NSO data paints a dismal picture of health insurance in the country

While households across income groups are borrowing less to pay for medical costs, the insurance sector has progressively ignored the poor and focused instead on the more lucrative upper-income groups

First, the good news. Indian households, including those in the lowest income groups, are able to finance much more of their medical expenses from their own resources today. Their borrowings to cover health costs have halved in this decade. The bad news is that this has been offset by adverse health insurance cover that has progressively concentrated on the upper-income groups and has, as a result, hurt the capacity of those in the lower brackets, reports the latest National Statistical Office data on health expenditure by households.

The data, released by the government this month, has come out with a lag. It is among a bunch of four data sets released by the NSO last week, after blistering protests from economists and analysts. who said the government was holding back inconvenient data. The delay has been made worse for the health sector since data about it has been erratic in any case. Only three health expenditure surveys have been carried out by the Indian government in the past several decades, with ten-year gaps between each one. After 1995-96, the next round was in 2004 and then in 2014. The current one has broken the discordant trend and will hopefully be more frequent. 

Anti-poor bias

Statistics from Household Social Consumption In India: Health (75th Round) shows government health insurance cover has reduced across all income groups or quintiles in both rural and urban areas. This is a cause for deep concern (NSO divides those surveyed into five income groups or quintiles, from zero to hundred). An average private hospital visit for a person costs about Rs 31,845 or about a fifth of her annual per capita income. 

As Chart 1 on Health Insurance Coverage shows, for those in the middle-income groups in urban areas, the government cover has been replaced to some extent by group insurance covers bought by their employers. But the poorest have got excluded from the insurance market, wherever they live. Over the past few years, the states and the health insurance companies have haggled over the premium payable and the results are now in the open. Most standalone health insurance companies have either not bid for the business offered by the states or have tried to cut their losses by building in exclusions. As a result, the data shows the poor are likely to end the current decade with lower medical insurance cover than they had begun with. “Clearly there is a preference for outpatient care among the poor. The rich prefer hospitalisation. Insurance disincentivises outpatient care and does not cover it in most cases,” notes Amir Ullah Khan, economist and former Policy Adviser, Bill and Melinda Gates Foundation.

The survey data is pretty much in sync with the data from the insurance companies too. Health cover has been the fastest growing portfolio of the general insurance companies and is dominated overwhelmingly by group medical and accident covers offered to companies. As Chart 1 shows, that number has risen to an impressive 16 per cent in four years from 5.6 per cent four years ago. Quite expectedly, the percentage for rural areas has risen far more tepidly to only 2.4 per cent from 0.8 per cent in the same period.

Few takers for standalone covers

Subsidised health insurance covers from the government have been largely replaced by a mixture of company and income-deductible group medical insurance schemes. But here too, the drive to buy standalone individual insurance products has been muted. The sample survey shows a decline in the percentage of the richer population which bought such health insurance cover between 2014 and 2018. Only 12.4 per cent of this set, that too in urban areas, had bought their own health insurance covers in 2017-18. The number is marginally lower than 12.1 per cent in the last survey. Even if one were to assume it as a statistical blip, there is no indication that the pace has picked up for the top-20 per cent income group in urban areas. Overall, the percentage of Indians even in the highest 20 per cent income pie without a health insurance cover remains at a steep 67 per cent. 

At the lower quintiles, only 10 per cent of those below the poverty line have got any health insurance cover, whether they are in rural or urban areas. The picture, if anything, has worsened. 

Indu Bhushan, CEO of Ayushman Bharat, the government's flagship scheme to expand health insurance cover nationally, however, said the numbers would now improve. He has a point since the NSO data on health expenditure by households pertains to the one-year period from July 2017 to June 2018. Ayushman Bharat was rolled out in September 2018. Still, given the huge distance that it has to cover, the adverse data will take time to turn around.  

In the absence of insurance cover, rising health costs hurt the poor more, even though, paradoxically, their ability to sustain the costs have risen. In this decade, the percentage of Indians who borrowed to cover their hospital costs has come down by almost 50 per cent across all quintiles. Chart 2 on Hospital Expenditure shows that the percentage break-up of hospitalisation costs through borrowings from all sources, including those from relatives and friends, which accounted for nearly 32 per cent of their purse, especially for those in the lower quintiles, has come down to about 16 per cent. But as insurance cover has not expanded, the burden on the lower-income groups has risen and could break into their savings, since there is little evidence that income has increased proportionately to pay for the costs. “The drop in borrowings is an important development, which I welcome,” said Amitabh Kundu, former member of the National Statistical Commission. But he added that the lack of growth in insurance means the costs would remain high for the families. For instance, while there is no discernible rise in the percentage of sale of assets to finance the costs of health care, this could turn adverse. 

Inadequacy of the states

But it seems that instead of improving the plumbing by monitoring the spread of insurance cover through the adoption of schemes like Ayushman Bharat, the states are opting for models that are variations of reimbursement plans. In another telling chart that the NSO data shows, these will only worsen the health outcomes. 

In a horrible indictment of the records of state governments, the sample survey shows the amount reimbursed as a percentage of total medical expenditure across India for rural areas was just 4.4 per cent. Though it was much better in urban areas, possibly because of better monitoring of costs, it was still just 16.8 per cent. If there is any consolation, the corresponding numbers were one per cent and six per cent in 2014. Khan suggests direct benefit transfer as an option, like in the case of TB. “But this will only work when the poor have bank accounts, which is still far from true.”

Because the higher income groups offer better documentation, the percentage of reimbursement has risen for the better off—a typical case of adverse selection. In urban areas, while the lowest quintile is likely to get only four per cent of their hospital costs reimbursed, the top income groups received paybacks of almost 27 per cent. In such an environment exacerbated by the limited fiscal room for the states, it is extremely difficult to figure out if there are any other alternatives than going along with a robust insurance model to provide affordable health care for the Indian population.