Anatomy of health insurance scheme

Dr Nachiket Mor
The Pradhan Mantri Jana Aarogya Yojana has not yet moved towards total health system financing in any part of the country. But hospitals are paid on a package basis Five years have now passed since the Pradhan Mantri Jan Arogya Yojana (PMJAY) was launched in 2018. During this period, over 27 crore insurance cards have been issued under the scheme; over 5.75 crore hospital admissions have been financed with an average payout of about Rs 12,250 per admission, and with almost 27,000 empanelled hospitals nationwide. This is an impressive track record and needs to be celebrated. However, any programme or scheme, no matter how well-designed and executed, has both strengths and weaknesses. Five years is an excellent time to review some of them so that the scheme builds further on its strengths and works towards filling any gaps that may exist.
Of the 27,000 hospitals that are empanelled and about 20,000 that are active, 15,000 are in the public sector. While this has not yet been formally evaluated, anecdotal evidence suggests that these public sector hospitals outperform those not part of the scheme. One of the challenges of the public sector, not just in India but globally, is its non-responsiveness. Starting in the 1980s with the UK, governments worldwide, including Thailand, Turkey, and, most recently, Vietnam, have moved to finance the public sector based on outcomes. They have gradually moved away from automatic financing based on annual expenditure budgets. This change has allowed them to improve the performance of the public sector, and it is not surprising that something similar is being seen in India when the PMJAY pays the government hospitals based on outcomes. Over time, the full power of this can be realised if all financing to the public sector moves in this direction including at the primary care level.
Given its funding limitations, the PMJAY has not yet moved towards total health system financing in any part of the country, but its move towards paying hospitals on a package basis and not on a procedure-by-procedure basis has shown beneficial impacts. For example, increasing the length of stay after a successful surgery in a hospital is often due to poor infection control at hospitals. A fixed package approach has persuaded hospitals to pay particular attention to this and control it so patients can be discharged quickly.
The low package rates offered by the PMJAY have come in for much criticism. However, there is global evidence which suggests that merely because package rates are low it does not mean that quality needs to be low. Hospitals and entire health systems can respond to controlled pricing by innovating, bringing down costs, shedding unnecessary frills, and keeping quality high. When Japan moved to a fixed-price regime, Switzerland enacted its comprehensive healthcare legislation, and Germany instituted strict price controls, there was a fear that their health systems would be unable to cope. These proved unfounded. As a negotiating strategy, the approach adopted by the health scheme has been optimal – start at the lowest point and then revise prices upwards selectively based on actual experience (not lobbying). If they had initially started with higher package rates, these rates would have become sticky, and any downward revisions would have proved impossible.
While the scheme has many empanelled hospitals, over 25% are inactive, and the number varies significantly across the country – from over 500 active hospitals per crore population in Karnataka to only about 60 per crore in Bihar. As a direct result, hospitalisations under the scheme have been mainly concentrated in the southern states of Andhra Pradesh, Karnataka, Tamil Nadu, and Kerala and range from almost 16,000 admissions per lakh population in Kerala to only about 600 in Bihar. The case of Uttar Pradesh is particularly noteworthy – at over 18,500 cards per lakh population, it has issued nearly as many cards as Kerala’s 21,500. However, it has only about 1,200 hospitalisations per lakh population compared to Kerala’s 16,000.
These large differentials are a reflection of the lack of availability of hospitals in lower-income states. This can also be seen from the fact that in over 200 districts of India, all based in the north and the northeast, total C-section rates are well below 10% – these low rates are now the principal reason why pregnant women and their newborns are dying in these districts. In order to address this, there is a need to build and staff more public sector hospitals in these districts and, where appropriate, devise incentives for the private sector to set up facilities in these remote regions. The UDAN (‘Ude Desh Ka Aam Nagrik’) scheme of the ministry of civil aviation, which has done something similar with private airlines, could provide an excellent learning model. The highly successful advanced market commitment (AMC) schemes that spurred vaccine development in the Indian private sector could also provide helpful lessons.
Putting aside concerns relating to low rates, while the move towards package rates within the PMJAY has been a helpful development, it still falls within the ambit of what is referred to as a fee-for-service payment model.
The danger of insurance schemes funded in this way, as the US discovered with its own version of the PMJAY, Medicaid and Medicare after it was too late, is that it leads to massive price inflation in the healthcare sector. The only durable way to address this is, with adequate funding, to move towards total health system financing based on population norms, as Thailand has done with the public sector and Israel has done with the private sector. Research suggests that in several Indian states, including Delhi, Goa, Kerala, and Himachal Pradesh, current government expenditures are already adequate to finance all the necessary healthcare. If, in these states, the independent state health authorities could be given charge of the entire state health budget, they would have sufficient funding to implement district-level total health systems financing strategies and take responsibility for overall district and state-level health outcomes.
The durability of tax-financed purchasing schemes for health like the PMJAY both at the central and state levels speaks to the continued political and mass appeal of such an approach towards financing healthcare.
Over time, stable structures like the national and state health authorities, which now run these schemes, have evolved, albeit with varying levels of capability.
These schemes have also successfully built navigation capability, allowing them to purchase services from the private sector without getting embroiled in one or the other corruption scandals. This durability, stability, and ability to navigate are rare in the healthcare sector in India. It has set the stage for the next big move in the healthcare sector in India – the complete transfer of state health budgets to their state health authorities, which will pay the public sector and, where necessary, the private sector, based on defined outcomes and do away entirely with automatic-budget-based financing of the public sector.
There is also the opportunity to develop and launch schemes like UDAN and AMC, which will carefully fill gaps in the availability of hospital care in the more remote parts of India. More than two decades of experience with tax-financed insurance schemes in India has indicated that the availability of insurance schemes is a necessary but insufficient condition for a robust supply response from the hospital sector.
(Dr Nachiket Mor is a visiting scientist at The Banyan Academy of Leadership in Mental Health, Chennai; Dr Shuchin Bajaj is the founder of Ujala Cygnus, a chain of low-cost hospitals operating in the underserved parts of the country.)