NHPS may squeeze out funds from the public health system, writes Mita Choudhury, Associate Professor, National Institute of Public Finance and Policy (NIPFP), and informs that it will leave little room for other health spending in states
The National Health Protection Scheme (NHPS) was the centrepiece of the Union Budget 2018. The NHPS is aimed to provide increased access to secondary and tertiary healthcare services through health insurance cover. This is, however, not a new announcement. The scheme was announced earlier by the Finance Minister (FM) in his budget speech of 2016, then with an insurance coverage for hospitalisation expenditures up to Rs 1 lakh per annum for each underprivileged family. The scheme was, however, not rolled out, and the 2017 budget speech had no mention of the scheme. This year, the announcement has been made again, with an enhanced coverage of Rs 5 lakh per annum.
As per the estimates from NITI Aayog that have been made available after the budget speech, the NHPS is expected to cost around Rs 10,000 crore to 12,000 crores. At this cost, the financial protection that can be extended to 10 crore households will be limited. The low expectation of the cost of NHPS possibly arises from the fact that, even after a decade of the launch of Rashtriya Swasthya Bima Yojana (RSBY) which provides an insurance coverage of Rs 30,000 per family, less than four crore families have been enrolled under the scheme and several states have opted out of the scheme. In some of the poorer states, there have been major implementation hurdles. In Bihar, only around 50 per cent of the targeted households could be enrolled and, in UP, the scheme is yet to be operational.
At the expected cost, while the Union Government’s fiscal burden on account of the scheme could well be covered through the additional 1 per cent cess imposed for health and education, there will be additional fiscal burden on the state governments. Given the focus on fiscal discipline in states, the need for additional payment toward NHPS may squeeze out funds from the public health system, and leave little room for other health spending. This will also infringe upon the autonomy of the state governments to independently design policies and programmes in the health sector, which is constitutionally a state subject.
States that already have their own health insurance schemes will face other problems. In many such states, the population covered under the state schemes is larger than the BPL population identified by the Union Government though the sum assured is lower than the amount announced by the FM. Given this, there would be pressure on these states to upgrade their state-level schemes to match the benefits provided under the Central government scheme. This would further add to the fiscal burden in such states.
Since implementation of such a scheme would invariably involve additional fiscal resources of the Union and the state governments, it is important to reflect on the effectiveness of public spending on such schemes.
The proposed scheme will cover secondary and tertiary care, which may be provided by the public or private facilities. However, experience shows that, in most states, more than three-fourths of the claims in existing health insurance schemes are for treatments in private facilities. This suggests that much of the additional public spending on health insurance will be absorbed by the private sector, and only a small part will go to the public health system. In the absence of a strong public sector (or any other viable alternative), it will be difficult to keep the cost of the insurance scheme down in the medium term.
Moral hazard problems including overuse of medical services further escalate cost. Given the weak regulatory environment in India and experience from existing schemes in states, such schemes are likely to be fraught with moral hazard problems. Even if one uses a trust to implement the scheme, as is the case in many states, the costs of monitoring and containing the moral hazard are likely to be substantial and grow with scaling up of the operations.
In the absence of effective gatekeeping through a well-functioning primary healthcare system, there will also be a shift in public spending towards more expensive hospitalisations. The need for secondary and tertiary care will be high, and this will escalate the cost for the government. In this context, although the announcement to strengthen primary care through ‘health and wellness centres’ is welcome, the allocations are far lower than required.
The scheme is also unlikely to significantly reduce the burden of out-of-pocket expenditure, as only around a third of the out-of-pocket expenditure on healthcare in India is on inpatient care. Besides, evidence suggests that such schemes are not effective in extending financial protection to the poorest of the poor. These have implications for effectiveness of public spending through the scheme.
On the whole, given the low expected cost of implementing the NHPS, the financial protection that can be potentially extended through the scheme is likely to be limited. Additionally, the need for states contribution towards the scheme may have adverse financial implications for public health systems at the state-level. This will also curtail states’ autonomy to design their own policies in a sector that is constitutionally mandated to be in their domain. There are also concerns about the effectiveness of public spending and cost inflation in the scheme in the absence of a competitive alternative, and effective gatekeeping at the primary healthcare level. Evidence around the world has shown that such insurance-based healthcare is an expensive model of financing healthcare for the government.