No insurance needed for health insurance sector

The current health reforms and the proposals for the twelfth five-year plan bring great news to the Indian health insurance sector. Traditional focus on the supply side public health financing only led to the further impoverishment of the Indian poor due to its inefficiencies and its inability to reduce out-of-pocket spending. The demand side financing, a more recent approach, focuses on an insurance system providing cashless care through public-private partnerships. It has huge potential to cater to the needs of the BPL population, thus incentivizing the government for its grand scale promotion. This spells fortune for medical insurance sector.

A healthy population signifies the nation’s good health. However, with an enormous population of over 120 crores, India has a terrible record of healthcare with over 36% of deaths due to chronic diseases and another 36% due to communicable diseases and other deficiencies. In addition, a fifth of pregnancy related deaths and a quarter of child deaths in the world transpire in India. The whys and wherefores are fairly obvious – abysmally minimal public health expenditure (1% of GDP), highly scattered rural population (72%), prevalent poverty (27.5%) and dismal service levels. Government’s recent public health reforms as part of its Universal Health Coverage (UHC) framework to transform the health picture of India have promised to augment the public health spending by an additional one percent. The increased spending on the Government sponsored health insurance schemes (GSHIS) bodes particularly well for the health insurance sector of the country.

A new system

Traditionally, health financing in India has developed along four lines. The major constituent was, and still is, out-of-pocket financing constituting about seventy percent of the spending. This places a significant burden on the poor and is deemed to be one of the major contributors to impoverishment. The second component comprises of the mandatory social insurance schemes for civil servants and other employees making up a 4.1% of the spending. The third component has private voluntary health insurances covering about 5% of the population by 2010. The fourth and the key component is the public health financing on the supply side, contributing to twenty percent of the spending. This has been on the decline path until 2005 when Indian government launched NRHM, its flagship program. But, the service levels of this mode are so dismal that the planning commission, in its appraisal of the tenth five year plan, states “The quality of health care across the rural public health infrastructure is abysmal and marked by high levels of absenteeism, poor availability of skilled medical and para-medical professionals, callous attitudes among health workers, unavailable medicines and inadequate supervision and monitoring”.

A study based on National Sample Survey Organization (NSSO) data concludes that a staggering 6.3 crore individuals were impoverished plainly due to healthcare expenses in 2004. Health insecurity was deepening and something had to be done about it. In response to this, GOI established National Commission on Macroeconomics and Health (NCMH). It advocated moving toward a demand side initiative such as universal health insurance for secondary and tertiary care, thus strengthening the idea of GSHIS. A variety of central and state sponsored insurance schemes came into view, of which Rashtriya Swasthya Bima Yojna, RSBY(GOI), Yeshasvini (KA) and Rajiv Arogyasri (AP) are the major ones.

A push for the insurance

IRDA reports the Indian health insurance to be one of the largest and most rapidly growing service sectors with a growth rate of 14.05%. It collected a premium of `13,092 crores in 2011-12. IRDA estimates the current cover at a meager twelve-thirteen percent of Indian population with the majority covered through the public health insurance schemes (eight to nine percent). The nine major GSHIS, three central-level and six state-level, disbursed an estimated `5,800 crores in 2009-10(total premium `8,305 crores) forming a substantial part of the health insurance sector’s premium receipts.

The increasing share of GSHIS in the public health expenditure clearly reflects the strong political support for the schemes. World Bank report says “These are a new form of mobilizing government resources in an underfinanced system while pioneering a new set of design features and institutional arrangements to govern, allocate and manage the use of these resources”. Before the introduction of these schemes, all healthcare financing was to the government owned hospitals and service providers where service is irregular at best. Patients had to bear substantial charges for diagnostics and transportation in addition to the unavailable drugs. The latest GSHIS offer clear benefits to the earlier model by providing cashless service coupled with explicit benefits at packaged rates. They have also promoted public-private partnerships and fueled competition among insurers as well as healthcare providers. The draft of the twelfth five year plan outlines availability, quality and affordability of healthcare services as the three key parameters for improvement of India’s healthcare system and these schemes are superior to the public delivery system in all the three areas.

GSHIS, like any other initiative, also faces criticism on a few fronts. Induced demand by providing unnecessary care forms the major problem followed closely by the popping up of small hospitals barely meeting the criteria for being a provider. But the pros of the schemes clearly outweigh the possible drawbacks thus incentivizing the government to significantly increase the expenditure on RSBY as part of the twelfth five year plan.

Bright future

An analysis of the World Bank study makes it clear that that the health insurance sector is at an inflection point all set for a rapid growth in the near future. It makes a conservative estimate that, at the current growth rate, 50% of the population (63 crores) will have health insurance coverage by 2015, most of the growth happening in RSBY and state-schemes. GSHIS would form a substantial part of this, reaching an astounding 53 crores individuals from the 25 crores in 2010. It also provides an overwhelming estimate of `38,000 crores health insurance expenses by 2015, of which the GSHIS accounts for a 40% (`15,200 crores).  This alone demonstrates the huge potential for the insurance industry to flourish in the near future at a compounded growth rate of 30 percent per annum. The twelfth five year plan, in addition, proposes to add the primary care coverage and ambulatory services to the secondary and tertiary care as part of RSBY which will push up the premium collections even higher. The industry looks all set for a time of glory.

Celebrating everything,

Aravind M