Published in The Economic Times | On February 14
On February 1, the Union Budget announced the National Health Protection Scheme (NHPS), the biggest such global plan to provide quality health cover to a population larger than the combined citizenry of the US, France, Germany and the UK. Called ‘Modicare’, the plan seeks to extend health insurance to 500 million people from financially vulnerable households, meaning that about four in ten Indians would have access to modern medicine, critical care, and quality tertiary care through private and state facilities — financed through a Rs 5-lakh per family insurance cap.
The scope and complexity associated with implementing such a programme would require the government to go into its various facets — structuring or organisation, pricing of services, and upfront healthcare investments that would undergird service delivery across the vast country. ET examines the options that could make Modicare, the most ambitious healthcare mission in the world, the leitmotif of success.
Among the options before the government is the choice of the ownership and service delivery models. In case of a trust model, the government sets up a trust and the trust performs the role of an insurance company. Andhra Pradesh, Telangana and some parts of Karnataka use the trust model. The government fixes the price and there is no scope for price discovery. By contrast, in the insurance model, the state government floats a tender and the insurance company is selected based on the bidding process.
“The NHPS needs a buy-in from the states, which have to contribute 40% of the funding,” says K Srinath Reddy, president, Public Health Foundation of India. “Some states had decided to fund their own state-specific health insurance programmes with distinctive political branding. It is to be seen if those states will agree to merge their programmes with NHPS through co-branding.”
Pricing will depend on several factors, including the benefits covered. If maternity, pre-existing diseases and waiting period are waived off to avoid antiselection, the pricing will go up. The rates will vary for different states.
Niti Aayog CEO Amitabh Kant has said that Rs 1,000-1,200 a year for each family should suffice to provide health cover of Rs 5 lakh.
The scheme is fully suppported by the government, with no premium payment and no co-payment by beneficiaries.
The Centre will have to earmark Rs 6,000-7,000 crore, while state governments may have to spend Rs 4,000-5,000 crore under the programme. The government has allocated Rs 2,000 crore for the next year and as the scheme starts in October 2018, the funding will cover the first few months of the plan’s rollout before the next Budget. It is expected to require Rs 10,000-12,000 crore annually as it scales up.
“Pricing will be actuarial-determined, based on the kind of packages rolled out,” said G Srinivasan, chairman and managing director of New India Assurance. “Pricing is very important to make the programme viable.”
When price discovery is made through the tender process, the premium is high for states where utilisation is high. Experience under the decade-old Rashtriya Swasthya Bima Yojana (RSBY), which enrolled more than 30 million families below the poverty threshold, varies from one state to another.
“We need to see the benefits given, and the terms and conditions defined to know the adequacy of the premium,” said Prasun Sarkar, appointed actuary, National Insurance Company. “It is a long calculation and losses will go up only after awareness goes up in three-four years.”
Actuaries say that pricing should be based on experience from the on-going health insurance programmes.
“If you have one premium for all states, then some states would be overpaying or others underpaying,” said an actuary with a large insurance company. “One premium will lead to cross-subsidisation. Enforcing exclusions will be difficult. Although it is a Rs 5-lakh cover, premium will depend on average payout. The cost will depend on the assumptions.”
UPFRONT INVESTMENTS INTO HEALTHCARE
It is important to strengthen primary healthcare, especially at the sub-divisional level, so that people need not go to secondary and tertiary hospitals. There is a need to link new medical colleges to upgraded district hospitals and subdistrict hospitals.
“There is a need to increase the infrastructure for providing the kind of required specialty care,” says Reddy.
He says that incentive packages for doctors to go to rural areas must be drawn up appropriately. He cites the example of the Chhattisgarh government, which had announced a differential package system in 2016 to make up for the shortfall, with the most inaccessible Naxal areas getting the highest and non-Naxal areas the lowest financial allocations. Salaries for doctors working in the Maoist affected districts, such as Bijapur, rose to as high as Rs 2.5 lakh a month. The government has proposed to set up 1.5 lakh health and wellness centres under the Ayushman Bharat programme to provide comprehensive healthcare services.
OPPORTUNITY FOR INSURERS
“I look at it as a great opportunity for the insurance industry and there is scope of expanding health insurance by 40% in one year,” said Srinivasan of New India Assurance. “It is a big scheme. The government is talking about Rs 12,000 crore of premium.”
The latest programme is the biggest since the government decided to insure farm output to mitigate the risks of farmers. But unlike crop insurance, for which pricing techniques are yet to mature, health insurance and health schemes are not new to the industry.
In contrast, crop insurance is still developing. The Pradhan Mantri Fasal Bima Yojana is technology-driven, and pricing is based on the historical burning cost approach, which is given in the operating guidelines by the government.
RSBY, which began enrolling people toward the end of the first term of the United Progressive Alliance (UPA) regime, did not have any pricing guideline by the government. Pricing was arrived at through competitive bidding.
Both crop and health insurance programmes use the experience-based pricing model. While actuaries use both — the frequency severity approach and the burning cost approach — for arriving at the health premium, the burning cost approach is used for arriving at crop insurance premium.
EARLIER SCHEMES AND LOW LOSS RATIO
There is a lot of enthusiasm around enrolment, but unless there is enough awareness, utilisation rates are expected to be low. Loss ratio in the first few years is typically low because, experts believe, that it takes time for awareness to increase.
Loss ratio in RSBY, the precursor to the NHPS, was low in the initial years. From 87% incurred claims ratio in 2012-13, it has now gone up to 109%. Srinivasan expects utilisation to be high in initial years for NHPS too, given the awareness on the current health insurance schemes.
THE RECIPE FOR SUCCESS?
NHPS has put the spotlight of politically attractive policy announcements on health and, for it to be successful, New Delhi needs to strengthen primary healthcare, adopt standard clinical guidelines, monitor cost and quality standards and lay out a well-defined list of conditions to be covered.
“We need to negotiate with hospitals for proper packages, have a network of hospitals and technology to measure the quality of procedure, technology to see proper utilisation of the scheme, and a standard rate for the scheme to be successful,” said Srinivasan.
The scheme, if run well, will help people in the lower strata of the society to reduce out-of-pocket expenditure and remove health payment-induced poverty.
“It is an ambitious scheme,” said Krishnamurthy Subramanian, assistant professor of finance at ISB-Hyderabad. “People get into the debt trap if something happens from negative shocks and they cannot extricate themselves.”
THE GLOBAL PRECEDENTS
Many countries have rolled out universal health insurance schemes. Countries with high per capita income have employee deductions and cover a larger population under the universal health scheme. Reddy says that the closest to India’s NHPS is Mexico’s Seguro Popular scheme and Thailand’s National Security Health Act. Seguro Popular is tax-financed by the central and state governments. Until 2011, 51 million people were covered against 15 million in 2006.
Thailand’s universal coverage scheme is tax-financed, with benefits focused on prevention and primary care. Before the general election in 2001, the Thai-Rak-Thai Party took up the issue of universal healthcare scheme, won the election and subsequently launched the National Security Health Act. Around 72% of the population was covered under the scheme until 2011, as per the World Bank report.
A paper by the World Bank Group, titled “How 24 Developing Countries Are Implementing Universal Health Coverage Reforms from the Bottom Up,” says that the speed of expansion was possible because of the work done during the previous decades in building up the networks of healthcare providers at the right locations. Also, the new policy took advantage of the skills developed in the previous decades for enrolments and strategic purchasing of interventions.