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.)
What does it indicate?