The government indicated that it will bank on economies of scale to bring down the premium costs along with possibly asking states to share a portion of the premium costs.
The Modi government’s ambitious National Health Protection Scheme (NHPS) to cover 10 crore poor families with Rs 5 lakh health insurance may be lurching for funds as allocations hardly cover the programme's potential expenditure costs.
The government announced an allocation of Rs 2000 crore for the scheme in 2018-19 but said more funds would be made available as the programme is rolled out over the year.
The government has kept some cushion to fund the scheme as it replaced the current 3 percent education cess with 4 percent health and education cess with an aim to garner additional Rs 11,000 crore.
The government indicated that it will bank on economies of scale to bring down the premium costs along with possibly asking states to share a portion of the premium.
A Reuters report quoting an unnamed government official has estimated the cost of insuring each family would be about Rs 1100. If that ampount is taken into account, the total premium outgo per year will be around Rs 11000 crore, a very conservative figure according to analysts Moneycontrol spoke to.
Consider this. A regular Rs 5 lakh family floater health policy comes at an annual premium of Rs 4500-5000 depending on the inclusions and the diseases covered. Taking even the lowest premium of Rs 4500 per annum in this scenario, it will lead to a direct cost of Rs 45,000 crore for the government, since it will be a fully subsidised scheme.
The entire premium outgo of health insurance was Rs 30,392 crore in FY17 covering 43.75 crore people as per the latest annual report of Insurance Regulatory Development Authority (IRDA).
The Rashtriya Swasthya Bima Yojna (RSBY) alone accounts for three-fourths of total insured in the country.The RSBY covers 37.2 million families with health insurance of Rs 30,000.
In different districts, insurers are selected on the basis of a competitive bidding process. The actual annual premium works out to be Rs 300-400 across the regions. The Centre and the state divide the subsidy based on a pre-determined formula of 3:1.
States to contribute
With respect to NHPS, there have been indications that it will be a 40-60 ratio where centre will pay 40 percent and states 60 percent. However, it needs to be seen whether states with tight fiscal situation will be able to contribute such high expenditure.
Unlike RSBY, the NHPS policyholders will have a fully pre-paid smartcard that will allow for maximum deductions of Rs 5 lakh per year.
Insurers are, however, hopeful that the government will be able to pull it off.
Antony Jacob, CEO, Apollo Munich Health Insurance, told Moneycontrol that when it comes to families below the poverty line in smaller towns, the healthcare costs would be much lower.
He added that the government could also introduce new cesses, if required, to fund the scheme. The government is likely to take 6-8 months to launch the scheme across the country.
If one were to consider that medical costs in rural and semi-urban areas would be much lower, a premium of Rs 3500-4000 would also mean Rs 35,000 crore to Rs 40,000 crore to be spent on this initiative, Jacob added.
“It is likely that the government may enter into some package deals with hospitals whereby they are able to incur a much lower cost. Further, outpatient expenses which also constitute a large-chunk of pre and post hospitalisation expenses could also be excluded or strict caps will be placed on them,” said the chief of a large private sector insurance company.
Boost for private hospitals
Analysts say the NHPS could be a big boost for private hospitals.
“In our view, even if the government achieves half of this number in next five years, NHPS can potentially triple the country’s healthcare spend to USD300 billion, implying 20 percent plus CAGR over FY16‐22,” said Edelweiss in its post budget analysis.
“Though implementation on this scale will be a challenge, we believe, hospitals in the affordable healthcare space will benefit,” the report added.
Suneeta Reddy, managing director of India’s largest healthcare provider Apollo Hospitals agrees with that assessment.
“This will be a big boost for us,” Reddy said. “The current insurance schemes were unviable, but the 5 lakh coverage will be meaningful for secondary and tertiary care players,” she said.
At present Reddy said only 2 percent of the hospital chain’s patients are treated under the government insurance schemes.
Reddy said that with Digital India and Aadhaar - execution isn't going to be a problem.
Reddy, however, said government needs to be realistic in setting costs of medical procedures as the success of the scheme depends on the viability of private healthcare providers.
“It is heartening to note that the budget proposes a significant increase in the healthcare outlay this FY,” said Rajit Mehta, MD and CEO, Max Healthcare said another large private healthcare provider.
“We look forward to partnering the government in supporting these initiatives,” Mehta added.
But not everyone are excited about the scheme. While some point towards the execution – other express concern over putting healthcare in the hands of private healthcare providers and insurance companies when they are poorly regulated.
They were also instances of scams - such as one in Rajasthan where a leading private insurer was accused of siphoning funds from the government on names of ghost beneficiaries.
Habil Khorakiwala, the chairman of the Rs 4,000-crore turnover Mumbai-based Wockhardt which is into pharmaceutical and hospitals, expressed apprehension over the government's track record of implementation citing the RSBY scheme.
RSBY has been plagued with problems of transparency and poor service delivery. Given the low coverage private healthcare providers kept away from the scheme.
The fund allocations for RSBY remained unutilised and number of states participating dwindled, with only eight states utilising the money disbursed to them under the scheme.
Khorakiwala also points out towards chronic shortage of medicines, lack of infrastructure and skilled manpower such as nurses, technicians and doctors in semi-urban and rural areas as a huge challenge in rolling out NHPS.
Former finance secretary Arvind Mayaram has expressed concern that the government is turning into a payer from provider.
"Universal health insurance through private hospitals has not worked for the poor anywhere," said Mayaram."Biggest beneficiaries are the private hospitals and insurance companies. There is no substitute for public health care. More money should have been pumped to strengthen it," Mayaram added.