Out of pocket expenditure

Out-of-Pocket Expenditure (OOPE) refers to the direct payments made by individuals or households for healthcare services at the time of availing them, without reimbursement from any insurance or government health programme. It represents the portion of healthcare spending borne personally by patients rather than covered by public financing or health insurance.
OOPE is a critical indicator of a country’s health financing structure and financial protection in healthcare. High levels of out-of-pocket spending often reflect inadequate public investment and limited insurance coverage, leading to catastrophic health expenditures and impoverishment among households.

Definition

According to the World Health Organization (WHO) and the World Bank,

Out-of-Pocket Expenditure (OOPE) is “the direct payment made by households to healthcare providers at the time of service use, excluding any prepayment for health services such as taxes or insurance premiums.”

This includes all medical and non-medical expenses paid from personal income, savings, or borrowing to access health services.

Components of OOPE

Out-of-pocket expenditure in healthcare includes a variety of costs incurred by individuals and households.

1. Direct Medical Costs

• Consultation fees paid to doctors and specialists.
• Hospitalisation charges in private or public hospitals.
• Medicines and drugs purchased from pharmacies.
• Diagnostic and laboratory tests (X-rays, blood tests, scans).
• Surgical procedures and related materials.
• Therapies such as physiotherapy, chemotherapy, or dialysis.

2. Direct Non-Medical Costs

• Transportation to and from healthcare facilities.
• Accommodation and food for patients or caregivers during treatment.
• Informal payments to healthcare providers.

3. Indirect Costs

• Loss of income or wages due to illness or caregiving responsibilities.
• Borrowing or selling assets to meet healthcare expenses.

Measurement of OOPE

OOPE is usually expressed in three forms:

1. Per Capita Out-of-Pocket Expenditure:The average amount spent per person on healthcare from personal funds.
2. Share of OOPE in Total Health Expenditure:Indicates the proportion of national health spending financed directly by households.
3. Catastrophic Health Expenditure (CHE):When a household’s out-of-pocket spending exceeds a defined threshold (typically 10% or 25% of household income), pushing families into financial hardship.

Data on OOPE in India is primarily collected through:

• National Sample Survey (NSS) – Health Rounds
• National Health Accounts (NHA) Estimates
• National Family Health Survey (NFHS)

OOPE in India: Statistical Overview

India has historically recorded high levels of out-of-pocket spending compared to global standards.

Key Statistics (as per National Health Accounts, 2019–20):

• OOPE as % of Total Health Expenditure: 47.1% (a significant decline from 62.6% in 2014–15).
• Government Health Expenditure: Increased to around 1.3% of GDP in 2020 from 0.9% in 2015.
• Private Health Expenditure: Dominated by household spending on medicines and outpatient care.
• OOPE Composition:
  • Medicines: ~43%
  • Hospitalisation (private): ~35%
  • Diagnostic tests and other services: ~15%
  • Transport and non-medical costs: ~7%

Although the proportion of OOPE has declined gradually due to expanding government health insurance schemes (like Ayushman Bharat – PM-JAY), it still remains higher than global averages, where countries with strong public systems typically have OOPE below 20%.

Causes of High Out-of-Pocket Expenditure in India

1. Low Public Health Spending:Public health expenditure in India remains around 2% of GDP, far lower than the WHO’s recommended 5%.
2. Limited Health Insurance Coverage:A large share of the population either lacks insurance or is inadequately covered.
3. Dominance of Private Healthcare:Over 70% of outpatient care and around 60% of hospital care in India is provided by the private sector, where costs are high.
4. High Cost of Medicines and Diagnostics:Outpatient care and drug purchases account for the largest portion of OOPE due to inadequate supply in public facilities.
5. Inefficient Public Healthcare Infrastructure:Shortages of doctors, facilities, and medicines in government hospitals push people toward private providers.
6. Unregulated Healthcare Pricing:Absence of uniform price regulation in private hospitals and clinics often leads to overcharging.
7. Lack of Awareness and Preventive Care:Poor health literacy and delayed diagnosis lead to higher spending on advanced treatments.

Effects and Consequences of High OOPE

1. Financial Hardship:High OOPE forces households to spend a large share of their income on healthcare, reducing expenditure on other essentials such as food and education.
2. Catastrophic Health Expenditure (CHE):According to the WHO, nearly 17% of Indian households face catastrophic health spending each year.
3. Impoverishment:The World Bank (2021) estimated that around 55 million Indians were pushed below the poverty line annually due to health expenses.
4. Inequality in Access:High OOPE disproportionately affects the poor, women, elderly, and rural populations, exacerbating inequality.
5. Debt and Asset Depletion:Many households borrow money or sell assets like jewellery or livestock to pay for medical care.
6. Avoidance of Treatment:Fear of high costs leads to delayed or foregone medical treatment, worsening health outcomes.

Measures to Reduce OOPE in India

The Government of India has implemented several initiatives to reduce household healthcare spending and enhance financial protection:

1. Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (PM-JAY) (2018):

• Provides cashless health insurance of ₹5 lakh per family per year for secondary and tertiary care.
• Covers over 10 crore poor and vulnerable families.
• Has significantly reduced OOPE for hospitalisation among beneficiaries.

2. National Health Mission (NHM):

• Strengthens public health systems, particularly in rural and underserved areas, to offer free essential healthcare and medicines.

3. Jan Aushadhi Scheme:

• Provides generic medicines at affordable prices through Pradhan Mantri Bhartiya Janaushadhi Kendras (PMBJKs) across India.

4. Free Drug and Diagnostic Services:

• Many states (e.g., Rajasthan, Tamil Nadu, Kerala) offer free essential drugs, tests, and treatments in public hospitals.

5. Health Insurance Expansion:

• Programmes such as ESI, CGHS, Rashtriya Swasthya Bima Yojana (RSBY), and various state-level health insurance schemes contribute to coverage expansion.

6. Price Regulation:

• National Pharmaceutical Pricing Authority (NPPA) regulates the prices of essential medicines and medical devices (like stents and implants).

7. Primary Healthcare Strengthening:

• Establishment of Health and Wellness Centres (HWCs) under Ayushman Bharat to deliver comprehensive and preventive care, reducing reliance on costly hospitalisation.

International Comparison

Policy Challenges

• Fragmented Health Financing System: Overlapping schemes and lack of integration between public and private insurers.
• Uneven Access: Rural and marginalised groups still face poor access to affordable care.
• Quality vs. Cost Trade-offs: Low-cost services may compromise quality in some public facilities.
• Data Gaps: Inconsistent reporting and lack of disaggregated data on OOPE at household level.
• Private Sector Regulation: Inadequate oversight of pricing and billing practices.

Significance of Reducing OOPE

• Enhances Universal Health Coverage (UHC): Low OOPE ensures equitable access to healthcare services.
• Protects Households from Poverty: Reduces catastrophic and impoverishing health expenditure.
• Strengthens Social Security: Encourages financial risk protection mechanisms through insurance and public spending.
• Improves Health Outcomes: Affordable healthcare promotes early treatment and better disease management.