Is insurance a panacea for India's ailing health care system?

No scheme will work well till problems of workforce, governance and service delivery are fixed.

 |  6-minute read |   16-07-2018
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Health insurance has come to be the buzzword in India's policy discourse ever since the Union government announced the National Health Protection Scheme (NHPS).


The health scheme that aims to provide financial protection of up to Rs 5 lakh for secondary and tertiary care to a mammoth 100 million households has found resonance at the state level too.

What is the role of insurance and how would it operate? Will the new insurance-based scheme be an adequate answer to the challenges afflicting the public health system of the country?

It is well known that health insurance is a payment mechanism, which provides financial risk protection during hospitalisation, and the cost of hospitalisation is borne by the insurer. Health care can also be financed from tax revenue, where government provides health care free of cost as is the case in India.

Another method of health financing is that people incur expenses from their pocket to purchase health care services, known as out of pocket payments (OOP). Further, there are social health insurance models, as is the case in Germany, where the individuals or employees enter into a contract by law or legislation to have health insurance.

In the case of insurance, the agency collects premiums from the insured people and pulls the risk by cross subsidising high risk individuals, from the common resource pull where both high and moderate risk individuals participate.

Medical insurance can be attained through a private insurer, employer or through the government, known as publicly financed insurance. Except private insurance, which is based on the principle of market, the other two involve some sort of subsidy to protect poor households or employees.

India has experience in implementing social health insurance programmes such as the Employers State Health Insurance (ESI) scheme and Central Government Health Scheme (CGHS).

The ESI is managed by the ESI Corporation, introduced mainly to provide social security to workers engaged in small businesses and enterprises. The corporation has clearly laid down guidelines for this scheme and currently, around 3.94 crore workers and their families are insured under this scheme.

Apart from these two schemes, the Union government since 2008 has been implementing the Rashtriya Swasthya Bima Yojana (RSBY), which was initially introduced for workers in the unorganised sector, has now been extended to BPL households. This provides financial cover of up to Rs 30,000 for hospitalisation for BPL households. Designed as an innovative social security scheme, this covers around 3.6 crore households. Under the scheme, a family has the option to choose from among a network of public or empanelled private hospitals.

Apart from this certain state specific health insurance programmes are in vogue in Andhra Pradesh, Karnataka and Tamil Nadu. The overarching goal of all these schemes has been to provide financial risk protection to the families against rising cost of health care. These are examples of publicly financed insurance schemes under which the government purchases premiums on behalf of the people from the taxpayer's money.


Since, in the case of publicly financed insurance schemes, the coverage is large and involves huge public resources, the management of these programmes assumes significance. Therefore, in the context of NHPS, the option of a Trust model vis-a-vis Third party Administration (TPA) is widely debated. In a TPA, the insurance administrator manages the scheme, and charges administrative expenses for running it. Moreover, the difference between the claims settled and premium paid in a year goes into the coffers of the TPA.

On the contrary, the trust is managed by the government and involves less administrative expenses. The trust also saves resources as it does not pay premiums. One can learn from Andhra Pradesh and Karnataka, which have experience of running a Trust model. Though the Trust model saves money, one should be cautious about the major constraints of the Trust, which include weak in-house capacity at the state level, poor governance structure and are susceptible to outside interference.

The big question is can insurance provide respite to India's plaguing public health care system. In India, the option of insurance as an alternative health financing mechanism was explored when several cases showed that people incurred high out of pocket expenditure while accessing health care services.

Estimates show that 35 to 65milion people are pushed into poverty based on different thresholds due to high out of pocket expenditure on health, which is extremely regressive. The causes are many and one of the critical factors has been the low public spending on health care, which currently hovers around a little more than 1 per cent of the GDP, lower than many of Asian nations such as China, Thailand and Sri Lanka.

The public health system especially in the rural areas is plagued by the shortage of manpower, inadequate supply of drugs and diagnostics services. The doctor to population ratio in the country level is woefully low at 1:1,655 against the World Health Organization (WHO) norm of 1:1,000 and there are huge urban-rural divide.

The state of health infrastructure in many parts of the country is dismal, though, it shows marginal improvement especially after the introduction of the national health mission.

Several of these causes along with long waiting hours in the public health facilities and quality-related concerns as suggested by a national level survey, have led to low utilisation of public health facility.

Can we ameliorate these conditions? Increasing access and providing affordable care is the ultimate goal of any health system. Insurance will not address all the worries of India' health care system.

The larger point is how to build up the service delivery mechanism for creating access to the most helpless on the social ladder. Within the country, efforts vary across states, some southern states — Tamil Nadu and Karnataka have made noticeable progress with not so high public health investment, which are distinctly different from other states.

Success stories are abundant in India regarding health system development. The drugs distribution system in Tamil Nadu and Rajasthan, human resources management practices in Maharashtra, financial management system in Odisha and decentralisation model in Kerala, Karnataka and West Bengal are some instances which have produced discernible results and others should learn from it.

Finally, insurance will to some extent look after the persistent problems associated with health financing systems in India. The constraints related to other pillars of health care — workforce, governance, service delivery — if not adequately improved on a sustained basis, will always operate less than optimally.

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Sarit Kumar Rout Sarit Kumar Rout @drsaritkumarro1

The writer is a health economist with an interest in public policy research.

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