India’s Proposed Universal Health Coverage Policy: Evidence for Age Structure Transition Effect and Fiscal Sustainability

Muttur Ranganathan Narayana

India's High Level Expert Group on Universal Health Coverage in 2011 recommended a universal, public-funded and national health coverage policy. As a plausible forward-looking macroeconomic reform in the health sector, this policy proposal on universal health coverage (UHC) needs to be evaluated for age structure transition effect and fiscal sustainability to strengthen its current design and future implementation. Macroeconomic analyses of the long-term implications of age structure transition and fiscal sustainability on India's proposed UHC policy. A new measure of age-specific UHC is developed by combining the age profile of public and private health consumption expenditure by using the National Transfer Accounts methodology. Different projections of age-specific public health expenditure are calculated over the period 2005-2100 to account for the age structure transition effect. The projections include changes in: (1) levels of the expenditure as gross domestic product grows, (2) levels and shape of the expenditure as gross domestic product grows and expenditure converges to that of developed countries (or convergence scenario) based on the Lee-Carter model of forecasting mortality rates, and (3) levels of the expenditure as India moves toward a UHC policy. Fiscal sustainability under each health expenditure projection is determined by using the measures of generational imbalance and sustainability gap in the Generational Accounting methodology. Public health expenditure is marked by age specificities and the elderly population is costlier to support for their healthcare needs in the future. Given the discount and productivity growth rates, the proposed UHC is not fiscally sustainable under India's current fiscal policies except for the convergence scenario. However, if the income elasticity of public expenditure on social welfare and health expenditure is less than one, fiscal sustainability of the UHC policy is attainable in all scenarios of projected public health expenditures. These new results strengthen the proposed UHC policy by accounting for age structure transition effect and justifying its sustainability within the framework of India's current fiscal policies. The age structure transition effect is important to incorporate the age-specific cost and benefit of the proposed UHC policy, especially as India moves toward an ageing society. Fiscal sustainability is essential to ensure that the proposed UHC is implementable on a long-term basis and within the framework of current fiscal policies.