No frills, please: how private healthcare is spreading to India’s poor
published on the Institute of Economic Affairs (IEA) blog, April 2009
In the early 1990s, Nigel Lawson dubbed the NHS “the closest thing the English have to a religion”. Today, this religion has probably been replaced by a more disillusioned belief that the NHS is “the worst form of healthcare, except all the others”.
True, in international league tables, the NHS usually performs badly; true, waiting lists remain an ongoing problem; true, the unhygienic state of some hospitals still attracts headlines. Nevertheless, key questions remain in the minds of the public: how would poor people get access to healthcare without the NHS? Do we want them to go untreated while the rich enjoy luxury care?
Recent experience from India suggests that these fears are misplaced. Following liberalisation in the sector, India’s healthcare industry is about to develop a low-cost market segment, opening up healthcare to the poor.
The best thing about India’s nascent system is that there is no system. There is widespread experimentation with different business models. Extensive use of economies of scales, digitalisation, price discrimination, economising on comfort, and careful scrutiny of costly new technologies all act to cut costs, but do not necessarily compromise quality of treatment. The growth of the yet embryonic private health insurance industry could spread access further.
But how come technological progress makes healthcare cheaper in India and elsewhere, while it drives up its costs in Western systems?
It all depends on the incentives consumers and producers face. Over the last 10-15 years, there has been an explosion in consumer electronics. Yet most of us do not spend a vast share of our budgets on these items. While many expensive new products have emerged, in most instances low-cost alternatives have quickly become available and for a simple reason: there was demand for them.
Incentives are vastly different in Western healthcare systems. Since the bulk of spending comes from governments (usually well above 70% of the total in OECD countries), consumers only pay directly a fraction of the costs and therefore do not demand no-frills alternatives. Thus fewer low-cost options are developed in the first place. New medical technologies usually add to the stock of the existing ones, and seldom substitute them with a low-cost alternative. When costs finally spiral out of control, governments respond with blunt rationing at the expense of patients.
Hopefully, the West will learn from the Indian experience before it occurs to Indian policymakers to emulate NHS-style socialised medicine.