The National Health Protection Scheme (NHPS), described by the Finance Minister (FM) as ‘the largest Government funded health care programme in the world’, was a centre piece of the 2018-19 Union Budget. This is, however, not a new announcement. The NHPS was announced by the FM in his budget speech of 2016, then with an insurance coverage for hospitalisation expenditures up to Rs. 1 lakh per annum for each BPL family. The scheme was, however, not rolled out, and the 2017 budget  speech had no mention of the scheme. This year, the announcement has been made again, with an enhanced coverage of Rs. 5 lakh per annum. In the budget, allocation for health insurance – under the name of Rashtriya Swasthya Bima Yojana (RSBY), the existing Central government health insurance scheme - has been increased by a meagre Rs. 1000 Crores, which suggests that the scheme is likely to be put on the backburner this year. 

 

If the scheme is actually rolled out, it will have major fiscal implications. Even if one assumes a conservative 2 per cent rate of premium on the insured sum, the scheme would cost about Rs. 100 thousand crores annually (see postscript). Assuming that, 60 per cent of this burden would be borne by the Union Government and the rest passed on to the States, the Union Government would still need to fork out an additional Rs. 60 thousand crores annually. To put this in perspective, the combined allocation for the Ministry of Health and Family Welfare and Ministry of AYUSH is only around Rs. 55 thousand crores. Even if the entire 11 thousand crores generated through 1 per cent additional cess imposed for education and health is directed to the scheme, the shortfall will be substantial.

 

Further, if the State governments are required to foot 40 per cent of the cost of the scheme, the scheme would put a huge fiscal burden on many States. States which opt for the scheme will have to spend a substantial amount as a share of contribution towards this insurance scheme, leaving little room for any other health spending in States. The need for partial payment of premiums by States is likely to squeeze funds out of the public health system. Such an imposition would infringe upon the autonomy of the State Governments to independently design policies and programmes in the health sector, which is constitutionally in their domain.

 

States that already have their own health insurance schemes will face other problems. In many such States, the population covered under the State schemes is larger than the BPL population identified by the Union Government while the sum assured is lower than the amount announced by the Finance Minister. Given this, there would be pressure on these States to upgrade their State-level schemes to match the benefits provided under the Central government scheme. This would further add to the fiscal burden in such States. 

 

As implementation of such a scheme would invariably involve substantial fiscal resources of the Union and the State Governments, it is important to reflect on the effectiveness of public spending on such schemes.

 

The proposed scheme will cover secondary and tertiary care, which may be provided by the public or private facilities. However, experience shows that more than three-fourths of the claims in existing health insurance schemes are for treatments in private facilities. This implies that much of the additional public spending will be absorbed by the private sector, and only a small part will go to the public health system. In the absence of a strong public sector (or any other viable alternative), it will be difficult to keep the cost of the insurance scheme down. Evidence around the world has shown that such insurance-based health care provision, is an expensive model of financing health care for the Government.

 

Moral hazard problems including overuse of medical services further escalates cost. Given the weak regulatory environment in India and experience from existing schemes in States, such schemes are likely to be fraught with moral hazard problems. Even if one uses a trust to implement the scheme as is the case in many States, the costs of monitoring and containing the moral hazard are likely to be substantial.

 

In the absence of effective gatekeeping through a well-functioning primary health care system, there will also be a shift in public spending towards more expensive hospitalisations. The need for secondary and tertiary care will be high, and this will escalate the cost for the Government. In this context, although the announcement to strengthen primary care through ‘health and wellness centres’ is welcome, the allocations in the budget (Rs. 1200 Crores) do not reflect a serious intent in this direction.

 

Evidence also suggests that such schemes are not effective in extending financial protection to the poorest of the poor. Also, the scheme is unlikely to significantly reduce the burden of out-of-pocket expenditure, as only around a third of the out-of-pocket expenditure on health care in India is on inpatient care. These have implications for effectiveness of public spending through the scheme. 

 

On the whole, the resource requirements for implementing NHPS are likely to be very high. Not only would such a scheme impose a heavy burden on both the Union and the State exchequer, it will also curtail States’ autonomy to design their own policies in a sector that is constitutionally mandated to be in their domain. There are also concerns about the effectiveness of public spending through the scheme in the absence of a competitive alternative, and effective gatekeeping at the primary health care level.

 

[Postscript: Given the expected premium for the scheme announced by NITI Aayog after this article was originally written, it appears that the total cost of the scheme may not be as high as stated above. Better estimates can be derived once the implementation details of the scheme are worked out by the Government. Irrespective of the quantum of resources required, the issues related to States' autonomy in planning the health sector, and concerns on the effectiveness of additional public spending mentioned in the above article remain relevant].

 

Dr. Mita Choudhury is Associate Professor at NIPFP, New Delhi.