The Thirty-Nine Percent Question — Health Spending and What It Buys

Pritiraj BrahmaFounding Partner, Pritiraj & Partners · 30 April 2026

Out-of-pocket health spending has fallen from 62.6% to around 39%. Public health spending sits at 1.8% of GDP against a 2.5% target. Both numbers describe the same unfinished settlement.

India has substantially reduced what households pay at the hospital door without substantially increasing what the state spends on health. That combination is an achievement and a warning.

Speaking in Parliament in February 2026, the Union Health Minister said out-of-pocket expenditure on health treatment had fallen to 39.4 per cent from 62.6 per cent over ten years. It is, on its face, one of the most consequential social statistics India has produced this decade: the share of health costs borne directly by households at the point of care, cut by more than a third.

It deserves both credit and scrutiny, and the two are not in tension.

Four findings anchor this analysis:

1. The decline is real and large. The National Health Accounts estimates for 2022-23 put out-of-pocket expenditure at 43.4 per cent of total health expenditure, down from 62.6 per cent in 2014-15. Catastrophic health spending is the most common route by which an Indian family falls back into poverty; a fall of this size is a genuine gain in financial security.
2. Two different figures are in circulation, and the gap matters. The 39.4 per cent cited in Parliament and the 43.4 per cent in the National Health Accounts for 2022-23 are not the same measurement year or the same source. For a statistic this important, the ambiguity should be resolved publicly rather than left for readers to reconcile.
3. The public spending share has barely moved. Public expenditure on health stands at about 1.8 per cent of GDP against the long-stated target of 2.5 per cent. The Union health allocation for 2026-27 is ₹1,06,530 crore, up about 10 per cent on the revised estimate of ₹96,854 crore for FY26, with ₹1,01,709 crore to the Department of Health and Family Welfare and ₹4,821 crore to health research.
4. Coverage has been widened faster than it has been deepened. Ayushman Bharat PM-JAY provides ₹5 lakh of annual cover per family to about 12 crore families — the bottom 40 per cent of the population — and was extended in 2024 to all citizens aged 70 and above regardless of income. On the primary side, 178,154 Ayushman Arogya Mandirs had been established by July 2025.

How out-of-pocket spending falls

There are three ways this number can decline, and they have very different meanings.

The first is that the state pays instead of the household — insurance covers the admission, or a public facility provides the care free. That is the intended mechanism and the desirable one.

The second is that prices fall. Generic medicines sold at a fraction of branded prices through the Janaushadhi network, and free drugs and diagnostics at public facilities under the National Health Mission, reduce the household bill without necessarily increasing state expenditure much.

The third is that care is not sought at all. A household that forgoes a treatment it cannot afford also records lower out-of-pocket expenditure. This is the possibility that a falling ratio can never distinguish on its own, and it is the reason the ratio should always be read beside utilisation and health outcome data rather than alone.

India's decline is very likely driven mostly by the first two mechanisms — the scale of PM-JAY authorisations makes that clear. But the third cannot be excluded by the ratio itself, and a ministry that wants the statistic believed should publish the utilisation series alongside it.

The structural gap the ratio conceals

PM-JAY is an insurance instrument for secondary and tertiary hospitalisation. It is, by design, silent on the largest component of Indian household health spending: outpatient care, diagnostics and medicines consumed outside a hospital admission.

This is where the settlement is unfinished. A family protected against a ₹4 lakh cardiac admission may still be spending a significant share of monthly income on chronic disease medication, consultations and tests — none of which triggers a claim. As India's disease burden shifts further toward chronic non-communicable conditions, the share of health spending that insurance does not touch will grow, not shrink.

The second gap is the missing middle: households above the PM-JAY eligibility line and below the income at which private insurance is affordable. They are neither poor enough to be covered nor comfortable enough to be safe.

Why 1.8 per cent is the binding number

Every one of these gaps closes with public expenditure, and India's is stuck below 2 per cent of GDP. An insurance scheme can purchase care only where care exists to be purchased; empanelling hospitals does not create doctors, district hospitals or diagnostic capacity in the places that lack them. Where supply is thin, the entitlement is real and the service is not — which is precisely the intent-to-outcome gap this Review keeps returning to, arriving in its most consequential form.

The 2.5 per cent target has been restated by successive governments and not met. The gap between 1.8 and 2.5 per cent of GDP is, at present GDP, of the order of a hundred thousand crore rupees a year of recurrent spending. Nothing about India's health settlement is fully resolvable without it.

What we would do

1. Publish out-of-pocket expenditure with utilisation, always. A falling ratio alongside rising outpatient visits and admissions is unambiguous good news. A falling ratio alongside flat utilisation is a warning. The state should not permit the first to be reported without the second.
2. Extend protection to outpatient care, at least for chronic conditions. A capped annual outpatient and medicines benefit for enrolled households would reach the spending that hospitalisation insurance structurally misses.
3. Fix supply where the entitlement is emptiest. Map PM-JAY claim rates against district hospital capacity. Districts with high eligibility and low claims are not districts with healthy populations; they are districts with nowhere to spend the entitlement.
4. Address the missing middle explicitly. A contributory tier priced for households just above the eligibility line is a smaller fiscal commitment than extending free cover, and it closes the most exposed gap in the system.
5. Put a date on 2.5 per cent. A target restated for years without a dated path is not a target. A credible five-year glide path, with the Centre-state share specified, would do more for Indian health outcomes than any new scheme.

India has done something genuinely difficult: it has reduced what families pay at the moment they are most vulnerable. It has done so largely through insurance and cheaper medicines rather than through a substantially larger health system. That is an efficient achievement, and it has a ceiling — one the country is approaching.