Modicare: Getting universal health coverage in India right

The recently announced National Health Protection Scheme succeeds Rashtriya Swasthya Bima Yojana (RSBY), which provided health insurance for short-term hospital visits to the poorest 300 million Indians. Based on their large-scale study of RSBY in Karnataka, Malani and Kinnan put forth some important lessons for the new programme.

India’s Prime Minister, Narendra Modi, has just announced a bold new programme to provide government health insurance to its citizens. The new programme, called the National Health Protection Scheme (NHPS), will cover up to 500 million poor and near-poor Indians for up to Rs. 500,000 (US$7,785) in hospital expenses. Once rolled out, NHPS could become the largest government health insurance programme in the world, measured by number of households covered.

Modicare, as the programme is commonly called, is not India’s first public health insurance scheme. It succeeds Rastriya Swasthya Bima Yojana (RSBY), translated as the National Health Insurance Scheme, which provided health insurance for short-term hospital visits. It also builds upon a number of state schemes in Andhra Pradesh and Karnataka that cover longer-term hospital stays.

NHPS could be a game changer. It is over 15 times more generous than RSBY, which only covered Rs. 30,000 (US$467) in short-term hospital care, and is between 2-3 times more generous than state programmes for long-term hospital care. Whereas RSBY targeted just the poorest 300 million Indians, Modicare would cover an additional 200 million people. With an estimated 7% of India’s population pushed into poverty each year due to medical expenditures, the programme could provide an essential safety net for the poor.

But the programme will come at a significant cost. With insurance premiums estimated at Rs. 1,100-1,200 (US$18) per household per year, the full programme could cost up to Rs. 12,000 crore (US$1.87 billion). Like Medicaid, the US’s public health insurance programme for the poor, the costs are to be split between the central government and state governments. The central government is responsible for Rs. 7,000 crore of the total cost, Rs. 5,000 crore more than has been allocated in the current Union Budget.

With so much at stake, it is essential that India get the rollout of NHPS right. We are part of a research team that just finished a large-scale study of health insurance in the state of Karnataka. The core of the study was a randomised controlled trial (RCT) that examines the impact of RSBY on the health and financial security of roughly 50,000 Indians in that state¹. We also conducted a study of hospitals in the state. One of us also heads a programme called International Innovation Corps which supported the Ministry of Health’s Suvarna Arogya Suraksha Trust in implementing RSBY in Karnataka, a state with 64 million residents. From these we have learned some important lessons for Modicare.

People must enrol in Modicare

No matter how generous the eligibility criteria and coverage of Modicare, it will have limited effect unless eligible households actually enrol in the programme. Its predecessor, RSBY, suffered low uptake rates. Although it costs participants just Rs. 30 (US$0.47) to enroll, only 54% of eligible families offered the insurance enrolled, lower than Medicaid take-up rates in the US.

By contrast, we were able to achieve 79% enrolment rates in our study when we offered households free insurance. While participants in our study were wealthier than typical RSBY households, our enrolment rates were 60%, above government levels, even when we sold insurance at cost (roughly Rs. 200, or US$3.15), with no government subsidy. We achieved this with an enrolment drive that went door to door to inform households that they were eligible for insurance and helped them enrol.

Certain states in India have also achieved similarly high enrolment rates. For example, the state of Chhattisgarh reports an 85% uptake rate for RSBY. Other state insurance programmes have achieved nearly 100% enrolment rates by automatically enrolling eligible patients at hospitals. So it is possible to achieve high uptake at scale with the right design and effort.

The poor must be able to use Modicare

The impact of Modicare will also be blunted if households enrol but do not actually use the programme to obtain necessary medical care. A case in point: RSBY only increased utilisation by 1 percentage point, to 2.8% of households. In some states, the hospital-going rate remained below 1%. In states like Karnataka, this came as a surprise. When RSBY started, the premium the state negotiated with insurers was nearly Rs. 500 (USD$7.79). But because of low utilisation, those premiums have fallen to roughly Rs. 200 in recent years.

Our study provides insight into why RSBY did not facilitate utilisation. While we found that RSBY did indeed increase utilisation by 30% percent or more, a significant number of households attempted to use the card but failed. When we probed why households were unable to use RSBY, we found that a third of the time individuals forgot their insurance card or did not know it could be used. More distressing, about half the time the hospital or insurance company could not process the insurance card or refused to cover the care.

These problems are correctable. The government must expend more effort on information and education campaigns. Insurance is a new product, especially for poorer Indians. Structural changes planned under Modicare, such as using Aadhaar² and hospital-based biometric ID, should reduce the paperwork and hassle costs for beneficiaries. In addition, Modicare must make sure that hospitals that register under the scheme have functioning payment systems and do not turn away NHPS patients.

Many worry about the financial burden of NHPS. They focus on stopping beneficiaries from overusing care or hospitals prescribing unneeded care. Economists call this “moral hazard”. Given India’s low rate of health care utilisation, we believe overspending is not a primary concern in the short run. In the long run, if utilisation levels rise, Modicare can be modified to add a deductible or co-pay and more extensive utilisation review to ensure the government is getting value for its spending.

Supply is as important as demand

It is obvious, but worth repeating, that health insurance is of no value if there are no accessible healthcare facilities. This is a critical obstacle for Modicare. Nearly half of all Indian children live in villages with no healthcare facilities. India would need to increase the number of hospitals by 10% and clinics by 50% to satisfy basic needs. Providing health insurance cannot solve that in the short term. But in the long term it can encourage the private sector to build more facilities.

But for Modicare to be successful, it is not enough that India build more hospitals. They must actually participate in Modicare. We found that, although 33% of hospitals participated in RSBY in Karnataka, 55% of participating hospitals filed no claims. In other words, they reported they were open to RSBY participants, but did not actually treat them.

An important reason is that RSBY, like Medicaid, pays hospitals lower-than-market rates for care. To address that, Modicare must pay more for treatment, otherwise hospitals will attempt to refuse care. Recent research has shown the importance of incentives for health facilities and their staff in improving access to quality care (Dhaliwal and Hanna 2017).

But Modicare should set payments intelligently. Following the lead of Medicare, the US’s health insurance program for the elderly, it should set a price schedule for different services and then apply a scaling factor that increases payments for hospitals in high-cost areas such as big cities, and lowers costs for rural areas. It can also adjust that scaling factor to encourage new hospitals in underserved areas.

India must leverage its IT prowess

The recipe for a well-functioning insurance plan requires equal parts healthcare facilities, sound financing, and a strong data infrastructure. The first two ingredients get a lot of attention, but our experience helping Karnataka run RSBY taught us that the third is no less important. The data backbone is what ensures that claims are tracked and paid. Without that, beneficiaries may not get the care they need and hospitals will not get the payments they are promised. Participation will decline and the scheme may fail.

A strong data backbone will also help the government mitigate the risk of fraud. By monitoring claims, the government can look for statistical anomalies, such as males getting gynecological procedures, and dis-empanel hospitals that appear to be abusing the programme. With “big data,” Modicare can avoid excessive spending on unneeded care or care that was not actually provided.

To tackle this challenge, Modicare must set up a management information system (MIS) that tracks hospital claims directly and does not rely on insurance companies to do so. Karnataka faced challenges getting insurers to give RSBY timely and clean data on claims. This made it difficult to determine what services people actually demanded and to detect fraud. Ideally, Modicare will integrate its claims data with electronic health records so that it can hold hospitals to quality standards. Finally, Modicare, like Medicare in the US, should make an anonymised subsample of its data available to the public to provide transparency and to leverage think tanks and universities to help improve the programme.

Financial structure of Modicare

The antecedents of Modicare – RSBY and state programmes – followed different models of insurance. With RSBY, the government paid private insurers to provide coverage for beneficiaries. By contrast, Andhra Pradesh and Karnataka, among others, cut insurance companies out and paid claims directly. The choice comes down to whether it is better for the government to serve as the ultimate insurer (trust model) or contract out insurance to companies (insurance model). In the US, Medicare coverage for hospital and physician care (Parts A and B), as well as Medicaid, follow the trust model, while Medicare support for private coverage (Part C) and drugs (Part D) follow the insurer model.

One advantage of the trust model is that the government does not have to monitor misbehaviour by the insurance company. But an advantage of the insurance model is that the government does not have to bear the financial risk of higher-than-expected claims.

Modicare has left it to states to decide which approach to take. But the right choice is not obvious. Solving the problem of misbehaviour by insurance companies is a daunting challenge, which suggests a trust model. However, the government does not have a comparative advantage in running a health insurance programme.

India can mitigate the risk of bad behaviour by insurance companies by implementing a strong data backbone and making claims processing uniform across insurers. So in the long run, as health spending and monitoring capacity rise, the insurer model may be the better choice. It should also consider data sharing to allow new entry into the insurance market and carefully regulate to ensure insurers pay all legitimate claims.

Modicare is a bold step. Developed countries spend more on healthcare (as a percentage of their gross domestic product), so it is natural that India is making moves to do just that as it continues to grow. But it must avoid the US’s fate on costs. The US uses roughly the same amount of care per person as the UK, but spends double per person of what the UK does. India must be diligent in designing its health care financing system to get value. The key is sound implementation.

Note:

A randomised controlled trial operates like medical trials used to test whether a drug works or not. Some households are provided treatment (in our study, access to health insurance), while others are left alone and employed as a comparison or control group. Whether a household is offered insurance or not is determined by random chance to ensure that any differences between the health of households that are offered insurance and those that are not is caused by access to insurance and not by which households were chosen to receive insurance.
Aadhaar or Unique Identification number (UID) is a 12-digit individual identification number issued by the Unique Identification Authority of India (UIDAI) on behalf of the Government of India. It captures the biometric identity – 10 fingerprints, iris and photograph – of every resident, and serves as a proof of identity and address anywhere in India.