General insurance companies, who were hoping to play a major role in Prime Minister Narendra Modi's flagship health scheme Ayushman Bharat, may have to sit it out as most states have opted for a trust-based model.
Ayushman Bharat, dubbed Modicare, is expected to be rolled out on August 15 and aims to provide a health cover of Rs 5 lakh each to 10 crore poor families, or roughly 40 percent of India's population.
Insurance companies were the lead players in the Rashtriya Swasthya Bima Yojana (RBSY), the much smaller precursor of Ayushman Bharat, wherein most states floated tenders to select the insurer that quoted the lowest premium.
However, for Ayushman Bharat, states have chosen a trust-based model.
Out of the 26 states that signed memorandums of understanding (MoUs) with the government to participate in the scheme, only 4 states -- Jharkand, Nagaland, Manipur and West Bengal -- have stuck with the insurance model.
Uttar Pradesh, which was considering an insurance-led model, has changed its mind and will instead administer the scheme through a trust.
West Bengal will follow a hybrid model that will involve floating of tenders in some districts to choose insurance companies for the scheme. The others will have a trust handling all the claims.
In a trust-based model, each individual state will form its own trust to manage the scheme and claims will be disbursed from a corpus created from central and state government contributions.
"When the scheme was announced insurance companies were looking at it with lot of interest, it's potentially giving them huge business," said Indu Bhushan, Chief Executive Officer of the Ayushman Bharat scheme.
With the opportunity to provide health cover to 100 million families, insurance companies were expecting a huge boost to their volumes and were also eyeing cross selling of their other products to boost margins.
"In the RFP (request for proposal) or tender document, we made sure that they don't have windfall gain. So we ensured that they can take a maximum of 15 percent (profit margin), and if the profit (margin) is more than 15 percent they have to give it back. They are still interested, but their level of enthusiasm has gone down, as they can't make big profit," Bhushan said.
Bhushan, who worked in Asian Development Bank before joining Ayushman Bharat, added that with a few exceptions, mass health insurance schemes across the globe are administered by state agencies.
"The idea is that why should the states share profit with private insurance companies," Bhushan said.
States also have apprehensions over the insurance model becoming costly in the long run and over possible problems in administering claims.
"We realised that the trust model is more successful as insurance companies do not process claims so easily and claim settlement will be easier under trust model," the Economic Times quoted Uttar Pradesh Health Minister Sidharth Nath Singh as saying.
States were also encouraged by the experience of Andhra Pradesh, which has its own health scheme called Aarogyasri delivered through a trust model that has been successful in keeping costs largely unchanged.
Pitfalls of a trust based model
There are problems with trust-based models as well, as most states don't have the experience to handle the high volumes of claims, and possible frauds and corruption.
"The coverage is Rs 5 lakh and at least 40 million people would be covered in the first year. States do not have the core expertise to deal with these claims," said the chief of a large state-owned general insurance company.
In a trust-based model, the states decide on what the premiums for the scheme will be and sources said that premium for each family would be around Rs 1,100-1,200.
On the other hand, insurance companies have quoted far lower than Rs 1,000 and questions are already being raised about the sustainability of trust-based models in the long run.
For instance, Apollo Munich Health Insurance has won the contract for Nagaland at Rs 444 per family.
The states will also have to set up a State Health Agency (SHA) to implement the scheme.
"States will realise that managing a full-fledged scheme will mandatorily require the assistance of insurance companies. Even if many states are going for the trust route, we are hoping that they take insurer’s assistance," said the head of underwriting at a mid-sized private general insurer.
While admitting the challenges of a trust-based model, Bhushan said that the government will be helping states out by providing the necessary governance framework and robust IT systems.