The UPA government has made a commitment to introduce a national health insurance scheme for the benefit of poor families and promised to raise public spending on health to at least 2-3% of GDP over the next five years with focus on preventive and primary health-care.

These are definitely laudable commitments in an area causing grave concern. The devastating role of ill-health in impoverishment and indebtedness of a large proportion of population has been adequately documented by many research studies. For a nation which hopes to be a major global player, our health indicators are appalling. In the backdrop of our decrepit public health system, we need to examine the scope and limitations of   a national scheme for health insurance before embarking on it. A public debate is necessary to identify the most cost-effective interventions in health-care.

A few facts about health financing in India first.

• Our already low public health investment has been decreasing  as a percentage of GDP, from 1.3 % in 1990 to 0.9%  in 1999.  Our country’s total health expenditure is about 5.2% of GDP and public expenditure accounts for only 17% of the aggregate expenditure on health, most of the balance being out-of-pocket expenditure.

• The high reliance on private, out-of-pocket payments in healthcare impose a disproportionate burden on the poor. The poorest 20 percent of Indians, suffer from more than double the mortality rates, malnutrition, and fertility of the richest quintile. The only countries with lower public health allocation are Georgia, Cambodia, Myanmar, Burundi, Sudan and Afghanistan - countries that have undergone civil conflict and collapse of the public sector.

• Apart from a few high income persons, insurance coverage in general is available to only organized sector employees. The publicly managed CGHS and ESIS institutions covering health risks  are well-known for their sloth, incompetence, inadequacy and corruption. The total number of persons covered under all the different risk-pooling schemes would be of the order of 100 million (21.1 million families).

The appallingly low public health expenditure in India is having catastrophic consequences. Even minor illnesses have the potential to become major crises. Hospitalized poor are spending 58% of their total annual expenditure on health-care alone. Over 40 percent of those hospitalized are forced to sell their assets or borrow heavily  to cover expenses. At least a quarter of those hospitalized fall below poverty line. Clearly, such a situation is unacceptable in a modern society which has any claims to civilization.

But is a national health insurance the solution? The National Health Policy – 2002 (NHP) admits that the Union budgetary allocation for health over the period 1990–99 has been stagnant at 1.3% of the total budget. At the same time, the fiscal pressures led to a reduction of states’ public health expenditure from 7% to 5.5%. Of the Rs 200 annual per capita public health expenditure, 15% is contributed by the Union. To meet the NHP goal of public health expenditure to 2% of GDP by 2010, the state sector health spending should go up to 8%, and the union expenditure should go up to 7% of the total budget. This calls for enormous political will, and significant reordering of priorities, given the present fiscal pressure. The National Common Minimum Programme (NCMP) goal is even more ambitious – increasing public health expenditure to 2–3% GDP by 2009.

Advancing technology has skyrocketed hospital costs. With increased private investments in expensive equipment and facilities, there is ever increasing temptation to subject every patient to a plethora of largely unnecessary and costly investigations. Many hospitals are billing huge amounts for heroic interventions in cases of terminal illness! A national health insurance will merely transfer these costs to the public exchequer, without commensurate improvement in health-care.

Experience of many health insurance projects run by civil society initiatives and non-profit foundations indicates that the average actuarial costs even for a modest health insurance coverage will be about Rs. 200 per capita per annum. A national scheme involves coverage of about 300 million poor people with full government subsidy, and another 400 million lower middle-class people with 50% subsidy. The cost to the exchequer will be around Rs. 10,000 crore per annum for any credible national insurance  programme, even with modest and limited risk coverage. When the current public health expenditure is only Rs. 20,000 crores, a 50% escalation only for health insurance is unrealistic and unsustainable. Such shift in expenditure will actually result in subsidizing private hospitals and drive investment into curative medicine.

What is worse, such diversion of expenditure will further diminish resources for preventive and pubic health. Most of the disease burden is a consequence of failure of primary care. The need of the hour is clearly to strengthen preventive and public health systems in order to give best value for the money spent, reduce disease burden and promote the health status of the community. Excessive reliance on health insurance as a means of health-care delivery is neither prudent, nor cost-effective. Health insurance will only address the symptoms of failure of pubic health, without reducing the disease burden. This failure of preventive health will only escalate costs of curative medicine, in the fond hope that more hospitals will ensure better health

 Many advanced countries witnessed spiraling health-care costs on account of accent on hospital care and insurance-based medicine. Insurance usually involves adverse selection of beneficiaries, as those who are likely to benefit from hospital care are more  likely to join it. There is also the moral hazard problem of two kinds – poor hospital care once the population is enrolled in the risk-pooling mechanism, and over consumption of medical services by the richer and better-informed sections. As a result, in OECD countries, health-care costs are growing much faster than GDP. The total health-care costs in rich countries are estimated at an astronomical $3 trillion. Let us not repeat the mistakes of other countries.

Disease spectrum is indeed changing slowly even in India with enhanced prosperity, better preventive care and longer life-spans. India should therefore move towards risk-pooling options to reduce the burden of hospital costs on individual patients. But we need to hasten slowly. Our first priority should be improvement of public health delivery system. That is where the least investment yields the best returns. Meanwhile, the government can encourage the innovative schemes taken up by credible institutions like SEWA in Ahmedabad or Tribhuvandas Foundation in Gujarat. Subsidies to such schemes are necessary, and a national health insurance can be contemplated in the coming decades based on a review of their experiences. Premature steps towards national insurance will only strengthen private sector hospital care and subsidize it at the cost of public sector, which is already floundering.