Individual Incomes and Health Investment

The process by which the effect of increasing individual incomes and consequent expenditures on health services leads to economic growth and thereby to development can now be explained in 'economic' terms. With increase in personal incomes, the demand for health services and capacity to self-finance the same will increase.This will reduce the marginal cost of health services contributing to a raise in the equilibrium level of health investment. The distribution of the benefits of economic growth will, however, be varied among the different sections of the society. The poorer members of society would experience smaller raise in their incomes and face greater constraints in their ability to meet the increasing cost of health expenditures. Economic development in the larger sense occurs through the concomitant development of product markets of various types. The development of product market contributes to increasing the expected productivity returns from health investment. This also causes the marginal benefit curve to shift upwards.

The net result is an increase in the equilibrium level of health investment. The expansion of labour market remains important as it will generate jobs providing income to the people. For developing economies, a growth strategy that improves rural transportation and communication, and encourages agriculture and labour intensive production, would have the desired effect of deriving the maximum returns from investment in health. The comparative advantage of the government (vis-à- vis the private sector) to invest the resources for maximum social benefit, a vision which the government alone can carry, should be directed towards increasing the infrastructural development of the health sector. Such an approach coupled with an efficient marginal cost pricing of both curative and preventive health services will result in the optimum improvement in health for given levels of resources devoted to health.
The commission on macroeconomics and health has dwelt on assessment of the disease burden. It is an established fact that the poor have higher incidence and prevalence of diseases due to poverty and poor knowledge of preventive steps needed for minimising the disease burden. To remedy this situation, investment in health systems ought to be strong enough, with right priorities on delivering essential interventions. There also should be expansion of education and institutional formations such as community involvement so that the poor can not only effectively access but are also motivated to seek out the essential interventions.

In the absence of adequate provision for basic health services, around 85 per cent of the total health expenditure in countries like India and China are estimated to be out-of-pocket. Such huge out-of-pocket expenditure needs to be channelled into 'community financing' to help cover the cost of health delivery. Towards this direction, the commission on macroeconomics and health recommends:

(i) increased mobilisation of general tax revenues for health,

(ii) increased donor support to finance the provision of public goods and ensured access to essential services by the poor,

(iii) conversion of current out of pocket expenditure into prepayment schemes, including community financing programmes, supported by public spending,
(iv) initiative in providing debt relief for poor indebted countries,

(v) efforts to address existing inefficiencies in the way government resources are presently allocated and used in health sector,

(vi) reallocating public outlays by cutting down on unproductive expenditures and targeting subsidies to social sector programmes focussed on the poor.