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The raucous public debate in the US on healthcare reforms to expand insurance coverage and offer affordable healthcare to ordinary Americans has important lessons for India.

The need for health insurance assumes enormous significance here, considering that only 10% of Indians have some form of coverage with out-of-pocket expenses forming 80% of total healthcare spending. The National Sample Survey Organisation found that 21% of the poor are in debt due to healthcare expenditures. Further, recent studies like that by David M. Dror et al., have found that the “median cost of an illness episode was 73% of the monthly income of a person, reaching 780% among the 10% most exposed households".

Photo: Madhu Kapparath / Mint

Hitherto, public policy on healthcare in India has focused almost exclusively on setting up hospitals, providing diagnostic and treatment facilities, and recruiting doctors and nurses, leaving health insurance at the margins. However, unlike other products and services, and as Paul Krugman recently described it, “you don’t know when or whether you’ll need healthcare—but if you do, the care can be extremely expensive". Therefore health insurance has emerged as the natural and cost-effective vehicle for delivery of health services across the world.

Further, as the latest diagnostic and treatment techniques become more widely available here, it will become embarrassingly evident that large numbers of lives could be saved with health services available next door, if only patients could afford them. In the circumstances, an appropriately designed universal health insurance programme could become one of the biggest ever welfare interventions by the government.

Accordingly, in the recent past, there have been a slew of health insurance schemes by the Union and state governments. While the Union health ministry started the Rashtriya Swasthya Bima Yojana to cover unorganized sector workers below the poverty line (BPL), the state governments of Rajasthan, Tamil Nadu and Andhra Pradesh launched their own insurance plans for the BPL poor. They are in addition to numerous other overlapping state and Union government health insurance plans for government employees, organized sector workers, farmers, BPL households, specific categories such as weavers, women and so on.

However, the proliferation of such plans has gone against the fundamental tenets of cost efficiency in any insurance. Since the most important factor in an insurance plan is the risk profile of the insured, it is natural that universal coverage will have the most optimally distributed risk profile and will, therefore, be the cheapest. It is then appropriate that holders of the various insurance plans be made part of one National Health Insurance Scheme (NHIS), with the most diversified pool of risks.

A universal health insurance plan will help minimize administration costs, enable negotiation of the best terms from service providers and pharmaceutical companies, and thereby ensure cost-effectiveness for every rupee spent. The substantial cost of a comprehensive NHIS will be more than offset by its enormous benefits. Our demographic profile with its youthful majority will help keep the premiums down and ensure that budgetary resources are not unduly strained.

Taking a cue from the Affordable Health Choices Act pending congressional approval in the US, we can establish regulated insurance exchanges through which insurers sell plans with varying benefit levels. These exchanges would become single-stop marketplaces for individuals (and even small employers) to comparison-shop among private and public insurers and their myriad plans, facilitate enrolment, provide choice, and administer direct subsidies to predefined groups of underprivileged.

Most developed countries have mandatory and universal healthcare systems, with each person insured for a basic package of healthcare benefits, financed either by the employer, the individual, the government alone or in tandem. Similarly, the NHIS can offer a basic package of healthcare services to the poor—to be purchased at the exchange, without discrimination based on health risks, and at a more or less flat premium, with only small variations to account for age and geography.

Specific categories of the under-privileged population can be subsidized to cover all or a percentage of their premiums. States can provide health vouchers or other forms of support to the poorest to top up on coverage beyond the basic package. Further, out-of-pocket spending on outlier healthcare emergencies, for specific categories of people, can be capped and the additional expenditure borne by the government.

More differentiated plans, including those with greater service coverage, can be purchased from these exchanges on payment of higher premiums. Government and even private employees should have the freedom to opt for either their portable employee-sponsored default plans or choose those with greater coverage by paying the differential. The project can be gradually phased in to cover all citizens within five years.

The existing large government-run health insurance providers can either be consolidated or remain separate to keep the competing private insurance providers honest and preserve access. To optimize use of all resources, both private and government hospitals should offer healthcare services under NHIS.

Further, by expanding the market for medical care, a universal NHIS would spur innovation, and provide a massive stimulus for both pharmaceuticals and the healthcare services sector. It would, therefore, be in the interest of all supply-side stakeholders in the sector to support all efforts to implement the NHIS.

Gulzar Natarajan is a civil servant. These are his personal views. Your comments are welcome at

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