The need to expand health insurance in India

In the past few months, a number of state governments and the Central Government have floated health insurance schemes to cover various categories of poor people. This proliferation of a multiplicity of insurance schemes, aimed at specific categories of citizens, goes against the fundamental principles of designing cost-effective insurance policies and the spending becomes virtual give-aways to insurance providers (admittedly mostly government run ones, atleast till now). It surprises me at the virtual absence of any form of debate on this in any public platform nor any regulatory intervention or advisory by the Insurance Regulatory Development Authority (IRDA).

The Government of India, through the Health Ministry, had launched the Rashtriya Swasthya Bima Yojana (RSBY) in 2008 to cover all the BPL families, especially unorganized workers (self-employed, unskilled or migrants) in the country by 2013. The smart card-based scheme aims to provide benefits and cashless medical cover up to Rs 30,000 a year for a BPL family of five. The premium of the insurance cover is being shared by the Centre and the state governments in the ratio of 75:25 and in the ratio of 90:10 for North eastern states and Jammu and Kashmir. The Government is bidding out the right to provide these insurance contracts state-wise to the mainly government run insurance providers.



Simultaneously, State governments have been launching their own over-lapping and often parallel schemes. Early this year, the Andhra Pradesh Government launched its Abhaya Hastham co-contributory Pension Scheme for the women, above the age group of 18, belonging to the Self Help Groups. It also has another health insurance scheme, Arogya Sree, which offers free treatment for a little less than thousand for serious ailments and patients can claim expenses up to Rs 2 lakh. The Tamil Nadu Government launched the Chief Minister Kalaignar’s Insurance Scheme for Life Saving Drugs to reach out to the state’s 100 million poor people, and Rajasthan launched the Mukhyo Mantri BPL Raksha Kosh for insuring those below the poverty line.

There are numerous inefficiencies associated with such approach to selling insurance plans. For start, these schemes would incur considerable administration costs to screen out the ineligible and the inevitable leakages arising from those not eligible benefiting from it. It is being alleged by some state governments that only a small share of the entire spending on RSBY will be actually spent on patients' treatment.

The approach under the RSBY of selling the rights to provide insurance in a state to one insurer by competitive bidding, while ideal for other services, may not be the most cost-effective option. Insurance premiums are the lowest for the most diversified risk-profile and for the largest collection of buyers. Further, it is possible to negotiate the best terms with diagnostic and treatment service providers and pharamaceutical companies when the economies of scale are large enough, atleast for a plan with a basic package of benefits. Also, the larger health risks associated with the specific category being insured, the below poverty line (BPL) poor, will definitely skew up the insurance premiums. Finally, the presence of only a single insurer for the state, restricts choice by constraining buyers from choosing from the full bouquet of plans available in the market.

It therefore naturally follows that multiple insurance plans by the various state governments for specific categories of its population (especially the smaller ones) will be inefficient. Same is the problem with RSBY, being confined to a specific category of buyers and one insurer managing each state.

The most cost-effective and efficient solution is to make these plans part of a universal health insurance scheme like that offered in many developed countries. A basic package of health care benefits can be offered for a fixed rate premium by all insurers, both private and government-run. The Government can then subsidize, fully or partially, specific categories of the poor.