Published: Financial Express, May 08, 2008

By VV Singh and Pradeep S Mehta

The healthcare system in India is very complex and there is a clear rural-urban divide. In urban areas there is a wide variety of healthcare services including high-tech hospitals and diagnostic centres while in remote villages people have to depend on faith healers, quacks, and barefoot doctors (village health guides) for healthcare. The irony is that medical tourism in India is getting popular with patients from other countries, but our own citizens do not have proper access to basic healthcare services. On the other hand government is finding it difficult to meet the costs of ever increasing public expectations for health services.

Individuals have to spend a large amount of money on healthcare in case of any disease. People suffering from chronic disease are driven into penury due to the heavy cost burden of ongoing healthcare. At the same time, large sums of money are being wasted on government dispensaries and hospitals which do not function efficiently. Thus there are socio-economic inequalities in access and utilisation of health services and also in outcomes. What are the reasons for this fiasco?

The reasons are complex, but one important reason is that government has not been able to provide health care services to the poor directly. The absence of proper targeting of the beneficiaries dilutes the impact of public expenditure on health services. In addition to this, the poor do not get the benefit due to leakages. The government provides supply side subsidies that cover some or all costs of inputs for health services, but it provides little incentive to attract patients or improve productivity as limited resources get thinly distributed. As a result, public service providers get insufficient funds to function. This leads to poor quality healthcare and under utilisation of public health services.

With the depleting quality of healthcare in public sector, the demand for private healthcare delivery is rising and it is resulting in an overall increase in prices of health care services in the country. On the other hand the public services are under-utilised. What can be done?

A country like India, where the incidence of poverty is very high, has to have extensive health safety nets. It is inevitable that the implementation of various health safety schemes or any other social safety scheme will not achieve perfect targeting. Here, the issue for debate is; what should be the most efficient method through which public money reaches the targeted beneficiaries, the poor.

Provision of healthcare vouchers to the targeted beneficiaries can be an efficient channel, as it provides universal coverage, efficiency and free choice to the consumer. The basic idea behind healthcare vouchers is of subsidising demand among the targeted beneficiaries for cost effective health services and allowing a competitive market for its provision.

This will be more beneficial than using those same resources to subsidise supply as vouchers provide a direct link between the intended beneficiaries, subsidy, and the desired output, such as access or utilisation. The aim is to empower the poor to choose the health service provider of their choice and allow them access to private health services.

One of the potential advantages of vouchers will be that they would facilitate reforms in pursuing the health problem or investment that would be otherwise difficult to achieve. In a country like ours, where awareness of health services is poorly disseminated, vouchers can also encourage people to visit service providers they might not otherwise have visited. They can prove very useful for subsidising services which are under consumed from the social welfare point of view, such as family planning, immunisation, mother and child healthcare, and treatment of infectious diseases.

Moreover, the use of vouchers will enhance competition between the service providers, as the bearer of the voucher will choose the service provider. The freedom of consumer choice will also force the service providers to improve the quality as even if all the providers charge the same price the bearer will choose the provider who offers most convenient and highest quality service. The providers will be bound to improve their quality in order to attract voucher-bearing users. Thus the voucher scheme can facilitate quality services for the poor and underprivileged sections.

Voucher schemes have been used all over the world to distribute public resources in different sectors but experience in the health sector is very limited. Some examples of healthcare voucher schemes can be found in low-income countries such as Indonesia, Zambia, Kenya and Nicaragua, where they were used in various forms for diverse objectives. Experience from various countries shows that setting up of the scheme might have some complexities, but once the schemes function, they are easier to run.

We need to change our mindset towards health vouchers. To begin with we can test the true potential of healthcare vouchers through small scale trials and research projects. However, in order to get subsidies to truly needy people for the provision of cost effective and quality health services, vouchers seem to be a highly effective way.

(The authors are associated with CUTS International, Jaipur and can be reached at and

This article can also be viewed at URL: