A recent NITI report explain what's wrong with health insurance in India, and suggest a way forward.
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Taking health insurance to the Indians
- The story: The NITI Aayog released a comprehensive report titled "Health Insurance for India’s Missing Middle". It brings out the gaps in the health insurance coverage across the Indian population and offers solutions to address the situation.
- Importance of insurance: Health insurance is a mechanism of pooling the high level of Out of Pocket expenditure (OOPE) in India to provide greater financial protection against health shocks. Many Indians realise its importance usually when it's too late, and impoverishing expenditure from health shocks arrive home.
- Need and situation: Expansion of health insurance coverage is a vital step, and a pathway in India’s effort to achieve Universal Health Coverage (UHC). The low Government expenditure on health has constrained the capacity and quality of healthcare services in the public sector.
- It diverts the majority of individuals – about two-thirds – to seek treatment in the costlier private sector. India’s health sector is characterized by low Government expenditure on health, high out-of-pocket expenditure (OOPE), and low financial protection for adverse health events.
- The private sector is characterized by high OOPE, leading to low financial protection. NITI found that at least 30% of the population, or 40 crore individuals (referred as the missing middle in the report) are devoid of any financial protection for health.
- The Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) and various State Government extension schemes, provide comprehensive hospitalization cover to the bottom 50% of the population.
- Around the top 20% of the population – 25 crore individuals – are covered through social health insurance, and private voluntary health insurance.
- Existing insurance schemes: In the absence of a low-cost health insurance product, the missing middle remains uncovered despite the ability to pay nominal premiums. Affordable contributory products such as Employees' State Insurance Corporation (ESIC), and Government subsidized insurance including AB-PMJAY are closed products. They are not available to the general population due to the risk of adverse selection.
- Recommended: The NITI report recommended three models for increasing the health insurance coverage in the country:
- Creation of a Large and Diversified Risk Pool - The success of a private voluntary contributory health insurance product requires creation of a large and diversified risk pool. For this to happen the Government should build consumer awareness of health insurance through Information Education Communication campaigns.
- Developing a modified, standardized product - The cost of health insurance i.e., the premium needs to come down, in line with the affordability of the missing middle. For example, Aarogya Sanjeevani can be made affordable. Aarogya Sanjeevani is a standardised health insurance product launched by the Insurance Regulatory Development Authority of India (IRDAI) in April 2020.
- Government Subsidized - This model can be utilized for segments of the missing middle which remain uncovered, due to limited ability to pay for the voluntary contributory models outlined above. In the medium-term, once the supply-side and utilization of PMJAY is strengthened, their infrastructure can be leveraged to allow voluntary contributions to the missing middle. Government can provide public data and infrastructure as a public good to reduce operational and distribution costs of insurers.
- Summary: A combination of the three models, phased in at different times, can ensure coverage for the missing middle population. Government databases such as National Food Security Act (NFSA), Pradhan Mantri Suraksha Bima Yojana, or the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) for agricultural households can be shared with private insurers after taking consent from these households. This will increase the outreach of insurance products with the needy section of the population.
- EXAM QUESTIONS: (1) Explain the reasons why health insurance never took off in a big way in India. (2) Why did successive Indian governments not take health expenditure seriously? Explain. (3) Which is better: private sector healthcare domination or public sector domination? Analyse the pros and cons.
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