes or insurance contributions. As healthy pay for the ill, young pay for the old and rich pay for the poor, health protection becomes equitable. The value of services will get optimized as payers leverage the bargaining power of their size and start demanding quality outcomes for the money they are paying. People will become more responsible in paying taxes and premia when they realize that it is in their best interest. As supplies (doctors, hospital beds, pharmacies, labs etc.,) exceed demand, the consumer will be the beneficiary. Good governance will steer this complex system towards ideal state, while bad governance will make health systems dysfunctional. 

Dr Krishna Reddy Nallamalla
President, InOrder,
Country Director, ACCESS Health International. 

Photo Credits: IPPF