India has been a testing laboratory of central and state government-funded health insurance schemes over the last decade. The launch of the National Health Protection Scheme (NHPS), or Modicare, however, has attracted considerable debate and attention because of its big bang expansion in the coverage limit—up to Rs 5 lakh per family for 10 crore poor and vulnerable families. Here, by providing evidence, I argue that the insurance-based financing model to deliver health services is not sustainable financially or/and politically.
The massive hike in coverage limit, almost 17 times that of the Rashtriya Swasthya Bima Yojana (RSBY), is going to cost the government a lot. Even the proposed premium of Rs 1,082 per family won’t be enough. Estimates from NSS 2014 reveal that the medical bill of patients belonging to the lowest (40%) income quintile population—who are expected to get cover under NHPS—was `14,960 crore (`18,496 crore in 2017-18 after adjusting for inflation). Ideally, the insurer has to reimburse this bill to the hospital, which is not commensurate with the proposed NHPS premium cost of `10,820 crore. Insurance companies have already pointed out the cap being talked of is too low and any scheme based on this would run into large losses. If one factors in the preceding government-funded health insurance schemes’ experiences of increasing premium (from less than `300 to `600-800 in RSBY, and from `600 to `1,200 per family in Rajasthan in the last few years), service cost, and hospitalisation rate, the premium clearly continues to grow. Due to high hospitalisation rate under RSBY (overall 7%; 18% in Kerala and Chhattisgarh, and 73.9% in Raipur district), as against around 2% at aggregate level, insurance companies incurred net losses and succeeded in negotiating high premium in these and many other states. This resulted in an incremental financial burden on the government—from budget allocation of `550 crore in FY15 to `2,000 crore in FY19—even without enrolling all the eligible targeted poor families under the scheme. Now, if one assumes a premium of `2,000 per family, this would alone consume 37.9% of the funds allocated (`52,800 crore) to the ministry of health and family welfare in the current Budget. If doubling of premium continues, this would account for more than three-fourths of the budget allocated to health. Thus, it is not going to be a financially-sustainable model. Also, as per NSS 2014, as many as 4,95,85,711 persons have had positive expenditure (excluding indirect) on hospitalisation, of which 88.6% and 98% had medical bills of less than or equal to `30,000 and `1 lakh, respectively—basic economic rationale indicates a majority of medical expenses demand could have been met with the `1 lakh coverage limit by covering the entire population.
Another issue is that the government has to earmark contributions from tax for NHPS—a separate financing overhead from healthcare provision. The benefit packages (treatments and procedures) will determine the resource allocation towards the sector. High package rates would cost the government more, in the form of premium payment. The Indian Medical Association recently demanded that the rates be raised, as the current package rates set by the government cannot even cover 30% of the cost of procedure and ‘no hospital’ can work at such rates. In such a situation, if the overall budget allocation towards health does not get a substantial increment, this would compel the government to restructure or reallocate the health budget from provisioning to insurance financing in the coming years. In this case, one can expect the collapse of the already underfunded public healthcare system. If the public system is unable to meet outpatient (the largest source of out-of-pocket, or OOP, expenditure, with 63% share) and other demands of general public, the next level of argument will be to cover outpatient care under insurance. The fragile condition of the public healthcare system will further enforce the government to cover all sections of society under NHPS to meet both inpatient and outpatient care demand. The real political economy comes in here. This will bring a fundamental transformation in the existing healthcare system, where the rule of the game will change in favour of privatisation of healthcare; the government’s role would be minimal, limited to providing financial protection. The changing nature of budgetary priority will minimise political decision-making powers of the government on financing, management, operation and establishing a robust healthcare system through an input line budget.
Under the emergent system, insured persons would have (a legal) entitlement to receive benefits specified in the package—it means that money would follow the patients, and providers will have to attract patients. This will set some rules to establish a level economic playing field for public and private providers to compete with each other, i.e. the public, non-profit and for-profit independent hospitals/clinics will be competing on a level economic playing field. Such a competitive market will set some rules for decision-making under which the hospital management has to respond to patient demand. The public hospitals will largely be responsible for their own financial solvency. Since the objective of the public sector is welfare-oriented rather than moneymaking, it may suffer from a funds crunch (if it doesn’t receive enough government support) and may be out of the competition. Under the competitive market, smaller providers will also not sustain, except for referral centres for large hospitals, as the high coverage amount of NHPS may make bigger hospitals more attractive to people, because of perceptions of better quality and availability of a wide variety of services. Over a period of time, one might see a rise in the number of large corporate hospitals in the country, with the monopoly of a few corporates, as has happened in the US.
This system, if not regulated, could lead to moral hazards. Proper regulation of providers, insurers and controlling monopoly powers is imperative. India has to establish institutions like National Health Insurance Authority (NHIA) and nodal and regulatory agencies, which require huge capital funds. These agencies have to regulate the market on several aspects including premium, pricing, quality, unethical practices, moral hazard issues and so on. They should emerge as competent and efficient purchasing agencies to select the qualified providers to contract the services, negotiate with providers for payment methods and price, contract for quality of care. This, however, depends upon market information and accurate information on cost, which could be difficult in an already high-priced private-dominated healthcare market. Success would also depend on the NHIA board composition that would negotiate contracting, monitoring and evaluation. If the private sector, insurer, pharma and medical industry dominate the board, this would minimise the decision-making powers of the government and jeopardise the welfare objective.
Lastly, government-funded health insurance schemes and other incentives have not been successful in triggering private investment towards those services for which there are no or few providers. Evidence shows that, of the total of 12,72,142 private inpatient healthcare providers, 91.3% are concentrated in metropolitan cities and few districts. The RSBY experience also shows concentration of more than two-thirds of empanelled private hospitals in a handful of districts. The private sector generally invests in areas where public facilities already exist, as they see market opportunity rather than serving the people in remote areas. My estimates show that high provisioning of public facilities (sub-centres, primary health centres, community health centres, sub-divisional and civil/district hospitals and health personnel per 1 lakh population) in a district significantly reduces OOP health expenditure. Government-funded health insurance schemes have largely been unsuccessful in reducing unit cost and OOP burden. Assuring preventive, primary and secondary care through public healthcare and extending insurance coverage to the entire population for accessing tertiary care from the private sector would have been a better idea.
By- Shailender Kumar Hooda, Associate Professor, Institute for Studies in Industrial Development, New Delhi. Views are personal