Dubbed as Ayushman Bharat, the universal health insurance scheme designed for 50 crore poor and unprivileged Indians, is here. Apart from providing universal access through affordable health insurance cover, the scheme aims to increase the penetration and awareness about health insurance in the country.
Most of us have seen poor people in hospitals who are either compelled to take loans or sell their personal assets to foot the bill for medical treatment. One hopes that this situation will change, once Ayushman Bharat gives them the Rs 5 lakh per family annual insurance coverage for free. But, such a large scheme can have unintended fall-outs too. With the government hell-bent on keeping the premiums extremely low for this health insurance scheme, a barrage of claims can lead to a situation where insurers may be forced to recover the costs from others. Once the scheme is implemented and gains momentum, it is unlikely that neither the government nor the insurers can pull out. In that scenario, is it difficult to imagine that the common taxpayer will again be called to subsidize the premiums? It is not, and that’s what is scary.
Just to set the record straight, we are not against any well-intentioned scheme that provides health insurance to the needy. But, the scale of this largesse means that there will be a huge impact.
The Ayushman Bharat scheme is understood to insure over 1,300 medical and surgical packages and provide coverage of Rs 5 lakh per family per annum. All this would be for free! Yes, the insured will not pay any premium instead premiums for the scheme will be paid by the central and state governments. It is expected that premiums will at a combined level range between Rs 1,000‐1,200 per family. Shockingly, there will be no restriction on family size, age, and gender under Ayushman Bharat scheme. Compared to that, a normal Rs 5 lakh family floater plan costs anywhere between Rs 5,000 to Rs 20,000 depending on the age of the insured. An ageing person always has more claims per year due to more health problems.
There is a reason why insurers do not cover the over 130 crore people in India. One argument is that the poor and the downtrodden are the most vulnerable lot and hence are likely to have poor health due to malnutrition, resulting in a higher number of claims. To counter this scenario, insurers always charge more premium from people who they deem to be ‘more risk’. It is basic economics. However, the cost of the premium, in that case, becomes unaffordable, forcing the poor to stay out of the health insurance net.
But the government’s otherwise well-intentioned Ayushman Bharat scheme is a market intervention that will force insurers to cover the same risk at an even lower cost i.e. lower premium. Will this be tenable in the long-term? There are doubts. This is because so far the government has quoted medical treatment costs that are not in sync with market realities. For instance, the endeavour is to pay for treatment for coronary bypass, knee replacements and stenting among others at 15-20 per cent cheaper rates than the Central Government Health Scheme (CGHS)!
Too many claims
Do remember that insurance works on the basis of pooling the financial risks of a large number of individuals. Any insurance scheme is sustainable only when more money is coming in by way of the premium than payouts or claims being made. Given the current level of healthcare spending by Indian families, claims from the Ayushman Bharat scheme i.e. compensation to beneficiaries are very likely to outpace the premium substantially. Considering a premium of Rs 1,200 per family with a base‐case claim scenario of Rs 20,000 per family, the cost to the insurance companies amounts to Rs 70,000 crore if 3.5 crore claims come out of the 50 crore people covered. This goes to show that the insurance companies would make significant losses as part of this scheme.
Thus, it is normal to assume that there will be a high probability of the premium amount rising substantially in coming years. We have already seen the same with a few states (with their own health insurance schemes) where the premium for the coverage has been raised by 3‐5 times as compared to its introduction price a few years ago. But given that the premium in Ayushman will be borne entirely by the government, it is difficult to envision that the government will be happy with higher premiums, meaning higher outgo for the government.
In a scenario there is an adverse number of claims and insurance companies losing money, somebody has to foot the bill. Be it non-performing loans, or taxes, whenever a bail-out is needed the cost of the same is always transferred on to the shoulders of the common man. There is a fear, and justifiably too, that ultimately the common man, especially the middle-class, who is not really covered by any free insurance scheme, will end up cross-subsidizing Ayushman Bharat. That will mean, that you may have to ultimately pay more premium for your medical insurance.
Is it okay that you pay more without enjoying an iota of benefit? Write your views in the comments section below.