The introduction of health insurance via the Rashtriya Swasthya Bima Yojana is an opportunity for the government to make good on its promise to help the poor. However, it also requires government to face one of the hardest problems in health policy. On the one hand, protection from catastrophic lossfinancial as well as health-wiseis an important responsibility of government. On the other hand, implementing publicly organised and funded health insurance is notoriously difficult everywherein rich and poor countries alike. By taking this issue on, government has set itself up for serious challenges. Some are universal and some uniquely Indian.
First the pros. For too long, government has followed the conventional wisdom of the international health community by trying to provide cheap, universal, primary care. No doubt with the best of intentions, this leads government to address the only set of health problems for which there is a private market. As much as 80% of visits for healthcare are to the private sector.
Private care varies in quality (as does publica topic in and of itself) but at least it exists. The highest priorities for government spending are those things that markets simply cant do. In health these are: ensuring standard public goods, meaning things for which there cant be a private market even in principle such as pest (vector) control, sanitation, safe water guarantees and improved hygiene in lots of forms. This highlights one great failing of health policy in India. It has been too medically oriented and not health oriented. The vast majority of the progress in mortality, to levels we see here in India, in the west preceded contributions of medicine via public health measures and none of the medical care was publicly provided.
The second big market failure in health is the systematic failure of insurance for large expenditures. The lack of insurance puts everyone at risk of financial disaster. Numerous studies in India and elsewhere report that a major fear of most people, especially the poor, is having to go into debt or sell assets such as livestock at short notice and low prices to pay for medical treatment. Treatment of this sort requires a hospital. No one sells a cow for a few tablets of antibiotics. Distress sales are a substitute for insurance for expensive hospital care in the private, and all too often the public, sector. The emphasis on primary care misses the main contributions government can make to the well-being of the publicpoor and non-poor alike.
Government provision of insurance can help solve another major problem of hospital care. Benefits from Indian public hospitals are inequitably distributed. By far the predominant users of public hospitals are better-off Indians. Not the rich who have little need of the public sector but according to an analysis by Ajay Mahal and coauthors, the 1995 National Sample Survey (the 2005 survey didnt measure income well enough to compare), the richest fifth of the population used public hospitals at five times the rate of the poorest fifth. Some of this inequity is inevitable since urban India is better off than rural and it only makes sense to put hospitals in towns and cities. But anyone who has tried to use public hospitals knows that it is often hard to gain admittance without contacts, money or a very long wait.
The ability to use RSBY money in either public or approved private hospitals should overcome this inequity as well as other drawbacks of the current system. Hospitals would then have every incentive to accept patients and to treat them conscientiously and courteously enough to build a reputation and a loyal client base. As of now there is every incentive for public facilities to turn people away. They get their budgets and salaries anyway. In fact, it is a tribute to the dedicated medical staff that does, in fact, see the large patient load they do under these conditions. The competition the RSBY encourages may be its main advantage over expanding the public hospital systemcurrently the principle way major illnesses are handled.
The guidelines of the RSBY as of November when many design features were introduced for implementation nationwide are very much in line with theoretical best practice. However, the devil is in the details and the system faces severe challenges to implementation. As we all know, many well-designed schemes in India have not worked nearly as well in practice as on paper.
One major challenge will be protecting the health system from the massive cost escalation that usually accompanies universal health insurance. Neither patient nor doctor will have any incentive to limit services to those that are necessary if someone else is paying the bills.
Similarly, when reimbursement is dependent on hospital admission, we are likely to see more conditions treated in hospitals that could have been handled more cheaply in smaller clinics. For a little while governments will be insulated from these costs since contracts with insurance companies will be for a set fee and costs will be the companies problem. Over time, however, if real costs outstrip projected costs, as the built-in incentives would suggest, rising costs will be passed on to the public budget through more generous contracts. Its either that or a regulatory nightmare as government monitors insurance companies to ensure both profitability and prevent undue rationing that would compromise essential care.
A final concern is that benefits are dependent on the ownership of a BPL card. The desire to help the poor is laudable but it is common knowledge that having a BPL card is not the same as being poor. The more valuable the services made accessible by BPL status, the greater the pressure for people who are not poor to want, to pay for or to otherwise acquire it. Since everyone except the wealthy is vulnerable to catastrophic medical expenses, everyone will want RSBY coverage, further compromising the usefulness of the BPL designation.
Health insurance is a major step toward a more rational health care system than we have now. People are not currently protected from catastrophic illness.
However, it will require careful and difficult monitoring to make sure it doesnt, itself, become a catastrophe to the public purse.
The author is Charles and Marie Robertson Visiting Professor of Economic Development, Woodrow Wilson School of Public and International Affairs, Princeton University