Universal Health Insurance for India

Even as an intense public debate rages on in the US about the proposals by President Obama to reform health care to expand coverage and make it more affordable for ordinary Americans, it may be the right time for India too to focus its attention on its health care system. Unfortunately, the debate appears to have missed attention in the mainstream media in India.

A 2004 National Sample Survey Organization’s data shows that only 30% of the poorest and 26% of low-income groups use government services. Of these, 21% of the poor are indebted due to health care expenses. Only 10% of Indians have some form of health insurance coverage, making it one of the worst performers among any major country. Out-of-pocket payments as a portion of total health care spending are 80% in India and 60% in China.

A 2005 study by David M. Dror, Olga van Putten-Rademaker and Ruth Koren has found that the median cost of an illness episode was 73% of the monthly income of a person, reaching 780% among the 10% most exposed households. It is well documented that in low-income countries, private, not-insured, out-of-pocket expenditures on health care make up a larger share of total financial resources than in richer countries. In many low-income countries the share exceeds 50%; in India and China it is over 75%.

It has also been found that "aggregated expenses of consultations and drugs exceed those of hospitalizations in all locations... because the variations in clients' needs, cost of health care, availability of services and clients' demand for health insurance across locations cannot be optimized in a single partial benefit package, a context-specific solution is needed to be relevant in each location".

Also, contrary to popular perceptions there is adequate evidence to suggest that even the poorest are willing to pay atleast some share towards their health care premiums.

The high cost of health care can have other incentive distortions - forcing people to save more than what is required and thereby compress consumption and aggregate demand. Outside of insurance, people will end up paying huge costs for purchasing health care off the shelf, and effectively subsidizing those insured.

Further, as the latest diagnostic and treatment techniques becomes more widely available in the country and the realization dawns that massive numbers of lives could have been saved with health care services available next-door if only the patient could have afforded the same, it becomes imperative that we have universal health insurance scheme for the country.

Hitherto, most of the debate on health care has focused on setting up more hospitals, recruiting more doctors and nurses, and adequate facilities in hospitals. Health insurance has remained on the margins. It may be time to go beyond this and plan to put in place a universal health insurance system for the country over the next five years. The long-awaited draft National Health Bill 2009 unveiled in April 2009 aims to provide universal access to essential health care by 2020 and to cover more than 90% of the population with some sort of basic medical insurance by 2011.

In other developing economies too, health care is taking up an increasingly larger share of the disposable incomes, especially of the poorer people. It may therefore be time for India to plan a national universal health insurance like that being planned by China. If done on a national scale, it could have the effect of a national health care exchange and single biggest and most fundamental welfare intervention by the government since independence.

The fundamental problem with any insurance market is the incentive for insurers to game the market by cherry-picking their customers, so as to minimize their risks and costs. In nascent market like India with weaker regulatory over-sight, such adverse selection issues will be more intense. This can be eliminated only by detaching the process of purchasing insurance from delivering insurance.

As discussed in detail in earlier post here, unlike other products and services, the market for health care suffers from numerous market failures, which ensure that health care cannot be purchased off the shelf. Therefore health care insurance has emerged as the natural vehicle for delivery of health care services across the world. However, private health insurance too suffers from many market failures which ironically enough would deprive those most vulnerable and needy from access to health care.

Presently, there are a plethora of overlapping government health insurance programs for specific categories of citizens - State and Central government employees, state health insurance programs for the poor and even certain categories among the poor, and the recently started national health insurance program for those below the poverty line. The government run Employees’ State Insurance Corporation, or ESIC, provides health insurance to at least 10 million workers in the organized sector. It provides health insurance to workers employed in factories using electricity that hires at least 20 people, and in industrial units that do not use power and employ at least 10 workers.

It involves huge wastage of resources to have numerous competing health care plans for different categories of people. All of them can be collapsed into one default basic plan and other differentiated (and insurer-specific) ones, which will have access to the most diversified pool of risks. The rates can be fixed for delivering a basic minimum set of services. All government health insurance schemes for its employees can also be pooled into this.

The transaction costs associated with such a patchwork quilt of programs is too large to make them inefficient. It is inefficient for state governments, especially the smaller ones, to provide their own specific programs. A universal health insurance will ensure better bang for every rupee spent on health care.

In this context, it may be instructive to learn from the experiences with health insurance across the world. Europe and Canada have universal health care systems where all individuals are insured for a basic package of health care benefits; the individual’s contribution to the financing of health care is closely tied to the his ability to pay; premiums for children are covered by government out of general revenues, on the premise that they are national treasures whose health care should be the entire nation’s fiscal responsibility. The statutory health insurance is financed by an income-based payroll tax, with contribution from employers. Unemployment insurance pays the premiums for unemployed individuals, and pension funds share with the elderly in financing their premiums, which are set below actuarial costs for the elderly.

In Germany, the health insurance premiums paid by Germans are collected in a national, government-run central fund that effectively performs the risk-pooling function for the entire system. This fund redistributes the collected premiums to some 200 independent, nongovernmental, competing, nonprofit "sickness funds" among which Germans can choose based on the individual's actuarial risk. These funds act as purchasing agents on behalf of the central fund and patients by purchasing medical services from doctors, hospitals, drug companies, etc. It is similar in Netherlands and Switzerland.

The US Health Care reform proposals include an insurance exchange, as in part of Europe, where standardized insurance policies are sold. This exchange can be a marketplace for individuals and employers to comparison shop among private and public insurers, facilitate enrollment, and administer direct subsidies (or vouchers) to pre-defined categories of the poor and under-privileged.

The national health insurance program should have a menu of pre-defined basic and commonly observed major treatments, with flat premiums. Those below the poverty line or specific categories of population (like children) should be subsidized to cover some share of the premium. State governments can provide additional subsidies to specific categories of its citizens depending on its needs. These policies should be sold in insurance exchanges, where private and government insurers compete to provide the insurance coverage.

Health vouchers or other forms of support can be provided to the poorest to top-up on services beyond that of the existing services. Schemes like the Arogya Sree can be runs more cost-effectively, delivering greater bang for the public buck. Further, out of pocket spending on outlier health care emergencies, for specific categories of people, can be capped and the additional expenditure borne by the government.

The proposed Unique Identification Number can go a long way in ensuring easy and targeted administration of this program. Those requiring additional top-ups can purchase the same at additional cost from the myriad of insurers operating in the exchange. The services can be accessed in both government and private hospitals.

The favorable demographic profile of the Indian population, skewed towards youth, will go a long way towards keeping the premiums and insurance costs down. It will save the country of one of its biggest long term challenges of offering affordable health care without placing unsustainable burden on the economy. As they say in insurance insure young!

The existing government run health insurance schemes can provide the ideal public option plan to keep the private insurance providers competitive and on their toes. Such insurers like New India Assurance Company, United India Insurance Company, Oriental Insurance Company etc can provide the ideal competition (public option plans) to private health insurance service providers.

Finally, by expanding the market for medical care, a universal health insurance scheme would spur innovation, and provide a massive stimulus for both pharmaceuticals and health care services sector. One only needs to look at the boost that schemes like Arogya Sree in Andhra Pradesh has provided to private hospitals to estimate the possible impact of a universal, pan-national scheme. It is therefore in the interest of the supply-side stakeholders in the health care market to support and complement all efforts to make this a success.