Income Elasticity of Demand for Healthcare and Change Over Time: Across the Income Groups in India

Abstract

The study computes the income elasticity of out-of-pocket healthcare expenditures (OOPEs) of Indian households across the income groups. Using data from the National Sample Survey Organization for the 71st (2014) and 75th (2018) rounds, a log-linear model with splines estimates the elasticity of healthcare expenditure across different income segments. The analysis controls for demographic variables and employs dual deflation to adjust for price changes. The elasticity magnitude depends upon the marginal propensity to OOPE (MP-OOPE), which is inconsistent across the income groups. The random MP-OOPE is due to the non-linear relationship between income and healthcare expenditure. The data revealed increased income (proxied by household consumption expenditure) and decreased average OOPE in wave 2. Despite this, households in the bottom income bracket experience a rise in elasticity, and those at the top observe reduced elasticity in wave 2. The income group-wise MP-OOPE suggests uncertain healthcare demand patterns and evidence of widening healthcare inequality. Poorer households either face low-magnitude inelastic healthcare demand, leaving their healthcare needs unmet, or experience high-magnitude inelastic demand, leading to financial hardship. Policies should aim to reduce out-of-pocket healthcare expenses for vulnerable groups. Expanding public-funded risk pooling mechanisms like Pradhan Mantri Jan Arogya Yojana would be crucial in addressing this issue.