The need for reforms in healthcare finance: 

The need for reforms in healthcare finance: 

Context

Health insurance seems to be a risky path for India’s long-term strategy for health financing.

What is the issue?

The Centre and state governments are experimenting with several new and exciting ideas in healthcare reforms.

• The issue, however, is a serious reform agenda for health financing.
• The last big reform was expanding the coverage of the Rashtriya Swasthya Bima Yojana (RSBY) from Rs 30,000 to Rs 1 lac, reinforcing insurance as the long-term strategy for health financing.
• However, the experience of several countries has revealed that this is a perilous path, taking India towards a bad equilibrium.
• Depending on the route, India could end up spending either 18% of its gross domestic product (GDP) on health like the US or just 4% like Singapore to achieve similar outcomes.

What is the problem with current system of health financing?

• The current “system” of health financing is largely out-of-pocket payments, with tax breaks provided for health insurance.
• The National Sample Survey data shows that Indian households are increasingly relying on their own income and drawing down their savings to finance healthcare expenses. This holds true for both rural and urban households.
• Data for health insurance coverage shows that while private health insurance is largely limited to the richer urban households.
• In contrast, public insurance coverage is evenly distributed across all quintile groups of the population.
• However, these public health insurance schemes have not been associated with lower health burden for the average household as measured by total real out-of-pocket health expenditure, catastrophic health expenditure or impoverishment caused by health expenses.

What are the concerns?

• Extreme poor households do not use their health insurance coverage given their low financial literacy and awareness.
• Insurance is widely recognized as a poor model for healthcare financing because it suffers from serious information asymmetries.
• The other big worry is a moral hazard. Clients and doctors are incentivized to over-use facilities, thereby driving up health costs.
• India’s poor record in healthcare governance inspires less confidence in its ability to successfully pull off a universal healthcare system with the government as the single payer.

Way forward

• India must be open to experimentation with newer products of healthcare financing. Medical savings accounts (MSAs) is one such product. Its healthcare outcomes are comparable to most developed countries, while its spending is significantly lower.
• These are complemented by high deductible insurance (after a large amount has already been paid from the MSA) and a government fund to pay for those who cannot pay for themselves. Given India’s large population below and around the poverty line, it could do the same.

Conclusion

• In healthcare, it is important that even if one gets the financing model right, the sector remains labour-intensive with lower productivity growth.
• This means that when other sectors experience higher productivity growth, they can offer more competitive prices for land and human capital, which can be offset by productivity gains.
• In healthcare, there are no offsetting productivity gains. As a result, either the price of healthcare delivery goes up or quality falls. This is a long-term problem which the private sector and the government will have to grapple with perennially.