Insuring India against health shocks
At their worst, the transactional nature of insurance and the complex web of stakeholders can overwhelm state oversight capacity, resulting in beneficiaries only in name, widespread fraud, and minimal impact on health and financial protection. India has experienced both.
There is a long list of issues related to developing a strong health system raised by PMJAY, but our focus is specifically on the potential (and limits) of PMJAY to protect families from the financial risks posed by health crises.
While the intent to target the poorest 40% is laudable, it should be recognised that a far larger share of the population is in need of a safety net to protect against health-induced financial shocks. Although India halved the share of the population in extreme poverty from 45% in 1994 to 22% in 2012, it has moved from being mostly poor to mostly vulnerable, with a majority hovering close to the poverty line. In fact, according to the National Sample Survey of 2012 (the most recent available), the difference in monthly per capita expenditure of a poor household at the 40th percentile of the population and a richer household at the 80th percentile is only about ₹1,000. This is a small gap if one considers that the average cost of private hospitalisation is about ₹24,000, implying that significantly higher population coverage will ultimately be required to ensure financial protection for all. Of course, covering more people would cost more money. This would be more affordable if PMJAY had offered a more modest benefit package with fewer high-cost tertiary care services. The tradeoff between covering more people and offering more services is one that all countries face.
An added advantage of expanding population coverage is that it would open the door to better methods for identifying eligible households than PMJAY’S present approach. The current route relies on the Socio-economic Census (SEC) database. However, operationalising and updating the 2011 SEC data to target beneficiaries effectively is a complex and challenging task. It is especially tough in densely-populated urban environments, as many migrants may not be captured by the SEC, and jobs and addresses frequently change. Future options include extending eligibility to all ration cardholders, adopting exclusion instead of inclusion criteria (such as eligibility for all except formal sector workers), or going universal.
For now, PMJAY cannot be expected to be the primary vehicle for reducing the overall reliance of families on out-of-pocket payments (OOP) to tackle their health crises. This is because total OOP as per the government’s health accounts data, is at least 20 times higher than the PMJAY budget, and it is mostly spent on drugs and outpatient care, which are not covered by the scheme. Indeed, at the current juncture, leaving both of these out of the benefit package makes sense. They do not impose the same one-time financial shock on a household as a hospitalisation episode. Empanelling outpatient providers and drug sellers would also be prohibitively complex, with huge scope for fraud and over-use. And since a large share of drug spending is essentially due to families self-treating themselves as they lack access to adequate medical care, any solution must focus on improving the quality of care on offer. This is easier said than done, but other reform initiatives under the umbrella of Ayushman Bharat (the overarching mission under which the PMJAY falls) — including the establishment of 150,000 health and wellness centres — could make an important contribution to this agenda.
In the long run, governments will have to spend far more on health than they have in the past if protection against health shocks is to be assured. Globally, there is a clear relationship — the more countries spend on health via the public purse, the lower the reliance on impoverishing and inequitable out-of-pocket spending by households. In India, the government estimates that 62% of health expenditures are incurred directly by families out-of-pocket. This is among the top 10 in the world. The main reason is not insufficient revenue, but because India allocates well under 5% of government spending to health, far less than the lower middle-income country average. Sharp increases in the health budget cannot be achieved overnight, but the first step is to start building a health system – not just a scheme – that is able to spend additional resources effectively.
At the same time, PMJAY beneficiaries must be empowered. Awareness campaigns to inform beneficiaries of their entitlements, including how and where to access services, will be essential to ensure they get the care they need on a cashless basis. Further, robust grievance redressal mechanisms to help resolve patient complaints will also be important.
While states are rightly in the driver’s seat for PMJAY implementation, there are areas where the centre should take the lead. Among the most important is to ensure portability of coverage across state lines, a key commitment of the scheme. This offers huge potential, especially to migrant populations and those residing in states with fewer hospitals offering high-quality care. But achieving portability should not be left to the states. There is a need for a centrally managed modality for beneficiary validation, pre-authorisation, and claims management for cross-border patients.
Achieving these goals would go a long way towards establishing health insurance as a core pillar of India’s social protection system.
THE GOVT ESTIMATES THAT 62% OF HEALTH EXPENDITURES ARE INCURRED DIRECTLY BY FAMILIES OUT-OF-POCKET. THIS IS AMONG THE TOP 10 IN THE WORLD. THE MAIN REASON FOR THIS IS NOT INSUFFICIENT REVENUE, BUT BECAUSE INDIA ALLOCATES WELL UNDER 5% OF GOVT SPENDING TO HEALTH