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Tuesday, July 27, 2021

Insurance can be bad for health

International experience points to the dangers in moving towards a system of health insurance coverage. Improving government services is the answer.

Written by Monica Das Gupta , V R Muraleedharan 2 |
Updated: September 10, 2014 6:43:41 pm

Last month, Union Health Minister Harsh Vardhan offered a glimpse into the new government’s universal health assurance scheme, of which insurance will be an important component. Health insurance is also part of the Pradhan Mantri Jan Dhan Yojana, the NDA government’s financial inclusion programme. But international experience does not support the government’s push towards universal health insurance.

India has a “single-payer” health system, at least in principle, which was intended to be financed by tax revenues and available free for all at government facilities. In large parts of the country, due to underfunding and poor management, this system has functioned poorly, as indicated by low facility utilisation rates. Meanwhile, private spending on health has soared.

Universal health insurance coverage with subsidies for the poor is intended to protect people against the high costs of healthcare, which can push them into debt and poverty. But international experience shows that this is a dangerous path for India to take, because such systems are expensive and complex to manage. But with relatively simple changes, the government health system could be made highly competitive.

Studies of other countries’ health insurance systems unambiguously show that insurance-based systems cost far more than single-payer systems and need tight government regulation of both insurers and health providers, in the fees they charge and services they provide. A tiny, tightly governed country, such as Switzerland, is able to regulate insurance-based care, but its system costs 70  per cent more per capita than the developed country average.


Where the health insurance system was not tightly regulated, as in the United States, people were at the mercy of insurance companies that could refuse coverage to or charge high premiums from all but the healthy, and find pretexts for refusing to reimburse an insured person who needed care. Costs are further inflated by doctors’ financial incentives to increase the number of tests and procedures. Compared with developed country averages in 2011, US health spending per capita was nearly twice as high but with poorer outcomes, such as a 50 per cent higher infant mortality rate. Since at least the 1930s, successive governments in the US have sought to introduce a “single-payer” system for all, but have been thwarted by powerful opposition from the health industry.

Most developed countries have universal health coverage financed by tax revenues, achieving good results despite the demands of their ageing populations. Japan is especially striking. It has excellent mortality indicators, with per capita expenditures slightly below the developed country average, despite its high proportion of elderly people. Among developing countries, Thailand illustrates the efficiencies that can be achieved with public financing  of healthcare.

India faces a far more daunting task than the US in providing the necessary regulation of health insurers and private health providers. Doctor accreditation is a key obstacle. First, there are vast numbers of non-registered medical practitioners who fall outside the formal system. Second, registered practitioners and healthcare facilities are lightly regulated at best.

People anywhere, however well-educated, have difficulty evaluating their doctors. But this problem is hugely compounded when poor people are faced with the entire spectrum of service providers, ranging from world-class to witch doctors, with little to help them distinguish where on this spectrum a particular health provider lies. And even if doctors were properly accredited, accompanied by some kind of stamp of quality that could be displayed to patients, it would be hard to prevent health providers from putting up counterfeit signboards. What chance would poor patients have in ensuring that health insurers provide them the coverage they are supposed to receive?

Also, the private sector has no incentive to provide services aimed primarily at reducing population exposure to disease, as opposed to treating a patient. This includes measures to reduce the spread of infectious diseases and helping local governments meet their mandated sanitary responsibilities. These services are provided by the government health system to different degrees in different states, with Tamil Nadu offering a useful model. Such services are critically important in India, given the frequent outbreaks  of infectious diseases.

Government health services are not particularly difficult to improve. There are two major reasons for the poor functioning of government health services in many states. First, government financing for health is extremely low: in 2012, India’s allocation of GDP to health was among the lowest in the world. Added to this is the policy trend towards collecting at least partial “user charges” for many services while also promoting the concept of health insurance. Both policies undercut the concept  of free, publicly financed healthcare. Second, the Central government’s focus on specific programmes undermines the states’ ability to focus on the overall health system.

Despite this, the data indicate that the public sector is still beneficial in many states, especially for poorer people. High proportions in some states report that they seek healthcare from government facilities: over 70 per cent of the poorest 40 per cent households in Tamil Nadu, and 90 per cent in Himachal Pradesh. The average for India is only 38 per cent, indicating that many states would benefit from learning from the higher-performing states.

Improving government health services is simple compared to running an insurance-based system. Staff performance needs to be monitored and living and working conditions improved. Facility infrastructure needs upgrading and drug supplies must be made available.

If India were to move towards a system of health insurance coverage, whether privately or publicly financed, it would likely plunge the country into the kind of morass that the US has experienced for nearly a century. It would be far easier for  the government to improve the functioning of health services that are directly under its control.

Das Gupta is research professor, University of Maryland, US. Muraleedharan is professor of economics, IIT-Madras

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