States may face tough times as Modicare to cost them Rs 43.3 bn per year

The National Health Protection Scheme (NHPS), which has been dubbed "Modicare" and the "world's largest health insurance scheme" by the government, will impose a cost of billions of rupees on states. The scheme was announced by Finance Minister Arun Jaitley during his Budget 2018 speech and has come under fire from the Opposition, with Congress leader P Chidambaram calling it a "jumla", for the lack of budgetary allocation for its implementation.   

According to the government's preliminary calculations, states might have to bare a cost of approximately Rs 43.3 billion (Rs 4,330 crore) annually for the rollout of the NHPS, which the government envisages will cover 100 million (10 crore) households and have close to 500 million (50 crore) beneficiaries, the Indian Express reported on Friday.

The result of informal discussions with actuaries, these calculations, the national daily reported, have placed the premium at Rs 1,082 per family per annum for each Rs 500,000 (Rs 5-lakh) health cover. The states' share of the premium has been set at Rs 433, with the Centre baring the balance burden. the report added. 

However, according to sources cited by the report, these estimated figures have been reached at after assuming that the "entire 100 million (10 crore) families will be covered in one go". 

However, while the Union Health Ministry and Niti Aayog are already in consultations with states, sources told the national daily that the estimated figures aren't etched in stone. According to the report, the state health insurance programmes that were used as models to estimate that the premium would amount to Rs 1,082 are dynamic programmes themselves -- the Rajasthan government programme, which provides a health cover of Rs 330,000 (Rs 3.30 lakh) per family, cost the state a Rs 500 premium per year until 2016-17; however, this year, the premium has been revised to approximately Rs 1,200.  

States may baulk at new health insurance scheme

As reported by the Business Standard, the states had not provided their consent for implementing the NHPS as of February 3, 2018. According to experts, if the scheme is rolled out, the states would be in a predicament because of their tight fiscal position. Further, they are also likely to be reluctant to replace their own health schemes with the NHPS. At present, 24 states provide at least some form of health coverage to their residents. 

A day after the NHPS was announced, the Union Health Ministry and the NITI Aayog said that the flagship scheme was likely to cost anywhere between Rs 100 billion and Rs 120 billion. Further, the Centre said it would provide 60 per cent of the funds, while the states would pool in the remaining 40 per cent. 

Why Modicare may just remain on paper

As reported by the Business Standard, the scheme's details are as follow: 100 million families covered, 500 million individuals as beneficiaries, Rs 500,000 medical insurance per family, Rs 1,000 premium per family (according to government estimates), and a total estimated cost of Rs 100 billion. 

An amount of Rs 500,000 medical insurance per family means Rs 50 trillion medical insurance coverage for 100 million families. If just one per cent of people claim this amount, then the insurance companies would face claims of Rs 500 billion. Further, there could be significant claims because the policyholders under NHPS would be the poor or people living below the poverty line. 

Even if only 20 per cent of the targeted families are covered in the first year, Rs 100 billion as premium doesn't seem to be enough.