The announcement to cover 10 crore families through health insurance is perhaps the most significant step any Government has taken towards social welfare in many decades. Years from now, Modicare will be remembered either as one initiative that changed India or as the one which was a bitter betrayal. While no one in principle is opposed to the idea, doubts are expressed regarding its implementation. To implement it successfully and efficiently, one needs to see the challenges posed by the status of existing health infrastructure in India and devise ways how to overcome them. There is by now a reasonable understanding that Modicare will be a scale up version of the Rasthriya Swaasth Bima Yojana (RSBY) launched in 2008. Let us look at some of the concerns expressed regarding the scheme.
Questions are being raised regarding whether going the insurance way is the best way to address the issue. One cannot summarily dismiss the apprehension that a health insurance of this type will do little to boost the supply side. That is, will it substantially increase more doctors and hospitals per citizen? Perhaps not. However, it will certainly make the poor access quality health services which they were denied so far. While there may be other measures that can address the supply side imbalance, a Government has little choice. It often has to choose between what can be delivered sooner than what can wait till the best alternative is found. This is true of most Government policies irrespective of whether it is an election year budget or not. Budget in an election year only skews the trade-off. Thus, on this count, access to healthcare using insurances are justified. However, there are other concerns that needs to be addressed. These are just not operational. One such concern is, whether such arrangements give rise to moral hazard implying that individuals together with hospitals claim and inflate bills which otherwise they should not? Thereafter, anticipating such behaviour will it mean most private insurance companies will stay out while the public insurance companies will be forced to be part of this scheme and soon run into exorbitant claims ratio seeking a Government? Or even worse, the strength of the scheme-cashless settlements will be denied entirely? These are important issues which Economists have tried to solve with some success. However, a more serious concern lurks. Will such a scheme actually end up affecting a large population adversely? This is possible as there is both evidence and logic that insurance lead healthcare increases the cost of existing medical facilities. The question is therefore, who will be immune to this cost escalation and who will be affected?
Let us look at some numbers. Income Tax Return Statistics released by the Income Tax Department for Assessment Year 2015-16 reveals that there are about 6 Crore income tax assesses and little over 4 Crore income tax payers. Currently, there are only about 30,000 taxpayers who earn over Rs 1 crore and a vast majority of even the income tax payers would earn income less than 10 Lakhs annually. It will be fair to state that, apart from a few lakhs who would already have adequate means to handle health expenses (health insurance covers that match what Modicare has to offer), less than half of the population will be served by Modicare. That leaves us with the uncomfortable issue-will we therefore end up pushing some more households to poverty due to Modicare?
There are two reasons why a rise in medical costs can have catastrophic effect on a family. First, health expenditure occurs unplanned and often are big ticket items that in one stroke erodes a large part of the household wealth. Two, unlike other commodities, healthcare is not a substitutable item- a rise in medical cost will not make the household change the consumption basket unlike a price rise involving cereals! A large part of the poor population involves households that slip below the poverty line owing to medical expenditure. If, given the new scheme, medical expenses go up even by a modest 5%, the effect on those who are not beneficiaries will be catastrophic. Eventually, Modicare will ensure that about 40% of the population need not have to worry about health expenses while the others will be exposed towards greater peril than what they face currently.
So what needs to be done?
To begin with, let us make access to healthcare universal. The scheme must be extended to all and not just the poorest 10 crore families with adequate modifications.
Group insurance premiums are non linearly related to the coverage amount and more importantly, the size and the composition of the group. This is why, currently the RSBY involves a premium of INR 750 for a coverage of INR 30,000, the Bhamashah Swaasth Bima Yokana in Rajasthan involves a premium of INR 1261 for a coverage of 3.5 Lakhs and the Government is calculating a Rs 2000 premium for an insurance coverage of 5 Lakhs. What if we were to reduce the coverage to say 3 Lakhs and make the insurance universal? Is this coverage too low? One doubts. With lower coverage and making the scheme universal, the premiums will probably be half of what it is expected to be under the proposed Modicare. This automatically means covering twice as many individuals with no additional burden to the exchequer. The additional individuals to be covered can be identified using the same targeting technique the Government plans to deploy currently. Finally, the uncovered 20%, who in the current scheme of things cannot afford such insurance (to privately by health insurance cover of 3 Lakhs will exceed 20,000 in premium), will then be able to afford the new policy as it will be less than 5% of the current premium price. That could be the basic health policy for all Indians under Universal coverage! Of course, individuals can customize it over and above the basic coverage paying out of their pockets.
That brings us to the final issue, how wise it to simply announce an attractive health coverage without fixing the existing gaps? Out of 5.9 crore BPL families identified under the RSBY Scheme who are potential beneficiaries, the enrolment so far has only been 3.63 Crores. While some of the gaps can be explained by the fact that some of the States have their own schemes, the reasons for lack of enrolment needs to be identified in detail. Unwillingness by Insurance companies to enroll, or hospitals to admit patients (citing delay in payments) are two of the major reasons why such schemes never took off. Unless, these problems are addressed and one fears they will only get worse, how will the new scheme achieve what it wants to achieve? The danger of not finding answers to these questions will mean that the adverse impact this can have on those excluded be case enough to completely derail the scheme. Surely, this is not what India wants with this scheme. The announcement is made, now it’s time to think through and not implement in haste like what we usually do.
Also published on Medium.