Is Narayana Health Insurance model a gamechanger for India’s healthcare system?

In the traditional health insurance model, the healthcare provider and the payer of the healthcare, the insurer, find themselves at odds, the conflict taking place at the expense of the consumer/patient. The incentive for the healthcare provider is to maximize the billing, while the incentive for the insurer is to minimize the payment. 

It has been empirically established that healthcare costs go up when the patient has insurance, as investigations, consultations, procedures and treatment protocols pile up. Only with a strong co-pay model can the insurance company get the patient to exercise some cost control by choosing to reject some of the recommended tests or procedures. However, patients lack the knowledge to opt for or reject, with discernment, parts of the care recommended by the healthcare provider. The insurer ends up picking up the tab.

At the same time, the insurer tries to minimize costs by standardizing treatment protocols, regardless of the kind of facility where it is delivered. This, too, militates against the patient receiving the best quality care while the cost is borne by the insurer.

A third problem with the regular health insurance scheme is that it lacks any focus on prevention, the hospital being incentivized to make money from curative treatment. The health insurer might try to persuade its insured population to carry out preventive check-ups, but is rarely successful in India.

The managed care model turns all this upside down. In this, the healthcare provider offers insurance. Since the care provider and the payer are parts of the same entity, the incentive to jack up costs and the incentive to deny costs on the suspicion that costs have been jacked up both disappear. 

Further, the care provider has every incentive to screen its insured population aggressively, to detect the onset of disease early on, treat it early and avoid expensive treatment later on, when the disease has progressed. Very many cancers are today amenable to treatment, if detected early. If detection is delayed, and the cancer turns aggressive, the treatment would be both expensive and, often, ineffectual.

In a managed care system, the health of a given population is handed over to a care provider, and paid upfront for that job. With this premium collected, it has to keep the patient healthy and pay for treatment when it becomes unavoidable.

In India, such a model has been tried out, for example, in Rajasthan, when a low-cost healthcare provider, Glocal, had undertaken to look after the health of a given population, whose premium was paid by the state government in advance. Before the system could fully stabilize and its benefits studied and the model expanded, the government changed and this model was abandoned.

There are three kinds of risks in the managed healthcare model. One is that the incentive for the healthcare provider is to withhold appropriate treatment as that would increase expenditure. This is addressed by regulation, competition from other managed care providers and the prospect of fatal reputational damage.

The second risk is selective sale of insurance only to the young and healthy. Regulation should prevent this. Narayana offers to sell insurance to even those with pre-existing conditions. This is welcome, but in order to ensure a similar policy by new entrants, regulation must ensure that entire willing populations, encompassing all demographics of age and income in the vicinity of the care provider, are covered by the policy.

The third risk is that the care/insurance provider gets the premium wrong, and sets it too low. This could render the operation unviable. The solution is to employ the best actuarial expertise available to set the price for the insurance.

The insurance regulator has given Narayana the go-ahead under its regulatory sandbox scheme, meant for testing out innovative approaches. It would call for removing the constraint on tying insurance to a particular care provider that makes sense in traditional health insurance but is antithetical to the managed care model.

May many more managed care insurance schemes take off, to lower the cost of care and encourage better health outcomes.