Insurance companies flag risks in states' trust model

The attempt by the insurance firms to ring-fence themselves in the NHPS stems from their experience with the Rashtriya Swasthya Bima Yojana

Insurance companies have made a representation to the Centre for setting up a government-funded finance company as a buffer between themselves and the states — something akin to the erstwhile Power Trading Corporation — to make the ambitious National Health Protection Scheme (NHPS) work. They have also said the intermediate financial model of ‘trusts’ used by many states might be misused down the road.

Instead, the operational corpus of the proposed company could be backed by the proceeds from the 4 per cent health and education cess proposed by Finance Minister Arun Jaitley in the Budget for 2018-19. In their response to the finance ministry, 30 non-life insurance companies have said the company could have shareholding from all of them. “All shareholder insurers can then subscribe to the universal health scheme underwritten by the special purpose vehicle on a subscription model”, they have argued. 

The attempt by the insurance firms to ring-fence themselves in the NHPS, which they have assured the government will be a “grand success”, stems from their experience with the Rashtriya Swasthya Bima Yojana. At one stage, the states floated a “trust” model because they could not balance their budget between the need to provide wider insurance coverage with the demands for paying higher premium. 

The more people the states brought in as insured under the health scheme, the higher was the bill for subsidising their premiums. This made the states run into arrears, which by April 2017 had stretched to over Rs 50 billion in the Rs 200 billion estimated market for the scheme. So long as the money was not credited to the insurance firms, they refused to honour the claims of the insured and this caused a political fallout. The via media was the formation of state-run trusts with funds to be contributed by the Centre and states to settle claims of hospitals with the insurance companies picking up the tab later. 

The response by the insurance companies sent through the General Insurance Council last week, an umbrella body, makes clear they are not in favour of this model. “The insurance model will have an edge over the trust model because government funds are safer in a licensed insurance company with strict regulatory oversight, especially investments of short-term surplus money,” the council argued. It added the trusts floated by the state governments were often private entities and “hence there is less scrutiny of their accounts”. The Union finance ministry had specially asked the insurance companies to provide their opinion on the trust model. They have also claimed that the trust model tends to discriminate among insurance companies. 

A fundamental point made by them in this regard is that the first port of call for all treatment has to be the primary health centres. Since a large percentage of the population below the poverty line is migratory, linking them to these facilities, the companies argue, will be essential to making the NHPS work. 

The points flagged by the insurance firms are expected to be addressed by the finance ministry soon. Addressing them also becomes important as the plans for the sweeping insurance coverage have already been endorsed by the markets. S&P in a note said: “In our view, these and other initiatives reflect the government’s intent to expand the country’s protection umbrella, and could have far-reaching implications for the domestic insurance sector… the proposal has the potential to be a game changer for the health industry based on its sheer coverage size and scope”. At the outset, the Centre hopes to cater to one million households with a cover of Rs 500,000 per family. 

A high-level source in the sector said the problem with the RSBY occurred because the companies had to provide enrolment data. “They (the states) could pay us only after the number of enrolled families was finalised. Avoidance of enrolment data should help us in the NHPS”. It is to overcome this hurdle that the companies want to link the entire programme with Aadhaar. But to ensure confidentiality of the health status of those covered “robust and standard security protocols have to be followed”. 

Not just for Aadhaar, the firms are clear that the NHPS will need a standard protocol for treatment of most diseases. This will include “Standard contract with hospitals… regular voluntary disclosure of performance parameters and agreement to be audited by a third party,” the insurers maintain. This will cut down on fraud and allegations of mistreatment, and ensure the choice among the companies is not left open to questions by auditors later on.

What the industry says

• The operational corpus of the proposed company could be backed with the 4 per cent health and education cess 
• The company could have shareholding from all the 30 non-life insurance firms
• This attempt stems from their experience with the Rashtriya Swasthya Bima Yojana
• At one stage the states floated a “trust” model as they could not balance their budget between the need to bring in more families under the insurance cover with the demands for higher premium 
• The states ran into arrears, which by April 2017 had stretched to over Rs 50 bn in the Rs 200 bn estimated market