The recent release of a comprehensive report by NITI Aayog titled ‘Health Insurance for India’s Missing Middle’ puts the spotlight on the gaps in health insurance coverage across the Indian population. The report also suggests solutions to fix these shortcomings.
Highlighting the importance of Health Insurance
Health insurance is instrumental in pooling the high level of Out of Pocket expenditure (OOPE) in India to provide greater financial protection against health shocks. The concept of pre-payment via health insurance surfaces as an important tool for risk-pooling and safeguarding against financially disastrous expenditure from health shocks. Furthermore, pre-paid pooled funds can potentially improve the efficiency of healthcare provision.
Health Insurance: The Need and Existing Landscape
Broadening health insurance coverage is a crucial aspect of India’s quest for Universal Health Coverage (UHC). A low government expenditure on health has limited the capacity and quality of public sector healthcare services, pushing about two-thirds of individuals to seek treatment in the more expensive private sector.
India’s health sector experiences low government spending on health and high Out-of-Pocket Expenditure (OOPE), which results in low financial protection against adverse health events. The private sector healthcare services are typically characterized by high OOPE, leading to limited financial protection.
The ‘Missing Middle’ Dilemma
The report reveals that approximately 30% of the population, or 40 crore individuals (termed as the ‘missing middle’ in this report) lack any form of financial protection for their health. Government schemes like the Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) and various state-level extensions offer comprehensive hospitalization cover to the bottom 50% of the population. Conversely, the top 20% are covered through social health insurance and private voluntary health insurance.
The ‘missing middle’ remains uninsured despite the ability to pay nominal premiums due to the absence of a low-cost health insurance product. Affordable, contributory products such as Employees’ State Insurance Corporation (ESIC) and government-subsidized insurance like AB-PMJAY are not available to the general population owing to the risk of adverse selection.
Proposed Insurance Models
The NITI Aayog report recommends three models to expand health insurance coverage in the country.
1. Creation of a large and diversified risk pool: The success of a private voluntary contributory health insurance product requires a wide and diversified risk pool. The Government can aid this through Information Education Communication campaigns that raise consumer awareness about health insurance.
2. Developing a modified, standardized health insurance product: Health insurance costs, particularly the premium, need to be lowered to match the affordability of the ‘missing middle’. For instance, making Aarogya Sanjeevani, a standardized health insurance product launched by the Insurance Regulatory Development Authority of India (IRDAI), more affordable.
3. Government-subsidized health insurance: This model can cater to sections of the ‘missing middle’ who remain uncovered due to their limited ability to pay for voluntary contributory models.
Additionally, the Government can provide public data and infrastructure as a public good to reduce the operational and distribution costs of insurers.
Overview of the Way Forward
An integrated approach, combining the three models in phases, can ensure coverage for the ‘missing middle’ population. Implementing an outreach strategy whereby government databases such as National Food Security Act (NFSA), Pradhan Mantri Suraksha Bima Yojana, or the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) for agricultural households are shared with private insurers (with the consent of these households) can help increase the outreach of insurance products to the needy sections of the population.