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Insurance, false assurance

Enhancing healthcare access requires reducing supply gaps, not giving vouchers and increasing demand.

Written by K. Sujatha Rao |
Updated: October 31, 2018 12:36:01 am
nhps, rsby, health insurance, hospital insurance scheme, centres insurance scheme, indian express Available evidence shows that hospital insurance schemes, that address a third of the out-of-pocket expenses, have not helped reduce impoverishment. (Illustration: CR Sasikumar/File)

The National Health Protection Scheme (NHPS) has received much media attention and political heft. It is expected that the scheme will reduce impoverishment caused by unexpected events that require lump sum amounts. The NHPS is an improvement over the UPA’s Rashtriya Swasthya Bima Yojana (RSBY) in three ways: It does not require the renewal of the ID card every year, the ration or the Aadhaar card being adequate; services can be accessed from any empaneled hospital in the country; and an increase in the sum assured from Rs 30,000 to Rs 5 lakh, per family per year.

Notwithstanding the hype, the response to the scheme has been tepid, ranging from caution to scepticism for the following four reasons. First, available evidence shows that hospital insurance schemes, that address a third of the out-of-pocket expenses, have not helped reduce impoverishment. Out-of-pocket payments constitute over 60 per cent of health financing in India.

The second reason for scepticism has to do with access to medical services. The scheme is founded on two assumptions. One, there is “excess capacity” to be addressed under the facility of “portability”. Such thinking has proved wrong by cases of emergencies in the supply deficit northern states while in the better-endowed southern states, the wait lists for elective surgeries are growing longer. Besides, indirect costs and constraints can be substantial deterrents.

The second assumption is that the NHPS, by creating an “effective market,” will incentivise private investment flow in Tier 2 and 3 cities. In theory, it should. But the critical barriers are acute shortage of human resources, huge operational costs and the low volume of paying patients to offset expenses.

The expectation that the corporate sector hospitals, that seem to have deep pockets to take such risks, will rush in to expand their footprint once such a market is created, appears to be problematic, given that the sector is showing signs of fiscal stress. The latest to fall is the Seven Hills Hospital in Mumbai, sold to a West Asia-based hospital chain. Second, low-priced government sponsored insurance is useful only for meeting operational costs. A patient mix where the majority are foreign or domestic patients who pay in full is the best from the standpoint of making profits.

The third reason for scepticism is budgets. Barring Kerala and Telangana, the rest of the well-endowed states are partnering with the NHPS, though they will continue their own schemes under which the same set of services are provided within the more modest limits of Rs 1 to 2 lakh per family, but benefitting 50 to 70 per cent more of the population. They will partner the NHPS only to avail of the 60 per cent amount incurred on the 30-50 per cent SECC beneficiaries. With such piggy backing, the NHPS may not require more than Rs 6,000-8,000 crore for a couple of years. But even this is going to be problematic as states have been reneging on their payments to hospitals. Under the Aarogyasri scheme, Telangana has not reimbursed hospitals for a year. The non-synchronisation of financial releases of the Centre and states can lead to partial payments, forcing hospitals to bill patients. A study in Chhattisgarh showed that the private hospitals took reimbursement under RSBY as well as from the patients — a fraud that the IT architecture is unlikely to detect. Given the all pervasive scale of corruption, the large pool of illiterate patients, the information asymmetry, the fiscal stress and shifting priorities, the scheme could result in hospitals shortchanging the poor even more.

The fourth reason for scepticism has to do with the cost of care. The NHPS has begun with a low benchmark of prices, though in the face of stiff resistance from private hospitals, the government has promised a review after the general elections in 2019. Prices are likely to be substantially hiked necessitating a higher outlay. Besides, with increased utilisation, premiums are likely to increase in future years. As it is, the NHPS has increased the base premium amounts. For example, Mizoram that had a Rs 777 per family premium under RSBY is now saddled with a Rs 1,920 premium under the NHPS. Competition works only when there are multiple providers.

Clearly, the scheme’s sustainability will hinge on pricing — a complex issue that requires engaging economists, cash accountants and actuaries who know how to measure risk. Fixing package rates by drawing averages of prices charged by the variety of providers and validated by some doctors, no matter how well meaning, is neither a rigorous nor a sustainable methodology. The stakes are high and setting prices in a market place requires the purchaser to have a near-perfect information of prices in order to bargain effectively. In other words, the relationship between hospitals and service providers and government is antagonistic, as it should be.

Government-subsidised insurance schemes are closely-linked to the prevailing macroeconomic variables. In environments of low tax to GDP ratios or high fiscal deficits, budgets for health often get slashed. In such situations, any contractual obligation requiring timely payments could potentially imply a substitution effect with money being diverted from other heads such as the more desperately needed primary care and infectious disease-control programmes. This did happen in united Andhra Pradesh when the Rajiv Aarogyasri Scheme was announced. This is a concern necessitating building in firewalls to protect the immediate from the urgent.

The problem NHPS seeks to address will not go away by taking the path of least resistance — giving a voucher and raising demand in a supply-deficit environment. This is more so in a highly commercialised and corrupt system operating within a weak regulatory framework. The solution lies in bringing about structural shifts based on a well-thought through sequenced reform process. This implies reducing supply gaps in needy areas by optimising the functioning of the public facilities that have unused capacities due to lack of human resources and diagnostics and incentivising the small and mid-level hospitals to provide services in accordance with quality guidelines, besides, and more importantly, aggressively strengthening primary healthcare to reduce hospitalisation. Such an evidence-based process would require budgetary hikes and enhancing capabilities. Such a sequenced reform process is the learning from every country, rich, middle and low-middle income. That India can be an exception is being in denial of the costs that it will entail in future.

The writer is former Union Health Secretary

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