Mumbai: In India, nearly 65% of the healthcare spending is out of pocket by individuals. The remaining 35% is highly fragmented and comes from a number of central and state government funds, and insurance companies. The unprecedented healthcare crisis caused by the pandemic has brought a number of concerns about the effectiveness and sustainability of the healthcare system to the forefront.

The fiscal expenditure on public healthcare is only 1.4% of India's GDP. The Employee State Insurance (ESI), which is one of India's largest social security schemes, provides health insurance to nearly 36 million workers, but it has not been effective in providing reliable medical support to its beneficiaries during the pandemic. Even though this leaves a large share of the market available to the commercial health insurance industry, its penetration remains low.

IndiaSpend, in partnership with Dvara Research, conducted a series of webinars that examines the current system and what has created the circumstance where 65% of healthcare expenditure is OOP. In the four webinars, experts discuss the way forward when it comes to healthcare reforms, principally through the lens of financing.

Financing looks at mechanisms to raise money. This includes general taxes, payroll taxes, state-funded and private insurance, etc. This series takes a look at the different institutions that form the healthcare financing ecosystem in India, the resources available with each of them and the allocation of resources to different priorities. It also explores the role of both state-funded initiatives and private entities, and how they can coexist to build an efficient, effective, affordable and accessible system.

Reform opportunities for this decade

In the first webinar in the series, the speakers delve into public funding in healthcare and the fiscal constraints involved. India's fiscal capacity is much lower than what is required for setting up an affordable healthcare system for a population of this size.

The tax to GDP ratio is 17%, but our public health expenditure to GDP is 1.4%. In the next 10 years, tax to GDP ratio is predicted to improve, but public health spending is not expected to rise at the required rate, based on patterns of spending seen in richer states. Niranjan Rajyadhaksha, Research Director and Senior Fellow at the IDFC Institute, explains that the reason for this could be the political economy issues in India. The state prioritises compensatory mechanisms like Direct Benefit Transfer schemes such as MGNREGA, which results in schemes for healthcare, education etc. growing at a slower pace. This leads to a high share of out-of-pocket expenditure (OOPE), the rate of decline for which is 0.4% annually, much different from other countries with similar GDP per capita.

While eliminating OOPE is not viable, the focus should be on reducing it. Cristian Baeza, Executive Director of International Center for Health Systems Strengthening, added that expanding risk pooling would require pluralistic solutions. He suggests attaining this by increasing contributory health insurance for the non-poor, while reducing OOPE for the poor.

The panelists also highlighted the role played by states. Of the public health expenditure, the central government spends about 30-35%, and the state government spends 65-70%. Nachiket Mor, Visiting Scientist at The Banyan Academy of Leadership in Mental Health, concluded by giving examples of how we can strategise our resources well given our current reality and emphasised that the key is to focus on the here and now and on pathways that we can begin today. You can read the transcript here.

Commercial health insurance

The second session focuses on the first of three risk pools--the commercial health insurance space. The panel discussed the issues which hold back the growth of the commercial health insurance industry in India and how managed healthcare could be a way forward.

The hurdles faced by this industry are: a very small formal sector, huge income disparity, urban-rural divide and lower hospital presence in towns. In an attempt to ring-fence against these market imperfections, providers use clauses, co-pays, limits etc. to ensure profit, which makes the products complex and expensive. This discourages people from joining the risk pool which in turn contributes to making the product more expensive, resulting in a vicious cycle.

Another factor which affects the rate of expansion is the consumer expectation of returns from health insurance schemes. There is also a predominant notion that health insurers are participating in a business where they are forced to not trust each other.

According to Malti Jaswal, Senior Consultant at World Bank, Ayushman Bharat would have a role to play in expanding the risk pool and increasing coverage in tier-3 cities. It would increase awareness and enhance public infrastructures which could be utilised by commercial providers.

Neelam Sekhri Feachem, Associate Professor at Institute for Global Health Sciences, explained the managed care model, and how it incentivises providers to build a healthy population. It addresses several issues discussed by the previous panelists, regarding distrust among consumers and it integrates chronic care in its structure. This model focuses on all aspects of healthcare, from prevention, primary care to hospital care and post-hospital care, unlike the hospital care focussed model prevalent in India at present. It monitors the performance of a plan based on cost, quality and efficiency of service and shares risk with the empanelled providers. She concluded by explaining three models of managed healthcare popular in the USA. You can read the transcript here.

Social health insurance: The broken promise

The Employee State Insurance, managed by ESIC under the Ministry of Labour and Employment of the Union Government, is one of India's largest social security schemes and covers health insurance for nearly 36 million workers. The third session in the series examines the issues that plague the ESI.

The lack of participation of this body during India's pandemic raises grave concerns over the relevance and management of the scheme. The ineffectiveness and inefficiency of the scheme leads to a low claims ratio (40-45%). The scheme mainly covers the unorganised sector, which accounts for only 7% of India's labour force. There is also a difference in health infrastructure available in rural and urban areas. The speakers explain that one of the main issues which lead to mismanagement is the lack of competition.

Manish Sabharwal, Chairman and Co-Founder of TeamLease Services, argues that the 45% mandatory deduction from the employee's paycheck has bred informality which results in low wages, among other issues. To address the inefficiency of the system and the indifference of the trustees, the panel suggests changing the model of governance to a more decentralised structure. The tripartite system which has representation from the labour union, employer and appropriate level of government would make the system more accountable and effective, Babu Mathew, professor at National Law School of India University, suggests. You can read the transcript here.

The PMJAY potential

The concluding session focuses on PMJAY and its role in addressing the issues of the healthcare sector, by creating a model which integrates private entities with state-sponsored healthcare. ​​PMJAY carries out both pooling and allocation of funds through a system called strategic purchasing, which is a non-traditional method that focuses less on inputs into the sector and more on allocating funds for actual activities, for outputs, and ultimately outcomes. The core policy levers that strategic purchasing employs are: developing responsive benefit packages, contracting, pricing and incentives, and accountability.

About 58% of eligible families are covered under PMJAY in the states which have adopted it, but there are wide variations across states. Similar schemes have been carried out at state level in the form of Rashtriya Swasthya Bima Yojana, and the panelists note that the performance and the challenges differ. The panel also highlighted the role of the government in increasing its capacity to design better schemes and monitor them: 46% of empanelled hospitals are private, this is higher than that seen in other countries with similar schemes.

Going ahead, the top priority for PMJAY should be better population coverage. The current coverage is based on the 2011 census and is not a perfect targeting approach. Owen Smith, Senior Economist at World Bank, suggested aligning the eligibility criteria with National Food Security Act criteria for food subsidies. Ajay Tandon, Lead Economist at the World Bank, emphasised the need for efficient governance to handle the gap between the policy and its implementation. The panelists conclude by running us through the features of similar healthcare initiatives in other countries like Sri Lanka and Indonesia, and the unique challenges faced on ground. You can read the transcript here.

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