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IndiaFirst Life Insurance, promoted by Bank of Baroda and Union Bank of India, has launched a term insurance policy called IndiaFirst Life Guaranteed Protection Plan. The policy offers financial protection against death till 99 years and a host of innovative coverage options.
 
Term insurance is a popular life insurance product which offers high coverage at a nominal cost. A term...
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  • Is Health Insurance the Panacea for All Illnesses? -Part 2
    This part touches on the government schemes and why they are unlikely to accomplish what they are meant to achieve. The article then sets out some imperatives and suggests workable solutions.
     
    The most invidious part of this entire story is that, somehow, the government has ceded the space to private sector. Most state governments and states have ignored the need to build more hospitals and provide better facilities. Services provided in the existing hospitals have deteriorated. The question that the citizenry should ask is: can the government continue to absolve itself of this primary responsibility? 
     
    Healthcare is a public good of the first order; it cannot be left entirely to the insurance sector. Sadly, even government-sponsored schemes help to obscure the policy failures in this area – once the government has set up a hospitalisation insurance scheme for the economically weaker sections and paid the premium, it is absolved of responsibility. 
     
    Shankkar Aiyar’s meticulously researched book The Gated Republic contains an entire chapter on the state of healthcare in the country. The Chapter is aptly titled ‘Bypass Surgery’. To quote his striking observation “…politicos and parties formed a consensus that given the state of public healthcare systems, medical insurance should be made available to the poor to access treatment from private health centres. The idea, of partly offshoring the state’s obligation.….was not born in the health department (but) was conceptualised at the department of labour welfare. 
     
    “The original was tweaked and presented as the Rashtriya Swasthya Bima Yojana (RSBY). National Health Policy 2017 recognised that the gaps in the public health services would be filled by strategic purchasing. ‘Strategic purchase’ – outsourcing public healthcare from private providers found expression in … PMJAY (Ayushman Bharat).”
     
    Ayushman Bharat
     
    Ayushman Bharat PM-JAY aims at providing a health cover of Rs5 lakh per family per year for secondary and tertiary care hospitalisation to over 10.74 crore poor and vulnerable families (approximately 50 million beneficiaries) that form the bottom 40% of the Indian population. The households included are based on the deprivation and occupational criteria of Socio-Economic Caste Census 2011 (SECC 2011) for rural and urban areas, respectively. 
     
    Ayushman Bharat is a significant step in the direction of ensuring hospitalisation treatment for weaker sections of the society, but the questions remain about the integrity of the treatment. 
     
    Ayushman Bharat works on a composite trust-cum-insurance model, i.e., some states pay the premium to insurance companies for this scheme, others have set up trusts into which the premium is paid and out of this fund claims are paid. We, therefore, have no way of ascertaining the claims ratio of Ayushman Bharat, since the premium spend on the ‘trust model’ is not yet in the public domain. 
     
    The main argument against the model of PMJAY is that government funds are being used to subsidise the private health sector where costs are almost double or even three times what is spent in government hospitals. Public health experts have always cautioned against the menace of fraudulent claims and the mammoth exercise of following up on them. The simplest solution would have been to strengthen the public healthcare system, expand it and reduce the dependency of people on the private healthcare sector.
     
    However, notwithstanding the claims of success, an annual report released by the government highlights some of the very pitfalls that public health experts had been cautioning the government about publicly funded and privately managed health insurance schemes. These range from fraudulent claims to a spike in the number of surgical procedures, particularly hysterectomies, the majority of which were found to be conducted in private hospitals. 
     
    In this context, it is interesting to see the note of caution sounded by an expert “Primary caregivers/ hospitals often don’t adhere to the terms of the insurance policies resulting in very high outgo for patients. This is an area that requires to be addressed by the government as well.”
     
    Let Them Eat Cake 
     
    Every conversation on this issue comes down to one point, that is, how much of the GDP is spent on health. In a recent interview, NK Singh, chairman of the 15th finance commission, said that the commission could recommend spending 2.5% of the GDP on health. The current public outlay on health is close to 0.9% of the GDP, of which about 0.6% comes from states and a little close to 0.3% from the Centre. 
     
    He goes on to add that that the poorer parts of India have significantly lower health infrastructure compared to the national average, which itself is lower than expectations. So how do you correct this kind of serious distortion? (Certainly not by spending money on health insurance premium). 
     
    In this interview, he recognises the need to “re-prioritise the current expenditure to meet the needs of the health sector…to involve panchayats and urban local bodies…because they have the cutting edge in the primary health sector.”
     
    Another recent news item says that there are plans to expand the PMJAY to the 'Missing Middle' i.e., to extend the benefit of the existing insurance schemes for the segment of the population not covered by any sort of Central or state insurance programmes or not benefited by any employer or corporate group covers. 
     
    While the intent is laudable, such initiatives would have a desired impact only when the issues on supply side are addressed. Presently, such schemes focus on creating demand for medical services by offering free insurance, at a time when the capacity is manifestly limited.  
     
    The National Digital Health Mission (NDHM) is another ambitious mission which aims to equip more than 1.3 billion citizens of the country with a one-stop solution for each citizen’s healthcare. It will come under the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY). The NDHM is going to be a digital infrastructure aimed at delivering the healthcare needs for anyone and everyone. 
     
    The mission will provide health IDs similar to Aaadhar. It will store every single information of a human case healthcare history. The ID, once created, will allow data sharing between hospitals and doctors digitally. 
     
    Apart from very real issues concerning privacy and confidentiality, is the proposed measure not akin to putting the cart before the horse? When the health infrastructure, both public and private, is severely limited, should not the authorities deploy resources on correcting the fundamental fault lines? Digital records and their instant availability would come much later. This episode reminds one of the saying immortalised by the French Revolution – let them eat cake if they do not have bread!
     
    The critical question is whether health insurance is a substitute for the ailing public healthcare system. In most of the western world, excluding the US, public healthcare system is the first recourse for an individual—only those who aspire for five-star care buy private health insurance. UK’s NHS (National Health Service) is a case in point. On the other hand, we seem to be going the way of United States, where private health insurance is so expensive as to qualify as a scandal and a national shame. 
     
    It is unaffordable for anyone who is not the employee of a corporate entity, in fact most people dread losing their jobs for fear that they will lose company bought insurance coverage and will have to fend for themselves.
     
    A Likely Scenario
     
    In this context, it is tempting to reproduce a case quoted in David Pilling’s bestseller The Growth Delusion. This relates to US, and the year is 2012. A sixty-four-year-old lady felt pains in her chest. She was driven four miles by ambulance to a hospital where she underwent three hours of tests and had some fleeting encounters with a doctor. Eventually she was told she had nothing more than indigestion and was sent home. That was the good part. 
     
    The bad part was the bill: $995 for the ambulance, $3,000 for doctors and $17,000 for the hospital – altogether $21,000 for a routine screening. Heartburn has never been so expensive. 
     
    While the theme of the book is not related to medical insurance alone, this case presents the reality of private insurance driven healthcare system in the US. 
     
    Incidentally, the patient concerned had no health insurance and one doesn’t know whether there were any public healthcare facilities in the vicinity or whether the well-wishers who took her to the hospital had any idea about her not having insurance cover. 
     
    One does not have to stretch one’s imagination to anticipate that a similar state of affairs can come to pass in India if government cedes tertiary healthcare to private hospitals on the presumption that insurance will take care of the patients’ bills. How many people who are not eligible for government schemes will be able to afford the growing cost of healthcare or health insurance?  
     
    The reality is that insurance is a business and, like all businesses, the primary purpose of insurance companies is profit maximisation. Similar motivations drive the private health providers, be it hospitals or their cohorts. Price of any service depends on the demand supply situation and in India demand for healthcare far exceeds the supply. 
     
    In addition, there is the normal cost inflation which pushes up the price of hospitalisation and other ancillary services. Since there is no price regulation of the health providers, the price of service will invariably rise every year which in turn push up the price of health insurance, i.e., premium.  
     
    If insurance industry comes to believe that due to regulatory pressures or popular discontent, they cannot push up the premium to the required level, they will stop selling health insurance. This has happened in several countries across the world. 
     
    In a vast country like ours where people and politics are in varying stages of evolution, and regulatory independence is work-in-progress, health insurance does not automatically translate into an affordable and reliable healthcare environment. Healthcare cost-inflation is a reality; insurance companies will charge a premium that assures them a level of profit. 
     
    When Ayushman Bharat was conceived, it was expected that the premium will be around Rs1,100 per family per year; but since this became unviable for insurance companies, the limit was raised to Rs2,000. Experience shows that the premium doubles approximately every four to five years. 
     
    Assuming that a large percentage of population is covered by the basic government schemes, say 200 million families over the next five years, the premium at the end of the period may rise to roughly Rs5,000 per family per year – or Rs1 lakh crore! Where will this money come from? 
     
    Most of these will end up in the pockets of private hospitals and their cohorts, and this offers no guarantee that everyone who needs healthcare will get it. It is self-evident that this money is best spent on building public health services.
     
    What Can Be Done
     
    The foregoing example is simplistic but, hopefully, it helps illustrate the vast financial outlay needed year on year without anything to show for it in terms of the social infrastructure. A day will come when health insurance premium will become unaffordable for private buyers and will cause tremendous strain on public finances for funding government schemes. 
     
    As the population starts ageing, its healthcare needs will increase accordingly. There will be fewer and fewer young, working age people with the ability to indirectly subsidise the older population. What will then happen to an average citizen whose healthcare needs are growing but whose income is declining as they are on pension or other retirement income? What will the people, who are not covered by employer or government schemes, do? 
     
    Health Insurance serves a useful function in any healthcare ecosystem; but this should be a choice, not a primary recourse. The idea here is to highlight the dangers of assuming that insurance will automatically lead to a robust healthcare infrastructure.  
     
    Merely because of the systemic challenges, the government should not take the easy way out. The imperative of strengthening the public healthcare infrastructure cannot be brushed away by pointing at the sorry state of the government hospitals and dispensaries, which will be tantamount to throwing away the baby with the bathwater. 
     
    If we were to justify outsourcing by pointing at the poor performance of government facilities, why not outsource another failing public service—law and order, since performance failures on this count are starkly evident?
     
    Only public pressure can force governments, whether at the state or at municipal levels, to discharge its duties. Healthcare is primarily the responsibility of state governments but for whatever reasons, they have passed the buck to municipalities in larger cities. In turn, municipalities have steadily neglected the need to build healthcare infrastructure. 
     
    There is more ‘money’ in building flyovers where none is needed, in ripping up perfectly serviceable roads and footpaths and re-laying them, and ‘beautification’ of cities. As for the state governments, they prefer to spend on grandiose projects, memorials, and monuments, having taken the position that the State-sponsored health insurance schemes will make the problem go away.  
     
    Given the inertia and corruption that pervades any State activity, any change in the status-quo is going to be a long journey. However, as the saying goes, journey of a thousand miles begins with the first step. The two policy imperatives that emerge from the current scenario are that firstly, the state should start enhancing its own hospital infrastructure, under an autonomous authority on the lines of NHS in UK. The existing government and municipal hospitals should be placed under this authority. 
     
    Secondly, as this is going to be a long-term project, while this is being rolled out, there should be an independent regulator for private hospitals which should design and implement a procedure and price framework. Possibly the role of the National Accreditation Board for Hospitals and Healthcare Centres can also be enlarged to that of a regulatory body with appropriate monitoring and control powers. 
     
    Unless this happens, health insurance will become progressively unaffordable for the ordinary people and cost of hospital treatment for the uninsured will become catastrophic.  Given the unregulated medical cost inflation, it stands to reason that the premium for government sponsored schemes too will increase steadily, putting a big strain on public finances.
     
    This crisis presents an opportunity to re-examine and re-engineer our healthcare system. Otherwise, we will continue to spend big money both private and public, of which the only beneficiaries will be private hospitals and their cohorts. Health insurance cannot be a substitute for public healthcare. 
     
    The need of the hour is to create a social movement to insist that the public healthcare system should be made to work. While it is heartening to see thousands of people coming onto the street to protest tree cutting, the need of the hour is to show similar awareness of the lack of effective and efficient healthcare apparatus. 
     
    The need of the hour is to build public pressure to force the policy makers to engineer and execute long term remedies. To paraphrase Lokmanya Tilak “Public healthcare is my birth right and I shall have it.”
     
    This is concluding part of a two-part series.
     
    Read first part 
     
     
    (Shrirang 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.)
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    Is Health Insurance the Panacea for All Illnesses? -Part 1
    This article is in two parts; the first part sets the context for the issues and solutions that are proposed in the second part
     
    The current epidemic has fully exposed the system failures that have gone unchallenged over the past couple of decades. The result is that today the public healthcare system is inadequate to meet the challenges posed by this epidemic and the private healthcare universe sees this as an opportunity to mint money. Newspaper reports about hospitals refusing to admit patients without large cash deposits and charging usurious prices for normal flu medicines lend credence to this conclusion. 
     
    The implicit belief that private healthcare apparatus can be relied upon in times of need now stands challenged, going by the reports about the malpractices of private hospitals regarding admission and treatment of suspected COVID patients across the country. 
     
    This raises an important issue: Is health insurance a good substitute for public healthcare?
     
    A related question is, whether actively promoting health insurance serves to brush under the carpet failure of the State to provide public healthcare and to effectively regulate private healthcare?
     
    Why Health Insurance?
     
    Despite the well-known problems relating to unnecessary pathological investigations and procedures, billing irregularities and tardy settlement of claims by insurance companies, why is health insurance still being bought? One inference that can be drawn is that peoples’ lack of faith in the government’s ability to provide basic healthcare makes them opt for health insurance. 
     
    During the first five months of this financial year, when the economy was subdued due to lockdowns, health insurance emerged as the (only) booming sector of the economy. Newspaper reports attribute this to COVID-19 pandemic. The amount spent on buying health insurance in the first five months of this financial year came to Rs22,903 crore, as against Rs20,274 crore in the same period last year, an increase of 13% whereas overall premium excluding health and crop insurance premium declined by nearly Rs1,900 crore. 
     
    The question that comes to the fore is that in the hubris surrounding the spread of health insurance in India, are we ignoring some fundamental issues concerning public health? Health Insurance is a misnomer —what the insurance companies provide is hospitalisation insurance or more precisely, reimbursement of hospitalisation costs within policy limits. 
     
    The reality is that an average family’s healthcare expenditure is on ‘outpatient care’ for which no insurance cover is available. This is just one example of the inadequacy of the healthcare ecosystem in our country. 
     
    The issue relating to outpatient care is possibly the subject matter of a separate discussion. Suffice to say that, over the years, a general belief has taken hold that health insurance is a good substitute for public healthcare.
     
    What Do the Overall Numbers Say?
     
    One way of examining the effectiveness of this mode of healthcare is to look at the insurance numbers. The Insurance Regulatory and Development Authority of India (IRDAI) regularly publishes basic information on this sector which can provide a few insights. 
     
    IRDAI reports for the year 2018-19 that the total health insurance premium in the country was Rs44,873 crore, which includes the general insurance companies and stand-alone health insurance companies. What is interesting is that this number has doubled in the four years from Rs20,096 crore in 2014-15. 
     
    Health insurance business is classified in three categories: group health insurance, individual health insurance and government-sponsored schemes. The first two classes account for nearly 87% of this premium which has doubled over the past five years whereas the share of government sponsored-schemes has remained static between 12% and 13%.
       
    The number of people covered by these three categories is also quite revealing. During 18-19, 472 million individuals were insured under the three classes, but three-fourths of these were covered under government schemes. This implies that 87% of the premium amount was paid by 25% of (covered) population. 
     
    Even within this 25% of ‘paying’ population, individual buyers, that is, those not covered by group or affinity policies, have borne the bigger burden. This is evident by the fact that 9% of the total lives covered, that is 42 million people, paid 39% of the overall premium in the pool, that is, Rs17,525 crore. 
     
    People falling under this section of the population have no choice if they want health insurance as they are ineligible for coverage under employee or affinity group insurance or under government-sponsored schemes. These individuals are effectively subsidising the lives covered by group health insurance as the large gap between the respective claims ratios of the two classes shows. 
     
    The net incurred claims ratio, that is, claim pay-out as a percentage of premiums received, was 102% for group health insurance as against 72% for individuals outside these groups. It is ironic that corporate buyers of group health policies are being subsidised by individual buyers. As a matter of interest, the claims ratio for government-sponsored schemes was even higher, at 113%, which is, of course, paid by the taxpayers, which includes the individual buyers.
     
    It is important to mention that since these figures pertain to FY18-19, they do not reflect the full operationalisation of Ayushman Bharat, which was rolled out in September 2018. 
     
    State of the Play
     
    The National Sample Survey (NSS)’s 75th round of survey on household consumption related to health has brought out startling facts on the state of healthcare and morbidity among Indians. The latest survey was conducted from July 2017 to June 2018. It covered over 0.55 million people in rural as well as urban areas. The survey, conducted periodically, is done to assess expenditure on health-related activities, access to private and public health facilities and, above all, the level of morbidity in the country. 
     
    NSS 75th round shows that the majority of Indians continue to depend on private healthcare facilities. Some 55% Indians availed treatment in private hospitals. Only 42% of the population went to government hospitals for treatment. In the case of rural areas, 52% people went to private hospitals, while 46% opted for treatment in government hospitals. In urban areas, only 35% people opted for government hospitals.
     
    Medical expenditure for hospitalisation, according to this survey, is a significant one. On an average, a rural household spends Rs16,676 annually while it is Rs26,475 for an urban Indian. But treatment in private hospitals is expensive—it costs nearly six times that of government hospitals. 
     
    According to the survey, average medical expenditure for hospitalisation in government hospitals was Rs4,290 in rural and Rs4,837 in urban areas. But in private hospitals, it cost Rs27,347 in rural and Rs38,822 in urban areas.
     
    The fact emerges that more and more people are accessing private healthcare that is relatively more expensive than public facilities; second, to make access to healthcare affordable, the government has been pursuing universal insurance coverage.
     
    To Whose Benefit?
     
    Who are the biggest beneficiaries of the entire system? Not necessarily the insurance companies. Public sector insurance companies’ overall claims ratio across the three classes mentioned above has been steadily above one hundred per cent, that is, they have paid out more than what they have received by way of premium. 
     
    Private sector general insurance companies have fared somewhat better, their claims pay-out being in mid-eighties, but if we add commission and administrative costs, it is unlikely that they would have made any money. It is only the stand-alone health insurance companies that have possibly made any money for themselves, with an average claim ratio in early sixties over the past five years.
     
    The numbers would go to show that the main beneficiaries of health insurance premium paid by public have been hospital and their cohorts. The net incurred claims ratio across the three type of insurance companies was 91%, which leads to the inevitable conclusion that about Rs41,000 crore were paid to private hospitals and their cohorts. 
     
    Another Rs7,565 crore was paid as claims under Ayushman Bharat (as per its dashboard). While the exact breakup of this figure is not available, it will be safe to assume that the larger portion of this amount went to private hospitals, nursing homes and their cohorts simply because there are not enough public hospitals. With nearly Rs50,000 crore thus going to the private healthcare space, no wonder there is such a proliferation of private hospitals, nursing homes and pathology laboratories across all large cities and towns.
     
    How Did We Arrive Here?
     
    The question begs itself: would it not have been more beneficial if this kind of amount is spent on implementing an effective and efficient public healthcare system? A couple of generations ago, most people went to government or municipal hospitals for major surgeries or serious illnesses. 
     
    While these institutions may not have provided five-star service, they looked after their patients and the best doctors and dedicated nurses were available, usually free of charge. There were a few private hospitals in major cities, but only the well-off segments of the society went there. 
     
    Medical insurance, essentially hospitalisation insurance, was first introduced in the country in 1986 or thereabouts when there were only four public sector insurance companies and the policy-makers felt that those who can pay, should have an option.  
     
    These policies were conceived in an environment when there was a level of stability in costs and private hospitals and pathology labs were few. For the first few years, health insurance policies laid down separate limits for various types of procedures and room charges. 
     
    Somewhere in the early-1990s, these sub-limits were removed which left the field open for inflating claims and other forms of skulduggery. Over the years, hospitalisation insurance literally opened up a source of income for private hospitals and entrepreneurs. So much so that hospitalisation costs soared at a rate far exceeding normal inflation. 
     
    Malpractices started taking root. It is common knowledge now that most hospitals, large and small, have a revenue target and take a cut in every pathological test that is ordered, sometimes needlessly. What is more shocking is that unnecessary surgeries are forced on the unsuspecting patients, relatives are discouraged from taking home the terminal patients and ICU (intensive care unit) bills are inflated after the patient has died. 
     
    (Shrirang 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.)
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    COMMENTS

    pmbhate

    1 week ago

    Very informative article backed up by data. It is clear that this systematic loot by private hospitals, nursing homes and their cohorts hits senior citizens the most; they have to pay ever increasing premiums.

    Dilip Modi

    2 weeks ago

    Individuals subsidizing group and Govt Employees insurance scheme sounds unfair where volume discount is the bargaining tool. Would it not be fairer if the insurance premiums were based on sector wise claims, meaning if the individual sector had a lower claims ration compared to to other 2 classes, the premiums are increased based on the sector and not across all 3. There is also a need to offer greater inducement for policy holders who are non smokers, teetotalers, have yearly good health check up reports and no claims. Additionally, If insurance companies want to be profitable, they had better start their own hospitals where costs can be better controlled and a first step towards this could be is to lease / provide a private wards in a govt hospital, where the medical care is good. This way one can also rebuild the reputation of Govt Hospitals.

    shetyerb

    2 weeks ago

    When someone is to be admitted to a private hospital, one of the first question asked is "Do you have insurance?" If yes, How much??
    What does it indicate?

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