With the Union cabinet giving its nod to the recently announced National Health Protection Scheme (NHPS)—aimed at protecting 100 million poor and vulnerable families against hospitalisation expenses—some design elements of the scheme are known now. For example, the scheme will cover pre-existing diseases, will allow for portability of insurance cover, will cover pre-hospitalisation and post-hospitalisation expenses to some extent, and provide for cashless hospitalisation. These are all sound design elements. One of the important issues relates to the choice of implementing agency. Broadly, there are two options to choose from: (i) create an independent, not-for-profit, trust that manages the scheme and (ii) let a formal insurance company operate the scheme.
This decision is to be taken by each state implementing the scheme. Indeed, in the implementation of the earlier version of the scheme—Rashtriya Swasthya Bima Yojana (RSBY)—some states such as Kerala opted for the insurance model, while states like Gujarat, and (parts of) Karnataka opted for the trust model. Even the states such as Andhra Pradesh and Tamil Nadu that designed, funded, and implemented their own schemes choose one of the two models. While the accumulated experience of both the models will come in handy in identifying an appropriate model for NHPS implementation, it is important to recognise that NHPS is different.
NHPS is different from RSBY scheme in one fundamental way. RSBY was based on enrolment whereas NHPS is an entitlement-based scheme. That is, all the identified population sub-groups under NHPS will automatically get covered once the scheme becomes operational. The identified population has to be merely informed about their entitlement to health insurance benefits under the scheme. This feature greatly alters the mechanics of the scheme in terms of the basis of paying premium to insurers, spreading awareness and sensitisation of the target population, and, indeed, the extent to which the target population gets covered.
NHPS is also different from private voluntary health insurance. The risk and resource pooling functions, so central to the role of any formal insurance company, are almost non-existent in NHPS as the scheme is to be fully subsidised by the Centre and state government through their budgetary support. Moreover, absence of enrolment under the scheme means the function of product marketing is also absent, though this gets replaced by the need for awareness generation and sensitisation of the target population. Further, the decision on diseases/treatments to be covered under the scheme is to be made, and reviewed periodically, by a technical group and, therefore, does not require product development function typically performed by an insurance company. The key functions that remain central in NHPS are hospital empanelment and claims settlement—the functions typically performed by a third-party administrator (TPA) on behalf of an insurer. The choice of implementing agency is to be made against this background. Each of the two implementation models has its pros and cons.
The trust model
Some of the key advantages of implementing the scheme through a trust model are: (a) its not-for-profit orientation (b) conducting awareness and sensitisation functions using government’s own administrative machinery, especially at district/sub-district level to reach the poor, located in difficult terrains. Some of the risks, though, of this model are: (a) weak in-house capacity to perform critical functions that depends on the quality of hired personnel (having requisite skills and competencies) (b) weak governance structure that fails to achieve professional conduct and to prevent outside interference.
The insurance model
Some of the main advantages of implementing the scheme through an insurance company are: (a) its experience of working with TPAs (b) possible scale-up of scheme to cover the non-poor population, which would involve marketing of the scheme and premium collection (c) better deployment of short-term surpluses to generate better returns on those surpluses (this is not the primary function of non-life insurers though; the primary function being risk underwriting, which is absent in NHPS!). The risk associated with this model though is in cost-escalation overtime through a possible collusion between for-profit entities (insurers, TPAs, and healthcare providers).
Another option available is providing initial financial protection, of, say, Rs 2 lakh per family through an insurance model and additional protection through a trust model. The only advantage of this option is in making it easier for the states already implementing the scheme through an insurance model, to layer it with NHPS. Otherwise, this is not a good option, as this will call for managing multiple risks present in both the models.
Yet, another option, which is not much discussed though, but has a great appeal, is a trust-TPA combo. In this model, the trust doesn’t have to create in-house capacity for two critical functions of hospital empanelment and claims settlement.
It can rely on TPA for this. But, it would need to create capacity in other areas such as spreading awareness, monitoring progress and performance and, so forth. Its not-for-profit orientation will have an important bearing on the needed cost controls. But the risk associated with its governance structure will still need to be managed well.
NHPS, without doubt, is a game changer not only in terms of elevated ambitions for providing financial protection against hospital costs, but also for carrying out key reforms in the Indian healthcare system. But, getting it right is important for the realisation of its full potential. For this, it is important to also understand path-dependencies that each of the options would create. Hopefully, the policymakers will also study these dependencies objectively, and not let the more vocal and organised voices sway the foundational decision about the choice of the implementing agency.
A development economist, formerly with the Bill & Melinda Gates Foundation and the World Bank. Views are personal