Insights into Editorial: Get the model right: on state-sponsored insurance
A report by the World Health Organisation has shown that around 3.2% of Indians would fall below the poverty line because of high Out-of-pocket (OoP) health expenditure.
World Bank data, in 2015, showed that nearly 65% of health-care expenditure in India is “Out of Pocket” (OoP).
Thus, a national health insurance scheme like the Ayushman Bharat is welcome.
Ayushman Bharat: Government funded healthcare program:
India takes a giant leap towards providing accessible and affordable healthcare to the common man with the launch of Ayushman Bharat -Pradhan Mantri Jan AarogyaYojana (AB-PMJAY)
Ayushman Bharat – Pradhan Mantri Jan AarogyaYojana (AB-PMJAY) is a paradigm shift from sectorial, segmented and fragmented approach of service delivery through various national and State schemes to a bigger, more comprehensive and better converged and need based service delivery of secondary and tertiary care.
Ayushman Bharat, for instance, has enhanced the Rashtriya Swasthya Bima Yojana (RSBY), to cover around 11 crore families with a yearly coverage of ₹5 lakh.
Experts estimate this will require Rs.25,000 crore per year, when fully implemented.
However, Present Insurance model is flawed?
Insurance works on the principle of pooling the risk of policy holders. If an individual, corporation or a Government can bear a certain quantum of risk by themselves, it is not financially sensible to insure with an insurance company.
This is because administrative overheads and profit margins of insurance companies are included in insurance premium costs.
For instance, Last year, insurance companies made a bumper profit of 85% to the tune of Rs. 15,029 Cr on crop insurance premium under the Pradhan Mantri Fasal Bima Yojana.
Costs baring by the insurance companies:
Typical insurance company costs include
- Designing insurance products to suit customer needs;
- Actuarial input to assess and manage risk;
- Advertising and marketing;
- Empanelment (of approved service providers such as hospitals);
- Administrative expenses to provide prior approval of claims; and
- Processing, which includes functions such as fraud detection.
However, of these, the first three are not applicable to programmes such as Ayushman Bharat which will be fully funded by the government as a blanket scheme.
The government is also funding more than 80% of crop insurance. The last three functions, i.e. empanelling service providers, pre-approving hospitalisation of patients and subsequently settling the claim, are commonly outsourced to third-party administrators (TPAs) even by insurance companies.
Therefore, Best Insurance Model can be Trust model and cost cutting:
No insurance company has the kind of financial resources the Centre and the States have.
However, in India, governments continue to pay hefty sums in premium to insurance companies.
Hence, governments must consider bearing the risk by themselves known as the “trust mode” instead of using insurance companies as risk-bearers and intermediaries.
Case study for Trust Model: Studying the Aarogyasri scheme introduced in undivided Andhra Pradesh by the late Congress Chief Minister, Y.S. Rajasekhar Reddy (the forerunner of the RSBY).
They showed that the bid by insurance companies on such health schemes included a 20% margin for administrative expense and profit. By avoiding insurance companies and using TPAs instead, governments can save about 15%, or up to ₹6,000 crore per year.
These savings will continue to rise due to rising premiums. The study also found the claim-to-premium ratio and customer satisfaction to be better in the trust mode than the insurance mode. It would also prevent exorbitant profits accruing to insurance companies in good cropping seasons as in 2017-18.
With Ayushman Bharat – Pradhan Mantri Jan Aarogya Yojana, the government is taking healthcare protection to a new aspirational level.
This is the “world’s largest government funded healthcare program” targeting more than 50 crore beneficiaries.
The government has already proclaimed that it wishes to cut the intermediary through the JAM trinity (Jan Dhan-Aadhaar-Mobile) and direct benefit transfers.
It has also indicated that it wants to optimise fund utilisation through the recently introduced Public Finance Management System.
Shifting to the trust mode will be the next natural step in this path, not only saving taxpayer money but also benefiting farmers and the underprivileged instead of insurance companies.