Human Development

Designing India’s national healthcare protection: Challenges and opportunities

  • Blog Post Date 27 August, 2018
  • Perspectives
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Sisir Debnath

Indian Institute of Technology Delhi

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Tarun Jain

Indian Institute of Management Ahmedabad

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Dibya Mishra

Indian School of Business

The burden of non-communicable diseases, requiring costly hospital-based treatment, is increasing in India, and only 15% of the population has health insurance coverage. The Modi government recently introduced the Ayushman Bharat–National Health Protection Mission that aims to pay for tertiary healthcare for nearly 100 million families across the country. In this post, Debnath et al. highlight design issues that the programme must overcome to deliver on its promise.


As India’s population ages, the demand for tertiary healthcare to treat non-communicable diseases (NCDs) such as cancer, diabetes, and cardiovascular ailments, is increasing rapidly. Estimates from the World Health Organization (WHO) show that deaths in India due to NCDs such as diabetes, neoplasms, and endocrine disorders increased from 4.2 million in 2000 to 5.8 million in 2016. Over the same period, deaths due to communicable diseases that typically do not require hospitalization decreased from 4.02 million to 2.55 million, indicating both a relative and absolute increase in the need for hospital-based treatment. Treatment for NCDs is expensive, often beyond the average households' capacity to pay, which creates a role for policy interventions to publicly finance or operate tertiary healthcare.

Health insurance in India

In many developed countries including the US, private insurance is the primary vehicle through which most residents finance healthcare while public insurance serves a supplementary role for poorer and elderly individuals. In the UK, healthcare is publicly funded and operated by the government irrespective of patient background through the National Health Service (NHS). Faced with rapid increases in demand for tertiary care as well as serious quality problems in public sector health facilities, India, in the late 2000s, moved towards a model where the State finances healthcare for the below-poverty-line (BPL) citizens, while wealthier citizens pay for tertiary healthcare services out-of-pocket. The primary programme in India, the Rashtriya Swasth Bima Yojana1 (RSBY, or the national health insurance programme) treated 11.84 million BPL patients from 2007 to 2016. Yet, low health expenditure coverage and other barriers such as smart-card enrolment have limited the adoption and use of insurance.2 State-sponsored health insurance without registration fees, such as Aarogyasri3 and Dr NTR Vaidya Seva4 in the states of Telangana and Andhra Pradesh (AP) respectively, may avoid beneficiary enrolment barriers and increase utilisation of tertiary healthcare significantly – more than 3.1 million patients combined used Aarogyasri and Dr NTR Vaidya Seva between 2007 and 2015 at a cost greater than US$ 1.2 billion.

Taking a cue, the Modi government introduced the Ayushman Bharat–National Health Protection Mission in August 2018, a collaboration between the central and state governments designed to pay for tertiary healthcare for nearly 100 million families across the country, overcoming various enrolment and participation challenges associated with the RSBY and subsuming it. Despite several desirable features such as pan-India portability, public and private hospital empanelment, and deprivation-based entitlement, Ayushman Bharat faces multiple design issues – economic and others – that must be overcome to successfully deliver on its promise.

Ayushman Bharat: Design issues

  • Government expenditures: The CEO of Ayushman Bharat, Dr. Indu Bhushan, in a recent Mint article, called the reimbursement rates for treatment the “elephant in the room”. The key issue is that the central and state governments must decide the level of reimbursement. Setting the level too low implies that not enough hospitals will participate, and the programme will have capacity shortfalls and potentially lower quality. Setting the level too high implies that the fiscal burden will be high, which might be unsustainable in the future. 
  • Hospital participation: Hospitals have to decide whether to participate in the programme, what specialties to offer, and how many beds to make available. They also have to make micro-decisions on personnel and infrastructure that influence the type and quality of care received by patients. For instance, a 2005 study by Leemore Dafny showed that price (reimbursement) increases by the Medicare system in the US led to more “upcoding”, or switch of patients from lower-paying to higher-paying diagnosis. Of course, based on the management type, different types of hospitals and the people who work there, might care more or less for the service mission compared to profits. But generally, greater quality costs more, and the treatment reimbursement rates will constrain participation and quality even for not-for-profit institutions. 

A second consideration for hospitals is competition. While more hospital empanelment in the programme might improve the choice set of patients, ”too many” hospitals will increase competition and decrease the number of patients at any particular hospital, which could motivate hospitals to increase margins by compromising on quality or manipulate patient care in other ways. Conversely, competition could incentivise hospitals to attract patients through better quality of treatment. Ultimately, the effects of Ayushman Bharat on competition in different healthcare markets and attendant impact of quality of patient care remains to be seen. 

More widespread provision of tertiary care through Ayushman Bharat will create a publicly financed private option for a large number of patients in many places around the country, constraining the rates charged even by non-participating hospitals. By lowering prices paid by patients across the sector, Ayushman Bharat could improve welfare far beyond direct beneficiaries. 

  • Patient participation: Patients value receiving high-quality healthcare but are also cognizant and concerned about the costs of access. While Ayushman Bharat can reduce out-of-pocket payment, it is difficult for patients to ascertain the quality of care they receive, both before seeking treatment and once a procedure has been completed. Thus, healthcare remains an exception where patients are unable to impose the typical discipline exercised by ‘customers’ in other markets. The Quality and Outcomes Framework (QOF) introduced in 2004 in the NHS, which made payments to GPs (general physicians) directly proportionate to the quality of care received by their patients, tried to solve this quality conundrum. QOF resulted in limited improvements in quality and reduced socioeconomic inequalities in delivery of care (Roland 2016). However, measuring quality of healthcare is a challenge in itself and requires patient-specific data on healthcare delivery. Apart from quality, several factors such as distance to empaneled health facilities and long-term care costs might impact patient participation.

Several other design issues could emerge in Ayushman Bharat. A non-exhaustive list of these issues include:

  • How will Ayushman Bharat organisation monitor claims under the programme, mitigate fraud, and encourage preventive care?
  • How will Ayushman Bharat impact investment in the hospital sector?
  • How will Ayushman Bharat motivate new talent to join the healthcare sector, and what will happen to early career education and specialisation decisions of physicians, nurses, and the wider healthcare workforce?
  • What will be the impact of Ayushman Bharat on related markets such as private health insurance, pharmaceuticals, hospital equipment, and long-term care that also form part of the healthcare ecosystem?

Way forward

Answering these design questions will help understand both the potential ‘impact’ of Ayushman Bharat, but also uncover the tradeoffs inherent in making policy. In the healthcare sector, ethical, moral, technical, and even political concerns are often at the forefront of decision-making. Even so, the sheer costs associated with Ayushman Bharat are large enough that administrators will face budget constraints relatively soon. In these situations, understanding the consequences of different policy choices, and the tradeoffs involved even when financial factors are not central to decision-making, is critical for policymakers as well as the public they operate the programme for. 

We can learn from experiences with existing programmes in the country (RSBY, Odisha’s Biju Swasthya Kalyan Yojana5, Aarogyasri, Employees State Insurance Scheme6, etc.), as well as from National Health Protection Scheme (NHPS) as the programme is rolled out across the country. A critical ingredient is for the NHPS to share data with researchers in India who can contribute analytical capabilities for the programme. A good template for this is how Medicaid and Medicare share data with researchers through the Centers for Medicare and Medicaid Services in the US, while ensuring data privacy by enforcing strict security and information sharing protocols. Over time, this collaboration with researchers led to landmark studies including those on the effects of Medicaid and Medicare (see for instance, Amy Finkelstein’s study in 2007, on the aggregate, long-term effects from the introduction of Medicare), health insurance expansion (notably the Oregon Health Insurance Experiment), the Massachusetts Healthcare Reform, and the Affordable Care Act (ACA) (see for example, Molly Frean, Jonathan Gruber, and Benjamin Sommers’ study in 2017 on the relative effects of different ACA features on increased coverage). In India, the Aarogyasri programme routinely posts individual-level claims data comprising procedure and provider details, which facilitated analysis of the drivers of utilisation. We hope that Ayushman Bharat will follow its lead. 


  1. Rashtriya Swasthya Bima Yojana is a cashless government-run health insurance programme. The scheme aims to provide health insurance coverage to the BPL workers and their families. It provides insurance for hospitalisation in public as well as private hospitals up to Rs. 30,000 per family per annum. 36 million families have been enrolled as of February 2014. The Ayushman Bharat Scheme launched by the Prime Minister in August 2018 is proposed to subsume this scheme.
  2. Only 15% of households have any health insurance coverage, and efforts to increase adoption through private markets have not met widespread success. Also the reach of private insurance players is only 12% in the highest income group (5th quintile class). The other income groups have almost negligible private insurance.
  3. Aarogyasri is a cashless health insurance programme for BPL households in Andhra Pradesh (and Telangana since the state’s formation in 2014). The programme covers medical bills up to Rs. 200,000 per family per annum for the treatment of serious ailments such as cancer, kidney failure, heart and neurosurgical disease that require hospitalisation.
  4. Dr NTR Vaidya Seva Scheme is the flagship scheme of Andhra Pradesh government with a mission to provide quality healthcare for all the BPL families. It provides coverage to the beneficiaries up to Rs. 250,000 per family per annum.
  5. Biju Swasthya Kalyan Yojana is a cashless health insurance programme for BPL households in Odisha, which will cover around 7 million families residing in Odisha. The programme covers individual medical bills up to Rs. 500,000 (Rs 700,000 for females) per annum for secondary and tertiary healthcare procedures.
  6. The Employees State Insurance scheme put in place by the Employees’ State Insurance Act and is designed provide health insurance to employees of factories, road transport, hotels, cinemas, etc. It is implemented at over 843 centres in 33 states and benefits around 20 million persons/family units. 

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