Professor, Delhi School of Economics
The Pradhan Mantri Jan Arogya Yojana (PM-JAY), also called Ayushman Bharat or Modi-care, is an ambitious healthcare plan. It is touted as the biggest health-insurance plan of the world. However, the question is: will it succeed in realising the dream of long-live India?
The economics of the scheme is interesting. It is based on a phenomenon called ‘risk pooling’, which can be explained using a simple example. Suppose an insurance company charges a premium of Rs 6,000 per person to insure 100-old people who are all likely to fall ill and, therefore, are willing buyers of health insurance. By doing so, the company will collect Rs 6,00,000. Now, suppose the government concerned orders the company to reduce the premium to Rs 600 per person, and provide insurance to an additional 900 individuals who are all young and healthy, with little risk of falling ill. That is, the government's order increases the 'pool' of insured people from 100 to 1,000.
Is such an order bad for the company? No. The company will still earn Rs 6,00,000 (Rs 600 times 1,000). Moreover, the company’s costs also remain roughly the same — in its current form, it will still end up paying only for the medical expenses of the old ones.
This simple example captures the main point. That is, by increasing the pool of insured people, it is possible to reduce the insurance costs per individual. The larger the pool, the lower is the per person cost of insurance. The PM-JAY covers a really large pool of approximately 50 crore people (10.74 crore families) identified as poor and needy in the Socio-Economic Caste Census 2015.
The eligible families are to get free medical insurance coverage of up to Rs 5,00,000 per family per year. The cashless and paperless scheme covers 1,350 medical packages for secondary and tertiary care which requires hospitalisation, including serious illnesses like cancer and heart diseases.
Medical insurance at such a large scale has the potential to turn around the situation of healthcare in the country, which at present is pathetic, to say the least. According to the National Sample Survey Office (NSSO) data, less than 20 per cent urban households and 15 per cent rural families have access to health insurance. The remaining families have to bear most of the medical expenditure on their own.
Besides, in principle, the vast insurance coverage can create business and employment opportunities at all levels of healthcare. If the number of healthcare providers boom, it will reduce the costs of diagnostic tests and the treatments, in general. The medical costs will also be reduced further by engaging hospitals via the JAM — the networks of Aadhaar-enabled accounts and mobile phone-linked accounts.
However, the budget for insurance coverage is a miserly Rs 10,000 crore: just 0.01 per cent of the GDP. If just one per cent of the eligible families make full use of the scheme, the treatment cost will be Rs 50,000 crore, which is five times the total budget!
Unsurprisingly, several states have questioned the practicality of its financial side because they have to implement it and pay for 40 per cent of the cost. The remaining 60 per cent will be provided by the Centre. Kerala’s Finance Minister Thomas Isaac has questioned the feasibility of the scheme that provides a paltry subsidy of Rs 1,110 per person. The answer can be found in the Amritam Yojana of Gujarat. It has a hybrid model of insurance by the state government jointly with the private insurers.
In any case, the total government spending on health is appallingly low. Spending by the Centre and the states combined is just 1.4 per cent of the GDP, which is lowest even among the developing countries. Many Indians do not have income enough to pay for healthcare. To make it worse, during last 10 years, health costs have increased by 300 per cent! The NSSO data also show that every year, about 3.6 crore families face unexpected medical bills which they cannot pay without borrowing or selling assets. Due to the backbreaking expenses, approximately 6 crore people are pushed back into poverty every year. This 'manmade' crisis is caused by the miniscule health budgets.
For secondary and tertiary care, the PM-JAY places excessive reliance on the private insurers and hospitals. This is another area of concern. The illiterate and gullible beneficiaries can be easily exploited by the nexus of private hospitals and insurers. As the experience with the Rashtriya Swasthya Bima Yojna shows, the problem of insurance companies cutting corners and medical procedure inflation by private hospitals is hard to control. The performance of private insurance companies settling farmers' claims under the Prime Minister Fasal Bima Yojna leaves much to be desired.
Rather than relying on private insurers, it is better to use the trust model of insurance. Public trusts can be set up at the state level. Given the large pool of eligible beneficiaries, insurance costs might even be lower under well-managed public trusts than through profit-seeking private companies. Besides, trusts don't suffer from the perverse incentives structure of private insurers.
International experience shows that private hospitals work better when they face competition from public hospitals. Therefore, it is crucial to improve the functioning of community health centres and district hospitals where many people actually go, seeking healthcare.
Healthy bodies have healthy minds. Healthy students learn faster and healthy employees are more productive. If implemented properly, Ayushman Bharat can make India healthier. However, there is a long way to go before this dream is realised. As a first step, the budget needs be at least 3.5 per cent of the GDP. Moreover, infrastructure for primary healthcare needs to be expended and upgraded.