Health expenditure

Also called: Health spending · Topic: Human Capital: Education, Health and Demographic Dividend · NCERT: Class 11, Ch 4 "Human Capital Formation in India"

Meaning

Health expenditure (also called health spending) is money spent to keep people healthy and to treat them when they fall ill. It covers four forms: preventive medicine, curative medicine, social medicine and clean water and sanitation. Government, households and others all spend on health.

• NCERT (Class 11) names health as one of the two major sources of human capital formation. The other is education. Health spending directly increases the supply of healthy labour, which means more workers who are fit to work.
• Because it raises future output and earnings, health spending is treated as an investment, not just consumption.

Explanation

Why health spending builds human capital

• Human capital is the stock of skill, knowledge and health in a country's people.
• A sick worker produces nothing:
• A labourer who falls ill and gets no medical care has to stay away from work.

• Days of work are lost, so output is lost.

• A healthy worker produces more:

• They work more days, and they work better on each day.

• Health makes education pay off:

• An educated but sick worker cannot use their skills.
• So health spending also raises the return on education, meaning the extra income that schooling brings.

The four forms of health expenditure

Form	Meaning in simple words	Example	Indian programme
Preventive medicine	Stops disease before it starts	Vaccination	Mission Indradhanush (2015) [6]
Curative medicine	Treats a person during illness	Hospital treatment	—
Social medicine	Spreads health literacy, which means knowing how to stay healthy	Awareness campaigns	—
Water and sanitation	Clean drinking water and safe disposal of waste	Piped water, toilets	Jal Jeevan Mission (2019) [5]

• Exam trap: vaccination is preventive, not curative. An awareness campaign is social medicine.

Who pays: how health spending is measured

• Total Health Expenditure (THE) is all health spending in the country, whether paid by the government, by households or by others.
• Three common ways to measure it:
• THE as % of GDP = (THE ÷ GDP) × 100
• THE per person = THE ÷ population

• Government share in THE (%) = (Government health spending ÷ THE) × 100

• Worked example (made-up numbers):

• A country's THE = ₹1,000 crore. The government pays ₹480 crore.
• Government share = 480 ÷ 1,000 × 100 = 48%.

• The other 52% is paid by households and others. Much of this is out-of-pocket spending, meaning money families pay themselves at the time of treatment.

• Why the payer matters:

• A higher government share → families pay less from their own pockets → poor families are less likely to fall into debt because of illness.

What makes health spending rise or fall

• Rises with: more government budget for health, new public programmes such as immunisation and piped water, and higher incomes.
• Stays too low because of the market:
• Children cannot choose their own health care. Parents and society decide for them (NCERT Box 4.1).
• Good health also helps people other than the patient. For example, a vaccinated child does not pass the disease on to others. These gains to others are called positive externalities.
• Private markets ignore these wider gains, so on their own they under-invest in health. The state has to step in.

In India

• Total Health Expenditure (FY22): ₹9,04,461 crore. This is 3.8% of GDP and ₹6,602 per person [2].
• Government share in THE rose from 29.0% (FY15) to 48.0% (FY22), according to Economic Survey 2024-25 [2].
• Government health spending rose from 1.4% of GDP (2017-18) to 1.9% of GDP (2023-24) [3].
• Target: Economic Survey 2020-21 recommended raising public health spending from 1% to 2.5–3% of GDP [4].
• Preventive medicine: Mission Indradhanush (2015)
• It aims to raise full immunisation under the Universal Immunisation Programme (UIP) to over 90% [6].
• It was followed by Intensified Mission Indradhanush (IMI), which focuses more on urban areas and on groups that are hard to reach [6].
• By 2023, 12 phases had vaccinated 5.46 crore infants and 1.32 crore pregnant women across 765 districts [6].

• IMI 5.0 (2023) gave special focus to measles and rubella [6].

• Water and sanitation: Jal Jeevan Mission (JJM)

• JJM was launched on 15 August 2019 to give a tap water connection to every rural home [5].
• As of 1 February 2025, 12.20 crore additional rural households had got tap connections under JJM [5].
• Total coverage reached 15.44 crore households, which is 79.74% of rural households [5].

Don't confuse with

• Preventive vs curative medicine: preventive medicine stops disease before it happens, as vaccination does. Curative medicine treats disease after it happens, as hospital care does.
• Total Health Expenditure vs government health expenditure: THE includes spending by government, households and others (3.8% of GDP in FY22) [2]. Government health spending is only the public part (1.9% of GDP in 2023-24) [3].
• Social medicine vs preventive medicine: social medicine spreads health literacy through awareness campaigns. Preventive medicine is a direct medical step such as a vaccine.
• Health expenditure vs physical capital investment: a machine can be sold apart from its owner. The health gained through health spending lives inside a person and cannot be separated from them.

Prelims Hooks

• The four forms of health expenditure (NCERT Class 11) are preventive medicine, curative medicine, social medicine, and water and sanitation.
• Vaccination = preventive medicine. Health awareness campaigns = social medicine. Both are common "which of the following" traps.
• Education and health are the two major sources of human capital formation. The five sources in all are education, health, on-the-job training, migration and information.
• The government's share of Total Health Expenditure rose from 29.0% (FY15) to 48.0% (FY22). THE in FY22 was 3.8% of GDP [2].
• Mission Indradhanush (2015) targets over 90% full immunisation under the UIP. IMI 5.0 (2023) focused on measles and rubella [6].
• The Jal Jeevan Mission was launched on 15 August 2019. It covered 79.74% of rural households as of 1 February 2025 [5].

Mains Points

• Under-investment gap: public health spending was 1.9% of GDP (2023-24) [3]. Economic Survey 2020-21 recommended 2.5–3% [4].

• Low health spending → a less healthy workforce → the demographic dividend may be lost. The demographic dividend is the growth boost a country gets from having a large working-age population.

• Why the state must lead:

• Children cannot choose their own health care (Box 4.1).
• Health gives positive externalities, so private markets under-supply it.

• The rising government share of THE (29% → 48%, FY15–FY22) has cut out-of-pocket spending and protects poor families from falling into debt because of illness [2].

• Preventive beats curative:

• Vaccination (Mission Indradhanush) and piped water (JJM, 79.74% rural coverage by February 2025) protect the labour supply more cheaply than hospital care later [5][6].
• Every sick day avoided means output saved. This makes a case for moving health budgets towards prevention and primary care.

Related concepts

• Human capital formation
• Investment in education
• On-the-job training
• Training
• Labour market information

Read more

• Sources of human capital formation: education, health, training, information