How Much does an Indian Spend on Healthcare?

Posted on December 2, 2008

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In an earlier entry I wrote about how much of their revenue income the Indian state governments spend on healthcare. Now I want to look at what individual Indians spend on healthcare.

Averages are misleading if used when dealing with incomes (and expenses) especially for a country like India with a population widely dispersed along the income scale. To get around this problem of dispersion, statisticians and policy makers use the concept of population deciles for various parameters – income deciles, for example, divide the population into 10 classes, each class interval so chosen that it has about 10% of the population.

table-1In my analysis I have relied on two data sources: for income data the National Data Survey on Savings Patterns of Indians (NDSSP) 2003-04, conducted for the Ministry of Finance and for expense data the Household Consumer Expenditure and Employment-Unemployment Situation in India 2003 (registration required) by the National Sample Survey Organisation (NSSO).

One important disclaimer is in order. The two reports provide deciles data but on different parameters. The NDSSP report distributes the population into income deciles where as the NSSO report distributes the population on monthly per capita consumer expenditure. In my analysis, I am making an important assumption that there is a significant overlap between the two distributions. I believe that the assumption is good based on the argument that individuals can and do spend relative to their incomes i.e. in absolute terms the rich spend more than the poor. The table below presents the key data collated from the two sources.

 To put this data into perspective two questions must be asked

  1. Do individuals across income deciles value healthcare equally?
  2. Are individuals across income deciles able to spend adequately on healthcare?

One way to estimate the value that an individual places on satisfying a need is to ascertain what percentage of his or her income is spent on satisfying that need. chart-14Then comparing this percentage for different individuals/groups allows us to understand how differently these different individuals/groups value the need.

Based on the data in the table above, the adjacent chart shows what percentage of his or her income an average Indian in each income decile spends on healthcare. Indians across all income deciles are seen to spend a similar percentage of their income on healthcare. This to me shows that regardless of their socio-economic groups, Indians value healthcare equally.

The principal of marginal utility dictates that beyond a certain threshold any additional expenditure does not bring incremental satisfaction of a need. Individuals have a hierarchy of needs and as they hit the marginal utility thresholds for high priority needs they direct additional spend to needs that are next on their hierarchy list.

One way to estimate if individuals/groups have differing ability to spend on adequately satisfying a particular need is to compare what percentage of their total expenditure is spent on satisfying that need. The underlying assumption is that those that have adequately satisfied their high priority needs, can spend a greater percentage of their expenditure on needs that are next on the hierarchy list.

chart-2If we are to look at the data in the table above slightly differently, an interesting picture emerges. The adjacent chart shows what percentage of his or her total expenditure an average Indian, in each income decile, spends on healthcare.

The wealthier spend a much larger portion of their total expenditure on healthcare, exceeding their poorer peers’ expenditure by as much twice. The conclusion may be unsurprising but makes an important point. Poorer Indians probably have a significant unmet demand for healthcare services that they are simply unable to afford.

I think this data analysis and insight will be significantly useful when answering questions such as how much would India need to budget for its healthcare initiative and how much of this requirement can she raise from its citizens. I am sure I will return to this analysis and insight repeatedly.

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