Wednesday, May 02, 2012

How much should we spend on healthcare ?

I recently attended a conference on the healthcare insurance industry in India. Everyone agrees that this is an industry which is poised to grow rapidly over the next few years. One of the points every speaker emphasized is that while the US spends over 14 percent of its GDP on
healthcare , India spends only four percent, and that this gap suggests that there is a lot of room for healthcare expenditure to grow. While these are interesting numbers, one thing which still confuses me is what the optimal proportion of GDP spending on health care should be? Does a country which spends more on health care services care more for its citizens , because it wants to keep them healthy ? Is this therefore is a better government? Do countries which spend more on healthcare expenditure have healthier and therefore more productive citizens? Is increasing healthcare expenditure justified because it provides a better return of investment? Or is it that countries which spend more on healthcare find they are wasting a lot of their precious money on futile treatments , which do not serve any useful purpose?

How does one look at healthcare expenditure ? Is this expenditure a waste , because it consumes valuable resources ? Or is it something which is good , which we should be happy to be spending money on , because it helps our citizens to be healthier? What is the optimum proportion of GDP expenditure on healthcare? And how do we arrive at this particular figure?

One way of doing so would be to compare expenditure on health care with other sectors . If we spent 10 percent of our GDP on growing enough food for our citizens, are we better than a country with spends 20 percent of its GDP on the agricultural sector? If you need to spend only 10 percent , and still keep your citizens well fed , doesn’t this mean that you have a more efficient agricultural system ? Or should we aim to increase our expenditure to a hypothetical gold standard of 20 percent, because if we can produce more food , we will have happier citizens?
Healthcare is a service industry , and it might be useful to compare the proportion of GDP expenditure on healthcare with how much we spend on entertainment . Does a country with spends more on entertainment mean that its citizens have additional discretionary income , which they can choose to spend on keeping themselves entertained and happy ? Or is this a sign of decadence which signals that the society is headed towards doom , because it wastes precious resources on “ unproductive “ assets?

The other way of looking at this is to compare a country with a family. Is a family with spends more money on keeping themselves healthy consider itself to be better off as compared to one which spends more of its money on entertainment or junk food?

If healthcare is considered to be good, then isn't it logical that one of the aims of the government should be to increase its proportion of healthcare spending? And that is the case then why is the US so worried that it spends 14 percent of its GDP on healthcare?

Exactly the same argument applies to the number of hospital beds per thousand patients. Is it better to have a lot of hospital beds , because this means that you have a lot of medical care facilities? Or is it actually a bad sign , because this means that a lot more of your citizens are ill and require medical care ? Isn’t it true that the more the hospital beds you have , the more doctors are likely to want to fill these hospital beds, resulting in inappropriate medical procedures and wasteful medical expenditure?

These are fascinating questions , and I'll be very happy to hear from readers as to how we can go about finding answers to these !


  1. Anonymous6:27 PM

    Dear Dr,

    Spending more on healthcare doesn’t necessarily mean that the people are healthier. It can imply three things:

    - The country gives high priority to healthcare
    - The country spends a lot on futile treatments
    - The country has people who are ignorant about their health-hence more health problems (for example: more obese people=more
    health problems, hence more healthcare expenditure!)

    USA spends more on healthcare because of all three above said reason. Our country spends less on healthcare and the reason is very obvious-who cares about the welfare of citizens?

    Healthcare expenditure is not a waste, but in a country like ours where corruption is prevalent everywhere and money is given the highest priority than doing service oriented business (impact investing as you say it!) – spending on healthcare which is a service industry is not a very attractive option!

    Actually it is hard to compare expenditure on healthcare with our entertainment industry as a vast proportion of turnover in cine industry takes place outside the legal economy! India has the world’s biggest movie making industry and a third of world’s poor reside in India! Whether we Indians are ready to spend money on healthcare or not, we are ready to spend money on entertainment. But I do not think our society is headed towards doom because of that. Actually, more entertainment equals more happiness and perhaps more healthy mind and body (in a way!) :) Entertainment industry has the greatest potential to educate people on how to stay healthy and I hope people in the entertainment industry come forward to do it. But already books and magazines focussed on providing entertainment are also doing a great job in educating our layman population about the importance of being healthy.

    If a family desires to keep itself fit and healthy they have to invest on good quality foods, spend money on finding a good, clean, spacious environment to live in where they can get access to good quality air and water (which is becoming rare in India!), investing on physical fitness etc. But in our country people consider themselves well off when they could spend more on entertainment and gluttony. When I say gluttony I think not only about food but anything that is spent in excess (food, water, electricity etc). Ironically a pot belly is still considered as a sign of health and wealth in many places of India :D Not only Indian families but our government should also realize that prevention is better than cure. The amount we spend to keep ourselves healthy will be very meagre when compared to the economic burden on a family or country to treat a disease condition. Actually many diseases like diabetes, cancer, heart attack and stroke has a very strong link to obesity and depression. When people are taught how to remain healthy (by being physically active, by eating less junk foods, concentrating on healthy habits etc) automatically the health expenditure of a country comes down.

    For example USA spends 14% of its GDP on healthcare whereas Germany spends 10.9% of its GDP on health care. As per WHO’s ranking (2000) of worlds health system USA is in the 37th place while Germany is the 25th position. It just shows that a country which spends more on health care doesn’t necessarily have the best healthcare sytem.

    I have a friend living in Germany. He used to tell me how much propaganda is done to help people realize prevention is better than cure. People are encouraged to use all sorts of alternative medicine too. Health care insurance companies have separate team of doctors and health care workers who educate people about the risk of obesity, diabetes etc. They have separate classes for obese people where they educate and provide dietary advise thus by helping them to loose weight. Patients are encouraged to obtain multiple opinions before they can decide whether a particular invasive procedure (surgery) is necessary or not.

  2. Anonymous6:28 PM

    Perhaps this link will be useful for people who are interested in learning more:

    More is not always better! Sometimes ‘LESS IS MORE’. Healthcare industries should follow a minimalistic approach inorder to achieve their goal. Prevention is better than cure and health educaton is the only way by which healthcare industries could achieve better profit and create a healthy society.


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