Higher Health Inflation May Be The Tip Of The Iceberg

The formally reported healthcare inflation rose to a 20-month high of 7.8% in April, compared to headline retail inflation of 4.3%, according to data published by the Ministry of Statistics and Programme Implementation on Friday. It rose from 6.17% a month ago but remains below the high of 8.9% hit in December 2018.

Unlike the previous bout of health inflation in 2019, prices of healthcare goods and services are rising quicker in urban areas compared to rural areas.

Rural health inflation rose by 7.2% in April, while urban inflation saw a sharper rise of 8.8% on an annual basis.

Item-wise data from the government, indicated that the rise in inflation was led by doctors fees, hospital charges, costs of medicines and x-rays.

Item wise data for April 2020 is not available due to disruption in data collection during the first wave of the Covid crisis. However, all items have shown a rise in prices since February 2021, before the onset of the second wave.

While the cost of medicines rose by 7.7% from February 2021 to April 2021, doctors fees rose by 6.2% in the same duration. Both have seen a constant rise in prices since the last year, along with a rise in the prices of hospital charges, x-rays and other medical tests.

Data May Not Capture The Real Pain

The data, according to Madan Sabnavis, chief economist at CARE Ratings, said the index will not capture the true extent of rise in cost of healthcare.

The inflation basket is computed using a sample that’s a combination of private and public items and facilities, he said. So, while private facilities, especially the smaller ones, might have bumped up the cost of beds, treatment in public hospitals remains virtually free, which reflects in the overall rate of increase in health inflation, he said.

The ongoing pandemic has also pushed up healthcare costs because of inadequate supply to meet the higher demand, which leads to profiteering, said Sabnavis.

While the central and state governments have periodically brought out guidelines to cap the prices of Covid-19 related medicines and services, hospitals and suppliers may not strictly be following them or they may adjust for higher costs in other ways. This, too, may lead to understating of the true rise in health inflation.

For instance, the cash payment that several hospitals ask for before they admit a patient, is not reflected in the hospital’s charges, said Sabnavis.

Rijo M John, health economist at Rajagiri College of Social Sciences, said sales of items such as injections, medicines and oxygen cylinders in the black market will not get captured in any inflation index but will weigh on households. In addition, the inflation basket may not be representative of the current consumption basket of Indian households, he said.

India’s inflation basket was last revised in 2012. Inflation on health-related items constitutes 5.89% in all, with a weightage of 6.83% in rural areas and 4.81% in urban areas.

Soumya Kanti Ghosh, group chief economic advisor at the State Bank of India, in a report dated May 17, estimated that health expenditure, currently at 5% of overall private final consumption expenditure, could increase by at least 11% from the current level. This is likely to also result in a squeeze in expenditure on other items of discretionary consumption, “a recipe for a cutback in consumption spending,” he said.