Get the model right-For state-sponsored insurance, governments should avoid insurance companies

• World Bank data, in 2015, showed that nearly 65% of health-care expenditure in India is “Out of Pocket” (OoP).
• A report by the World Health Organisation has shown that around 3.2% of Indians would fall below the poverty line because of high OoP health expenditure.
• Thus, a national health insurance scheme like the Ayushman Bharat is welcome.
• While the principle of insuring a vulnerable population is widely accepted, what is contentious is the model that the government has adopted — that of using insurance companies.

The flawed model

• Insurance works on the principle of pooling the risk of policy holders.
• At least if the companies involved in the process are restricted to the public sector, government funds would only be going from one pocket to another.
• But at a phase when India is trying to promote more foreign direct investment and private sector participation in insurance, it is only fair to provide a level-playing field to public and private sector insurance companies.
• Another pertinent issue is finding reinsurers for government insurance schemes, a problem that is being encountered by companies on the Pradhan Mantri Jeevan Jyoti Bima Yojana because of high claims.

Costs of insurance companies

• Typical insurance company costs include designing insurance products to suit customer needs; actuarial input to assess and manage risk; advertising and marketing; empanelment (of approved service providers such as hospitals); administrative expenses to provide prior approval of claims; and processing, which includes functions such as fraud detection.
• The last three functions, i.e. empanelling service providers, pre-approving hospitalisation of patients and subsequently settling the claim, are commonly outsourced to third-party administrators (TPAs) even by insurance companies.

Trust mode and cost cutting

• No insurance company has the kind of financial resources the Centre and the States have.
• Hence, governments must consider bearing the risk by themselves — known as the “trust mode” — instead of using insurance companies as risk-bearers and intermediaries.
• However, in India, governments continue to pay hefty sums in premium to insurance companies.
• By avoiding insurance companies and using TPAs instead, governments can save about 15%, or up to Rs.6,000 crore per year.
• Those who recommend the use of insurance companies allude that the government lacks the expertise to manage insurance.
• The government has already proclaimed that it wishes to cut the intermediary through the JAM trinity (Jan Dhan-Aadhaar-Mobile) and direct benefit transfers.
• It has also indicated that it wants to optimise fund utilisation through the recently introduced Public Finance Management System.
• Shifting to the trust mode will be the next natural step in this path, not only saving taxpayer money but also benefiting farmers and the underprivileged instead of insurance companies.

The HIndu