Health Insurance for India’s Missing Middle

• 01 Nov 2021

Why in News

Recently, NITI Aayog has released a comprehensive report titled Health Insurance for India’s Missing Middle.

• The report brings out the gaps in the health insurance coverage across the Indian population and offers solutions to address the situation.

Key Points

• Importance of Health Insurance:
  
  • Health insurance is a mechanism of pooling the high level of Out of Pocket expenditure (OOPE) in India to provide greater financial protection against health shocks.
  • Pre-payment through health insurance emerges as an important tool for risk-pooling and safeguarding against catastrophic (and often impoverishing) expenditure from health shocks.
  • Moreover, pre-paid pooled funds can also improve the efficiency of healthcare provision.
• Health Insurance: Need And Landscape
  
  • Achieving Universal Health Coverage: Expansion of health insurance coverage is a vital step, and a pathway in India’s effort to achieve Universal Health Coverage (UHC).
    
    • Low Government expenditure on health has constrained the capacity and quality of healthcare services in the public sector.
    • It diverts the majority of individuals – about two-thirds – to seek treatment in the costlier private sector.
  • High Out-of-Pocket Expenditure: India’s health sector is characterized by low Government expenditure on health, high out-of-pocket expenditure (OOPE), and low financial protection for adverse health events.
    
    • The private sector is characterized by high OOPE, leading to low financial protection
  • Missing Middle: According to the report, at least 30% of the population, or 40 crore individuals (referred as the missing middle in this report) are devoid of any financial protection for health.
    
    • The Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) and various State Government extension schemes, provide comprehensive hospitalization cover to the bottom 50% of the population.
    • Around the top 20% of the population – 25 crore individuals – are covered through social health insurance, and private voluntary health insurance. 
  • Existing Health Insurance, But not Suitable For The Missing Middle:
    
    • In the absence of a low-cost health insurance product, the missing middle remains uncovered despite the ability to pay nominal premiums.
    • Affordable contributory products such as Employees' State Insurance Corporation (ESIC), and Government subsidized insurance including AB-PMJAY are closed products.
      
      • They are not available to the general population due to the risk of adverse selection.
• Recommended Insurance Models: The report has recommended three models for increasing the health insurance coverage in the country:
  
  • Creation of a Large and Diversified Risk Pool: The success of a private voluntary contributory health insurance product requires creation of a large and diversified risk pool.
    
    • For this to happen the Government should build consumer awareness of health insurance through Information Education Communication campaigns.
  • Developing a Modified, Standardized Health Insurance Product: The cost of health insurance i.e., the premium needs to come down, in line with the affordability of the missing middle.
    
    • For example, Aarogya Sanjeevani can be made affordable.
    • Aarogya Sanjeevani is a standardised health insurance product launched by the Insurance Regulatory Development Authority of India (IRDAI) in April 2020.
  • Government Subsidized Health Insurance: This model can be utilized for segments of the missing middle which remain uncovered, due to limited ability to pay for the voluntary contributory models outlined above.
    
    • In the medium-term, once the supply-side and utilization of PMJAY is strengthened, their infrastructure can be leveraged to allow voluntary contributions to the missing middle.
    • Government can provide public data and infrastructure as a public good to reduce operational and distribution costs of insurers.

Way Forward

• Integrated Approach: A combination of the three models, phased in at different times, can ensure coverage for the missing middle population.
• Outreach Strategy: 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 can be shared with private insurers after taking consent from these households.
  
  • This will increase the outreach of insurance products with the needy section of the population.

Source: IE