Health Protection Scheme: Still more work needed

It is critical that the HPS is finalised after considering possible distortions in medical insurance schemes and looking at models that have worked.

Updated - December 04, 2021 11:03 pm IST

Published - May 15, 2016 01:23 am IST

The Health Protection Scheme (HPS) that was >announced in the Union Budget 2016 is more generous than the earlier scheme, the >Rashtriya Swasthya Bima Yojana (RSBY) . Poor households now get an annual health cover of Rs.1 lakh; the limit under RSBY was Rs.30,000. In principle, the HPS benefits may be availed of in public and private health facilities, to help leverage the very large private health infrastructure that has spontaneously come up over the decades.

However, the HPS needs careful design, as otherwise, well-recognised market failures in medical insurance schemes would effectively ensure that each entitled household runs up the full limit of Rs.1 lakh per year on benefits, with scant improvement in well-being.

Meenakshi Datta Ghosh

The media has reported (April 26, 2016) how the National Institution for Transforming India (NITI) Aayog is beginning to look at design issues, and that all MBBS doctors in the rural areas, trained as family physicians, would be contracted by the government and paid in accordance with the number of patients who avail their primary health-care services. At secondary health-care levels, public and private facilities would be “incentivised” to provide “efficient” treatment, that is, being more efficient = having more compensation. At the tertiary stage, All India Institute of Medical Sciences (AIIMS)-like public hospitals and “low cost” private hospitals would be contracted.

There is a possibility that the proposals reportedly discussed at NITI Aayog could lead to a new inspector raj system, and may not be cost-effective. Why so? At each stage, each player (maybe not the Narayana Hrudayalayas) would seek to maximise its compensation by providing unnecessary treatment, thereby inflating costs. Curtailing this would require intensive and honest monitoring, which is very difficult. The more likely result is collusion between providers and inspectors to mutual benefit and at the cost of the public exchequer.

The NHS model It is critical that the HPS is finalised after considering possible distortions in medical insurance schemes and looking at models that have worked. There are two main reasons why competitive markets — markets that minimise total costs, leading to the least prices (premiums) for users — do not form for health insurance. The first is the problem of “adverse selection”, or individuals who have better information about their personal health status, leading to the healthier persons opting out of insurance and the less healthy opting in. This will not arise in a group insurance scheme where all those who are eligible are mandatorily enrolled. The second is the problem of “moral hazard”, i.e. doctors have better information about a patient’s treatment needs than the patient, and also have a financial interest in providing excessive treatment.

These two considerations have been largely addressed in the U.K.’s National Health Service, which in 2015 was rated among the best health-care systems in the world in terms of ease of access, efficiency, and cost-to-patient. First, in this model, all persons, irrespective of their health or economic status, are enrolled in the NHS. (This takes care of “adverse selection”.) Second, health service providers, who have the competence to provide the entire range of primary, secondary, and tertiary health care in medical conditions covered by the NHS, and are willing to provide their services in terms of the NHS financial package, are accredited. This accreditation is subject to rigorous review and renewal after a specified period — often every year.The state attempts to ensure that all corners of a given territory are covered with accredited health-care providers. Third, the NHS notifies standard treatment protocols for the full range of health conditions covered by the programme, and works out the normative costs of each protocol (for example, in terms of the costs that would be incurred in an equivalent public facility). Fourth, it works out the statistical incidence of each covered health condition in each region (county), and combining the statistical incidence and normative costs for treatment of each condition, arrives at a per-capita health premium for each region, payable as subsidy by the state. Fifth, the NHS card holder is entitled to care and treatment for the full range of conditions covered. The NHS incentivises health-care providers to observe and provide a high quality of care at all times, as the beneficiary will happily migrate to another accredited provider (by enrolling in a fresh registry) in the event of dissatisfaction. Finally, accredited health-care providers must comply with treatment protocols and guidelines emanating from the National Institute for Health and Care Excellence (NICE).

This system guards against “moral hazard” since the health-care provider’s revenue is determined only with reference to the standard treatment protocol and the statistical incidence, and not actual manifestation in each family of covered health conditions. Excess tests/treatment are not paid by the NHS. The provider also focusses on preventive health measures, since this typically costs very little, would lower the probability of a given condition occurring in the voucher period, and where the provider is paid as per the value of the voucher irrespective of whether or not a covered condition actually manifests itself. The incentive to provide preventive health measures helps ensure that the burden of morbidity in a given region falls over time, leading to reduced aggregate costs of treatment.

The NHS model can fit different models of financing, i.e. fully public, part public, and fully private, and also for scaling co-payments (if part privately funded) as per the economic status of the beneficiary. The range of conditions covered, as well as standard treatment protocols and normative costs, can be changed over time.

There may be good models in other countries. Let us do our homework now rather than repent later.

Meenakshi Datta Ghosh is former Secretary, Government of India, and Principal Adviser (Health), Planning Commission. E-mail:

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