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Financial blackholes

Higher education and healthcare have become huge financial blackholes for an increasing number of middle-class Indian families - and there's no end in sight

Financial blackholes

If you have children and if you grow old - two activities that are not optional for most people - then it's likely that at some point, you'll have to pay out ruinously huge amounts of money.

Oftentimes, an unusually severe shock exposes problems in a system that can otherwise be ignored. The impact of COVID on India's healthcare is an obvious example. While the quality and volume of public healthcare available vary hugely across the states, it's not really my brief to talk about it here. What concerns me is the cost of private healthcare and the impact it is having on the finances and the savings of the middle class.

We all know well that almost any encounter with private healthcare providers is a huge financial shock for most people in India. One bout with a severe illness can easily wipe out five, ten or even more years of savings and investments. The magnitude and financial impact are growing and the actual service delivered is highly questionable. All this was going on for many years but China's virus has suddenly, for a few months, magnified the scale so much that it's hard to ignore.

So far, there has been about 3.5 crore detected COVID cases in India. From the data that is available, it would appear that around 10 per cent must have been hospitalised. It'll probably never be clear just how many of the 35 lakh hospitalised would have been in private healthcare and what would be the scale of their expenses but the number would be a huge bump over a normal year.

Doctors, nurses and other frontline workers have worked hard and had a tough time but for those who are in the business of private healthcare, COVID has been a time to shake down desperate people. Around the world, people's access to reasonably-priced and good quality healthcare is linked to the viability of their countries' universal public health systems. Unless a large mass of people are content with zero-priced (or close to zero-priced) government doctors and hospitals, there's nothing to keep the private healthcare and health-insurance industry honest, something that has become clear to a lot of people.

That the patients are going to be shaken down hard is a given. And the ultimate blame lies not with these two but with the state of public healthcare. Mostly, people will pay any amount of money to any alternative rather than choose all but a handful of elite government hospitals. If you want to see which way we are headed, look up healthcare quality statistics for richer countries. The less functional the publicly-funded universal healthcare, the more the dependence on private insurance and private healthcare, the worse is healthcare delivery. Without anyone saying so aloud, this is a battle that seems already lost in India.

One lesson that savers and financial planners must takeaway is that they are under-allocating potential healthcare costs. As you grow older, the possibility of a large, negative health shock becomes a certainty. One way or another, between the ages of 55 till you die, someone is going to take away 10 or 20 or maybe 30 lakh rupees from you. Might as well plan for it.

Of course, the only real solution is public healthcare. Medicine is an exception to the efficiency of markets. It's a sector where customers are in no position to make an informed and rational choice when the need arises and the reliance on private healthcare will ruin a greater and greater proportion of people.

The other such area is higher education. While there cannot be a COVID-like situation there that will suddenly put the focus on it, the basics are the same. Customers are not in a position to make an informed choice and the cost-quality equation in the private sector has reached unsustainable levels. No matter what the financial or human burden, savers have to take a pessimistic view and assume the worst.