In the hubris surrounding the spread of health insurance in India, are we ignoring the glaring gaps in this space? There are two ways of examining this issue; firstly, the scope of the cover available in the market; and, secondly, the geographical spread and demographics of the coverage.
The insurance product currently being sold as health insurance is essentially hospitalisation insurance or, more precisely, reimbursement of hospitalisation costs within the policy limits. An average family may also spend substantially on outpatient care for which no insurance cover is available. This problem is more acute for lower income groups whose outpatient expenditure can chip away a sizable portion of their earnings. These socio-economic groups must perforce rely on government or municipal dispensaries and face such usual challenges as limited opening hours, long queues, unsympathetic staff and unavailability of medicines which they are forced to buy from the market.
In our country, the first port of call in any medical situation is the local general practitioner (GP). A couple of decades ago, people from across income groups went first to their family doctor. The family doctor charged reasonable fees and rarely advised a spectrum of pathological tests, unless the patient was in a serious condition. Hospitalisation was considered to be the last resort. People trusted the physician and the physician, in turn, did what was necessary and affordable for the patient.
Sadly, as people have become enamoured of fancy diagnostic tests, their first port of call is a specialist, often through a polyclinic. Consequently, the cost of outpatient treatment has gone up substantially, at least in the urban areas. Outpatient treatment is not covered by health insurance policies currently being offered by insurance companies. This expense can be substantial and debilitating for a ‘survival-income family’.
This is the biggest lacuna in any healthcare system – if people are not being provided a security net for their outpatient treatment, their finances will be severely stretched.
Shankkar Aiyar’s well-researched book, The Gated Republic: India's Public Policy Failures and Private Solutions, addresses the country’s public policy failures. It contains a full chapter on health. According to statistics quoted in the chapter, drawn from the national sample survey 2014, “….despite the presence of government run facilities offering ostensibly free treatment, 70% of ailments (72% in rural areas and 79% in urban areas) were treated by private doctors.”
According to another survey quoted in the said book, 55 million people slid below the poverty line due to out-of-pocket payments, despite schemes for free and subsidised medicines. Of the households so impacted, nearly 38 million were hit only because they had to spend to purchase critical medicines.
Yes, there are government schemes for providing health expense coverage, such as Pradhan Mantri Jan Arogya Yojana (PMJAY) popularly known as Ayushman Bharat Yojana Scheme. Launched in September 2018, this aims at providing a health cover of Rs5 lakh per family per year for secondary and tertiary care hospitalisation to over 107.4 million poor and vulnerable families that form the bottom 40% of the Indian population. The households included are based on the deprivation and occupational criteria of the socio-economic caste census 2011 for rural and urban areas, respectively. PMJAY is fully financed by the government.
This scheme however, does not address health expenditure that does not require hospitalisation. In February 2018, government of India announced the creation of 150,000 health and wellness centres (HWCs) by transforming the existing sub centres and primary health centres. These centres are to deliver comprehensive primary healthcare (CPHC) bringing healthcare closer to the homes of people. Health and wellness centres are envisaged to deliver an expanded range of services to address the primary healthcare needs of the entire population in their area, including free essential drugs and diagnostic services.
However, based on the first year’s target of 19,000 such centres, achieving this number (150,000 HWCs) could take a decade. Experience of existing primary healthcare centres in rural areas shows that the government facilities suffer from usual challenges such as unavailability of suitable premises, doctors and trained staff, diagnostic equipment, and medicines. Whereas HWCs are not restricted to rural areas, it is difficult to expect that similar systemic challenges will not bedevil the urban facilities.
Given the low level of trust the government and municipal facilities inspire, urban and rural poor prefer to rely on private doctors. The overarching need is for a reimbursement mechanism to cover the expenses on health and wellness which do not involve hospital stay. In insurance parlance, these are known as domiciliary treatment expenses. In the pre-Mediclaim era, insurance coverage for such expenses was available for certain types of corporate employees and was generally paid for by the employers. However, this coverage was not available for the public. The main reason insurance companies are unwilling to explore this area is that it is exceedingly difficult to design and price the product. There is the risk of ‘anti-selection’ against the insurer, besides what insurers call as ‘moral hazard’ - inasmuch as it is only the sickly and elderly who would go for such an insurance cover. One solution is to provide such an insurance to a large group which has a fair mix of the general demographics.
Recognising this gap, several NGOs (non-government organisations) and self-help groups (SHGs) have come forward to provide a cushion against debilitating outpatient treatment costs to the poorer sections of the populace. One such organisation is Uplift Mutuals. (upliftmutuals.org). Its model caters to the daily healthcare needs of its members and operates along the lines of a mutual fund. The website says that 70% of all out of pocket expenses on health are on medicines and outpatient care and 9 out of 10 hospitalisations can be treated at the primary care level.
Mutuals rely on the fundamental insurance principle of the many paying for the losses of a few. Essentially, the members contribute a certain amount per member or per family and the claims of the entire group are met. A mutual is an entity which collectively pools its member’s risks and collects the premiums from its members and pays out claims from the funds so accumulated. In the event of a deficit, members can be asked to make either supplementary payments or reduce the entitlement to loss compensation.
While SHGs like Uplift focus on the poorer sections of the populace, the need to provide some form of insurance support for domiciliary medical expenses to the general public is becoming increasingly obvious. This is because the term ‘general public’ denotes 90% of the population of the country if one looks at the financial fragility of our economic universe. It is highly unlikely that the existing insurance companies will venture into providing outpatient expense coverage due to the issues surrounding product design, pricing and underwriting.
These issues are perfectly legitimate and, to some extent, apply to SHGs too. Therefore, SHGs wishing to expand their area or demographics need to bring aboard the expertise, systems and processes in order to support the operation and build the scale. This necessitates recourse to a corporate operating model, which is where forming a mutual insurance company can be the solution.
Given that several countries such as Canada, Switzerland and Sweden (from whom ‘Uplift’ also obtains technical support) have mutual insurance companies, an obvious solution is to set up a ‘Health Mutual’ duly licensed and regulated by the appropriate authorities. The challenge is that the law governing the insurance sector does not provide for mutual insurance companies.
Prior to nationalisation of the insurance industry in 1971, both mutual and cooperative insurance companies functioned in the country. Bombay Mutual was one of the largest life insurances mutuals. It is known that there are several SHGs who would like to expand their universe but are unable to do so for want of a corporate structure.
Starting a health insurance company, even with the limited capital requirement of Rs50 crore is beyond their capability. What they need is an enabling provision within the insurance legislative framework which helps them form a corporate entity without the burden of mandatory capital and other compliances that a commercial insurance company has to carry.
The need of the hour is to devise an enabling framework for setting up mutual insurance companies so that such SHGs can widen their reach and make such products available to public as well. To achieve this, public interest groups need to lobby with the regulator and the government.
This brings us to the second aspect—extending the reach of health insurance. Enabling the entry of small and localised health insurance providers is critical to achieving penetration of insurance in the country, which is the avowed objective of the government. Co-opting SHGs is of greater relevance in our country which is blighted by the gaps between intent and execution—government’s intentions do not translate easily on the ground forcing people to fend for themselves. This gap especially impacts the weak, rendering them vulnerable to vicissitudes of fortune.
Extending the reach also entails reducing the cost of insurance. Health mutuals can help contain the cost of hospitalisation insurance. Self-help groups mentioned earlier also provide a limited form of hospitalisation cost reimbursement. A strong case for a health insurance mutual also arises from the known fact that in the absence of a regulatory framework for private healthcare providers, costs are going up steadily. As a result, health insurance premiums are rising every year.
Uplift, as part of its product design, provides its members with medicines on discount using the pharmacy licence it has secured. This SHG has also built a healthcare provider network where it negotiates the best possible rates for its members. Unlike third-party administrators (TPAs) it guides its members to the best possible price available within the network which helps the members reduce their out of pocket expenses.
It is surprising that the insurance companies have not introduced covers which work through a preferred provider network that does not overcharge the patients. Instead of this, insurance companies introduce limits for procedures or room charges, which doesn’t really help contain the cost inflation. It was expected that at least the specialised health insurance companies would adopt cost containment measures to benefit their policyholders.
Currently, there are six specialised health insurance companies in India (the seventh one is in the process of merging with another general insurer). It is interesting to note that as per IRDAI report for FY18-19, almost 90% of the offices of health insurance companies are located in tier-I cities while tier-II, tier-III and tier-IV cities have 4%, 5% and 1%, offices, respectively. Similarly, 31% of health insurance premium comes from one state, Maharashtra, followed by Tamil Nadu, Karnataka, Delhi and Gujarat. The rest of India accounts for only 34% of the premium.
This lends weight to the hypothesis that health insurance, in the form of Mediclaim, has not penetrated down to the common man and there is scope for trying out different forms of organisations that could reach different parts of the geography and demographics.
Enabling the formation of health insurance mutuals will go a long way in providing wider coverage and achieving geographic spread, which is not always possible for a commercial insurer as its primary responsibility is to maximise shareholder returns, and in today’s climate, achieve ever higher valuations. It is axiomatic that if commercial insurers’ health portfolio starts impacting their profitability, they may be under pressure to raise the premiums or exit the business altogether.
Between profit-driven private sector insurers and the government schemes, there is a gap which can be filled by mutuals, since while not losing sight of financial propriety, mutual are not driven solely by considerations of profitability or valuation. Therefore, it is both necessary and desirable to allow the formation of mutuals and devise specifically designed regulatory framework for them in respect of capital requirement and corporate governance.
(Shrirang V Samant has worked in senior leadership roles in the General Insurance Industry, both in public and private sectors, in India and abroad. He has been privy to the transition of this industry from public to private sector in the country and was the founding CEO of a multinational insurance joint venture- JV in India.)