Tax on healthcare will prove costly

For a country with some of the worst health indicators in the world and one which is facing the double burden of infectious and lifestyle diseases, a new tax on healthcare is probably the last thing one would expect.

But Finance Minister Pranab Mukherjee has dealt a blow to the health sector in the form of service tax on diagnostic tests and hospitals. If implemented, this new levy will further take healthcare beyond people's reach.

The Budget this year had a shocker in the form of five per cent service tax on all diagnostic tests in the private sector and on all services provided at private hospitals with 25 beds or more with central airconditioning facility. This will have a direct bearing on the poor and middle classes in the country, say experts.

The new tax has evoked strong reactions from doctors, health advocates and medical bodies. A noted cardiac surgeon called it a "misery tax" while the Indian Medical Association compared it to the 'salt tax' imposed by the British in the pre-Independence era.

The hike in excise duty that has been proposed at one per cent, according to experts, would further add to costs by spiralling into 2-3 per cent hike in drug prices combined with the rising medical inflation rate. In addition, the minimum alternate tax levied on companies in SEZs on profit booking is also going to impact the pharma industry and hence the drug costs. As it is, India's spending on healthcare is abysmally low at around one per cent of the GDP.

Health is the second largest reason for pushing people below the poverty line. According to official estimates, 25-30 per cent of people do not seek health services because of their inability to afford it, unless the sickness becomes too bad. More than 40 per cent of hospitalised people take loans or sell assets to pay for treatment. As high as 80 per cent people pay out-of pocket for healthcare. "Healthcare is already in crisis.

Moreover, the government's focus has been on its privatisation. India has 80 per cent of healthcare in the private sector, which is among the largest privatised health sectors in the world. All those who depend on the private sector will have to pay more for services and testing," Avinash Kumar from Oxfam, Essential Service Lead said It is true that the private sector in health is making a lot of profit and needs to be taxed. But the burden will be passed on to the consumer amid a lack of regulatory framework, accountability and transparency, Kumar added.

"Currently, the majority of people are paying out-of-pocket for healthcare. An additional five per cent tax will overburden them, particularly those suffering from chronic diseases, such as diabetes and cancers, who have recurrent cost of investigations and hospitalisations," Dr Anoop Misra, head of internal medicine at Fortis Hospital, said.

"Diagnostic tests are essential for correct diagnosis. Hence, they should be encouraged. Instead, the government is increasing the cost. This may discourage patients from undergoing tests. Even patients at charitable hospitals will have to pay," Dr C.M. Gulati, Monthly Index of Medical Specialties editor, said.

Dr Devi Shetty, chairman of the Narayana Hrudayalaya in Bangalore, pointed out that it was a misnomer that the tax would only affect the rich since it covered only air-conditioned hospitals.

"No surgery, simple or complex, can be performed without an AC Operation Theatre. Legally, a blood bank cannot get a licence without air-conditioning. CT, MRI and Catheterisation labs do not function without an AC. Simply put, hospitals cannot function without air-conditioning," he said.

Since people are spending out-of pocket to get healthcare at the private sector, one bout of illness to a family member may consume, on an average, 73 per cent of the per capita monthly income in poor rural households, which, in worse scenarios, can go up to 780 per cent, a study based on household surveys in five rural locations of Maharashtra, Bihar and Tamil Nadu revealed.

The cost per illness episode will inevitably increase in the next decade in India. This is because the cost for treating chronic illnesses, prevalent mainly among adults and the elderly, is much more. Even official schemes, such as the Rashtriya Swasthya Bima Yojna, encourage treatment in the private sector which is largely unregulated, leading to the sector making profits at the cost of public money. "There have been thousands of cases where beneficiaries of the scheme have been told they have exhausted their insurance money, which means they need to pay out-of-pocket," Kumar said.

"There have also been reports of the insurance money being siphoned off by the private sector with collusion of the ignorant poor," Gulati said. To siphon off the funds, the private sector may subject people to unnecessary testing.

"It will be better if the treatment in the public sector is encouraged and the money is utilised to strengthen public infrastructure," he added.

In comparison to India, in the US, 50 per cent of the health cost is borne by the government, Kumar said. OECD countries are spending five-six per cent of their GDP on health. Even Bangladesh spends 2-3 per cent of GDP on health.

The spending on health should be raised to three per cent of the GDP and then to five percent. It will help build health infrastructure. Once that is done, the spending may be reduced for the recurrent cost.

Another problem is that India still does not have a legal framework to ensure health for all. Such a framework should be set up while accountability for both private and public sectors should be built in.

There is a need to regulate the private sector to prevent overcharging, irrational drug use and wrong prescriptions. There has to be a prescription audit, experts say.

Courtesy: Mail Today