Road map for a successful Modicare
India recently began a bold experiment in the delivery of healthcare that, if successful, will bring medicine and treatment to 500 million poor and near-poor Indians. To put that in perspective, when the US—a country of about 320 million—rolled out its Affordable Care Act (ACA) in 2010, the goal was to extend healthcare to nearly 50 million. Despite its many successes, the ACA experienced a number of difficulties, especially during roll-out, and some of those issues lingered for years.
For India, the sheer scale of its programme magnifies its many challenges, including how to communicate the benefits of the plan, and how to encourage enrolment. The success of the National Health Protection Scheme (NHPS)—known as Modicare, after Prime Minister Narendra Modi—depends crucially on whether people sign up for the service, whether they use it, and whether hospitals participate.
The challenge is daunting, but it is not insurmountable. Indeed, we have evidence to suggest methods that will encourage enrolment and help ensure a successful roll-out. We are part of a research team that recently completed a large-scale study of health insurance in Karnataka, where we encountered the very issues that confront Modicare. The results are promising.
The core of our study was a randomized control trial that examined the impact of India’s previous government-run programme, Rashtriya Swasthya Bima Yojana (RSBY), on the health and financial security of roughly 50,000 people in Karnataka, which has a population of 64 million. We also conducted a study of hospitals in the state. From these efforts, we learned important lessons for Modicare and, like many issues in economics, they come down to demand and supply.
First, the demand side: No matter how generous the eligibility criteria and coverage of Modicare, it will have limited effect unless eligible households enrol. Its predecessor, RSBY, suffered low uptake rates. Although it cost participants just Rs30 to enrol, only 54% of eligible families participated.
By contrast, we achieved 79% enrolment rates in our study when we offered households free insurance. Our enrolment rates were above government levels even when we sold insurance at cost, with no government subsidy. We achieved this by going door-to-door to help people enrol.
Modicare’s impact will also be blunted if households do not use the programme to obtain care. For example, RSBY only increased utilization by 1 percentage point, to 2.8% of households. In some states, the hospital-going rate remained below 1%. Why? We found that many households attempted to use the card but failed, many others forgot their insurance card or did not know to use it. More distressing, about half the time, the hospital or insurance company could not process the insurance card or rejected coverage.
These problems are correctable. The government must expend more effort on information and education campaigns. Structural changes planned under Modicare, such as using Aadhaar and hospital-based biometric ID, should reduce the paperwork and hassle costs for beneficiaries. In addition, Modicare must ensure that hospitals have functioning payment systems and do not turn away patients.
On the supply side, health insurance is worthless without accessible healthcare facilities. This is a critical obstacle for Modicare. Nearly half of Indian children live in villages without such services. Modicare cannot fix this problem in the near term. However, over time, by increasing the number of covered patients, an insurance programme can incentivize the private sector to build more facilities.
Complicating matters, we found that although 33% of hospitals nominally participated in RSBY in Karnataka, 55% of them did not actually provide any treatment to RSBY beneficiaries. An important reason is that RSBY pays hospitals lower-than-market rates for care. To address this, Modicare must pay more for treatment, and it should scale prices depending on the cost of land and labour in different locations.
These demand and supply issues are key to a successful Modicare roll-out, but sound financing and a strong data infrastructure are also important. Any financing scheme must be backed by a strong data backbone, without which claims can’t be tracked and paid, and without which the plan will ultimately fail. India must leverage its IT prowess to get the data backbone right.
With programmes of this scale, roll-outs matter. At Rs5 lakh in annual per capita hospital expenses, Modicare is over 15 times more generous than the Central government’s previous health care programme (RSBY), and between two to three times more generous than any existing state programme. Insurance premiums are estimated at Rs1,100-1,200 per household per year, and the full programme could cost Rs12,000 crore. Efficient design and management are key to using these significant resources wisely.
But more than money is at risk. With an estimated 7% of India’s population pushed into poverty each year due to medical expenditures, Modicare is poised to provide an essential safety net for the poor. Clearly, much is at stake. The government can learn from the lessons of RSBY to get Modicare’s implementation right. The health of millions of Indians depends on it.
Published with permission from Ideas For India, an economics and policy portal.
Cynthia Kinnan and Anup Malani are, respectively, an assistant professor of economics and faculty fellow at the Institute for Policy Research at Northwestern University, and a professor of law and professor of medicine at the University of Chicago.
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