Out-of-pocket expenditure

Indian Economy glossary

Also called: OOPE, OOP spending · Topic: Human Capital: Education, Health and Demographic Dividend · NCERT: Beyond NCERT

Meaning

Out-of-pocket expenditure (OOPE) is the money a household pays from its own pocket at the time it receives health care. This covers doctor fees, medicines, tests and hospital bills. It is the part that is not paid back by any insurance or government scheme.

OOPE is the main measure of financial protection, which means how well a health system shields families from the cost of illness. When OOPE is high, families get pushed into debt and poverty, or they skip treatment. This erodes human capital.

Formula: OOPE share (%) = (Out-of-pocket expenditure ÷ Total health expenditure) × 100

Explanation

What counts as OOPE and what does not

  • Counted: payments made directly at the point of care:
  • consultation fees at a private clinic;
  • medicines bought at a chemist;
  • diagnostic tests (blood tests, scans);
  • hospital bed, surgery and other charges the patient pays;

  • any part of a hospital bill that insurance does not cover.

  • Not counted:

  • Insurance premiums. A premium is paid in advance into a shared pool, not at the point of care. So it is "pre-paid", not out-of-pocket.
  • Government spending on public hospitals, free medicines and schemes such as PM-JAY.

  • Taxes that fund health, such as the Health and Education Cess.

  • The key idea: a health system is paid for in two ways.

  • Pre-paid and pooled money (taxes, insurance): many people pay in, and the sick draw on it. Risk is shared.
  • OOPE: each sick person pays alone, at the very moment they are weakest. No risk is shared.

Why high OOPE hurts: the chain of damage

  • Illness strikes → a large bill → the family has no cover
  • The family sells assets, uses up savings or borrows at high interest.
  • Spending on food and children's schooling is cut.

  • A family that was just above the poverty line can fall below it.

  • Catastrophic health expenditure means OOPE so large, compared with the household's income or consumption, that it upsets the family's basic budget. Covering costly procedures protects households from this kind of catastrophic out-of-pocket spending.

  • Forgone care: some poor families simply do not seek treatment. The cost then shows up as lost workdays, lower productivity and children missing school.
  • The human capital link: health spending directly raises the supply of healthy labour. When high out-of-pocket costs push families into poverty and lead them to skip care, human capital erodes.

What makes OOPE rise or fall

  • Falls when:
  • government health spending rises (more free care in public hospitals and centres);
  • insurance or assurance schemes such as PM-JAY widen who is covered and what is covered;

  • medicines and tests are provided free or cheaply through primary care.

  • Rises when:

  • public facilities are weak, so people go to costly private providers;
  • insurance covers only hospital stays, leaving out-patient care (doctor visits, tests and medicines without admission) to be paid from the pocket;
  • the population ages, since older people use more care and longer-lasting treatment;

  • chronic diseases (diabetes, kidney failure) need repeated, lifelong spending.

  • Out-patient care is the blind spot. Insurance schemes in India mostly do not pay for out-patient care. In families' own spending, medicines bought outside hospital are usually the biggest item.

Worked example (made-up numbers, for illustration only)

  • Suppose a country's total health expenditure is ₹1,000 crore.
  • Government pays ₹450 crore.
  • Insurance pays ₹100 crore.

  • Households pay ₹450 crore directly.

  • OOPE share = (450 ÷ 1,000) × 100 = 45%.

  • Now suppose government spending rises by ₹100 crore and replaces an equal amount of household payments. Total health expenditure stays at ₹1,000 crore.

  • New OOPE = ₹350 crore → OOPE share = 35%.

  • Lesson: OOPE share can fall in two ways. Public spending can replace private payment, or total spending can grow faster than OOPE. Reading a fall in the share alone does not tell you which one happened.

In India

  • Who measures it: the National Health Accounts (NHA) estimates. These track how much is spent on health and who pays it: government, insurance or households.
  • The trend:
  • OOPE was about 64% of total health spending in 2013-14.
  • It fell to about 39% (39.4%) in 2021-22.

  • It then rose back to 43.4% in 2022-23. So the long fall has not held.

  • The real burden may be higher. The Parliamentary Standing Committee on Health and Family Welfare noted that the NHA method misses spending on dental and rehabilitation care.

  • Out-patient costs:
  • Out-patient care was about 38% of current health expenditure in 2021-22.

  • Average OOPE for one out-patient episode is ₹861, and older adults pay significantly more than others.

  • Low public spending is the root cause:

  • Government health spending is about 1.8% of GDP (NHA 2021-22).

  • The National Health Policy (NHP) 2017 target is public health spending of 2.5% of GDP (by 2025).

  • Policy tools to cut OOPE:

  • Ayushman Bharat (2018) has two pillars:
    • Ayushman Arogya Mandirs (formerly Health and Wellness Centres) for primary care;
    • PM-JAY, hospital insurance of ₹5 lakh per family per year.
  • Ayushman Vay Vandana extends PM-JAY to every citizen aged 70 and above, irrespective of income. A 70+ member of a family already under PM-JAY gets an additional up to ₹5 lakh per year for themselves only. It covers only secondary and tertiary hospitalisation, not out-patient care.
  • The Standing Committee recommended adding out-patient consultations, diagnostic tests and medicines to AB PM-JAY, and raising the family limit to ₹10 lakh.

Don't confuse with

  • Total health expenditure (THE): all health spending in the country, by government, insurers, households and others. OOPE is only the household's direct share of it. That is why OOPE is reported "as % of THE".
  • Government health expenditure (GHE): money the state spends on health, often reported as % of GDP (about 1.8%; the NHP 2017 target is 2.5%). OOPE and GHE usually move in opposite directions.
  • Insurance premium / pre-paid spending: paid in advance and pooled across many people, so it is not OOPE, even if the household pays it.
  • Catastrophic health expenditure: not a separate type of spending. It is OOPE that is too large compared with the household's income or consumption. All catastrophic spending is OOPE, but not all OOPE is catastrophic.

Prelims Hooks

  • OOPE = direct payment by households at the point of care, net of insurance reimbursement. Insurance premiums and tax-funded care are not OOPE.
  • The National Health Accounts estimates are the official source for India's OOPE share.
  • OOPE share: about 64% (2013-14) → 39.4% (2021-22) → 43.4% (2022-23). Trap: "OOPE has fallen steadily every year": FALSE. It rose again in 2022-23.
  • Out-patient care is about 38% of current health expenditure (2021-22), and insurance schemes mostly do not cover it.
  • PM-JAY (2018) gives ₹5 lakh per family per year for hospitalisation only, not out-patient care. Trap: "PM-JAY covers OPD consultations and medicines": FALSE.
  • NHP 2017 target: public health spending of 2.5% of GDP (by 2025). Trap: "NHP 2017 targets 6% of GDP": FALSE. 6% of GDP is the education target (Kothari Commission, NEP 2020).

Mains Points

  • Insurance-led vs primary-care-led protection: hospital-only cover such as PM-JAY and Vay Vandana protects against big, sudden bills. But much of household spending is on out-patient care (about 38% of current health expenditure) and medicines. Strengthening Ayushman Arogya Mandirs and adding OPD and medicine cover, as the Standing Committee recommended, would cut OOPE more widely. The trade-off is fiscal cost, so a phased start (for example, medicines for chronic disease first) is more realistic.
  • OOPE as a human capital and poverty issue: high OOPE causes debt, distress sales of assets and skipped care. This weakens health, schooling and labour productivity, and it threatens the demographic dividend. Raising government health spending from about 1.8% of GDP toward the NHP 2017 target of 2.5% is the structural fix.
  • Ageing will push OOPE up: older adults pay more per out-patient episode, and chronic conditions need repeated, lifelong care. Without primary-care screening and long-term care, an ageing India may see OOPE rise again, as the 2022-23 figure of 43.4% already hints.

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