How government can make healthcare affordable in India

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Updated: September 9, 2016 7:26:11 AM

Just as with organised purchase of medicines, organised purchase of care can bring down prices

Healthcare payments are one of the important reasons for impoverishment of households. (Reuters)Healthcare payments are one of the important reasons for impoverishment of households. (Reuters)

Not too long ago, when a six-year-old girl wrote a letter to PM Narendra Modi seeking financial help for her heart surgery, the PMO swiftly responded to her request. The girl was immediately operated upon and was reported to be recovering well. The PMO’s response may have appeared a symbolic gesture, but the NDA government seems to be serious about protecting the people against the financial consequences of medical treatment.

In his Independence Day speech, PM Modi announced providing financial cover of R1 lakh against hospitalisation expenses to India’s poor. All three health sector initiatives announced by the finance minister, Arun Jaitley, in his last Budget—opening of 3,000 medical stores under the Jan Aushadhi Scheme, making dialysis services accessible in all district hospitals while reducing duties on dialysis equipment/material, enhancing financial coverage to low-income workers/households under a new health protection scheme—are aimed at protecting the people, to varying degree, against medical care costs. The government can do much more than that, without having to dole out heavy subsidies.

A few stylised facts

Private institutions are dominant providers of both hospitalised and non-hospitalised care in urban and rural areas. Seeking care from private institutions is invariably more expensive. For example, hospitalised treatment in private institutions in rural areas, on an average, costs four times more than what it costs in public institutions. Healthcare payments are one of the important reasons for impoverishment of households. Because of its frequency of use, non-hospitalised care impoverishes more households than hospitalised care. Further, purchase of medicines for non-hospital care accounts for the dominant share (72% in rural and 68% in urban) in a household’s total medical expenditure. Jan Aushadhi Scheme, designed to make quality medicines available at affordable prices, has the potential to addresses this. However, hospitalised care too is impoverishing, but it affects a much smaller percentage of population. For every 1,000 people, only 35 persons in rural areas and 44 in urban areas get hospitalised every year. A health insurance scheme provides financial protection against medical expenses for hospitalised care only.

Health insurance is good politics

Indian politicians, both at the centre and states, have realised that health insurance is good politics as insurance entitlement can be distributed to a large section of population, but only a small proportion of the enrolled population would actually claim that entitlement in any given year, thereby making a modest demand on public coffers.

Accordingly, the Centre and state governments started experimenting with health insurance much before the present-day schemes were rolled out. Karnataka and Andhra Pradesh were early movers in launching state-specific schemes. However, in April 2008, when the central government started the health insurance programme—Rashtriya Swasthya Bima Yojana (RSBY)—for the poor, many states eventually signed in and also introduced state-specific variations in terms of extent of financial coverage, target population, extent of engagement with private providers, and choice of implementing agency.

RSBY has been scaled to cover 40 million families (about 200 million individuals) in 19 Indian states spread over 400 districts. Currently, over 10,000 hospitals are empanelled, with nearly 60% in the private sector. More than 10.5 million people have availed of the hospitalisation benefit since its inception.

Health insurance can be good economics too

RSBY experience has shown that health insurance can be good economics too if it is designed and administered well, and if populist tendencies are kept under check. RSBY has not been evaluated nationwide, but a few state/district level studies have reported improved hospital utilisation as well as improved patient satisfaction. On its effect on household expenditures, the findings have been mixed, with some studies reporting increased household expenditures to avail of the benefits. Although providing financial protection against hospital costs has been the primary objective of RSBY, from a health system’s perspective it also has huge collateral benefits by way of controlling prices through organised purchase of care, augmenting the supply of care through the inclusion of private providers, beginning of performance-based funding of public hospitals, and improving quality of care through hospital accreditation.

Building on the confidence gained from RSBY, the government is all set expand the scheme—rechristened National Health Protection Scheme (NHPS)—to include elderly population and raising the financial cover to R1 lakh for every poor household. It is also evaluating pros and cons of implementing the scheme through insurance companies versus a “trust model” with a view to improve the operational efficiency and strengthening checks and balances in the scheme’s administration. All these are steps in the right direction. But there is yet another important policy issue of extending the scheme to the above poverty line population (APL) that the government needs to consider.

Covering APL

Currently, APL not associated with the organised labour market, has the option of buying insurance in the private insurance market. Such people that form a sizeable part of the population could also benefit from the discounted, negotiated prices achieved under NHPS if they are enrolled but pay for themselves at the point of care. Just as with organised purchase of medicines, organised purchase of care can bring down prices and also provide the benefit of quality oversight. The decision on whether or not to provide any subsidy to APL is best left to individual state. The advantage of discounted prices could be complemented with some financial innovation that promotes savings to meet healthcare expenses by APL. Such a comprehensive design is needed in its own right and not necessarily to prevent the PMO getting embarrassed from a deluge of requests for financial help.
The author is a development economist, formerly with the Bill & Melinda Gates Foundation and the World Bank

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