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[Co-authored with Arpita Chakraborty and Jay Dev Dubey]

Following the Union Budget 2018, the NITI Aayog announced that the fiscal burden on the Government for the National Health Protection Scheme (NHPS) is likely to be around 10-12 thousand crores. This is based on the premise that the annual insurance premium for the scheme would be around Rs. 1000 to 1200 per household. This premium is way below the estimates that emerged in public discourse following the budget. We looked into some of the evidence to derive insights on how much of financial protection can be extended to the underprivileged against hospitalisation at the announced cost/premium rate.
To extend financial protection, the premium rate of NHPS will need to cover the average annual hospitalisation expenditure on medical items incurred by the poorest 40 per cent of households of the country, which is broadly the target group for NHPS. How much does this group of households need to spend on hospitalisation? We use the 71st round of National Sample Survey (NSS), conducted in 2014 to seek an answer to this question. Hospitalisation expenses in NSS include non-medical expenses like transportation and food for accompanying members. As the insurance will not cover these non-medical expenses, we have focussed only on the expenditure on medical items.
The NSS survey suggests that in 2014, the average annual hospitalisation expenditure incurred by the poorest 40 per cent of households on medical items was about Rs. 1770 (about Rs. 2070 at 2018 prices). This expenditure is in addition to the cashless benefits that they derived (if any) through Government health insurance schemes in many States. The poorest 40 per cent of households, however, are likely to be financially constrained, and the actual expenditure incurred by them on hospitalisation in 2014 was likely to have been lower than what they actually needed. If hospitalisation expenses up to 5 lakhs are insured, the poorest 40 per cent of households should be able to incur nearly what they actually need for hospitalisation. In other words, these households may be able to spend as much on hospitalisation as the relatively less financially constrained households. The richest 20 per cent of households can be considered relatively less financially constrained, and the average annual medical expense on hospitalisation of this group was around Rs. 7700 per household in 2014. At 2018 prices, this translates to around Rs. 9000 per household. Under insurance cover, with relaxed financial constraints, the hospitalisation expense of the poorest 40 per cent households will move closer to this level. 
Evidence from existing health insurance schemes in the country, however, suggests that the financial constraints of the targeted households may only be marginally relaxed under NHPS. There are various reasons for this. First, these schemes cover hospitalisation expenses for only selected medical procedures; not for all hospitalisations. Secondly, awareness about such schemes among the targeted population is remarkably low. In Andhra Pradesh, and Telangana, where the insurance schemes implemented by the respective State Governments were nearly 7 years old at the time of NSS survey, about 40 per cent of population in the poorest quintile reported that they were not covered by any Government health insurance scheme. Similarly, in Karnataka, where the scheme was 5 years old at the time of NSS survey, more than 90 per cent of the population in the poorest quintile reported that they were not covered under any Government health insurance scheme. Even when households are aware of their insurance coverage, they are often unable to avail the benefits of the scheme due to ignorance on various operational aspects of the scheme. Thirdly, some sections of the eligible population are also excluded due to enrolment and other implementation hurdles. Experience from the Rashtriya Swasthya Bima Yojana (RSBY) suggests that even after nearly a decade of the launch of the scheme, only about 60 per cent of the total targeted households are currently enrolled. The implementation hurdles are particularly acute in some of the poor states. In Bihar, only about half the targeted households could be enrolled, and in U.P. the scheme had to be terminated in all districts. 
With the coverage of selected medical procedures and inability of large sections of the targeted population to access benefits from existing health insurance schemes, the financial protection is expected to be low under NHPS. At a premium of Rs. 1000 to Rs. 1200 per household, NHPS can cover less than a fifth of the average hospitalisation expenses that are incurred by the relatively less financially constrained households. The actual financial protection may be even lower as the premium rate would need to cover the administrative cost of insurance companies involved (if any), and any additional expenditure on account of inflated claims or overuse/unnecessary medical interventions that may arise from moral hazard. 
Many State Governments have initiated and implemented such health insurance schemes at similar low costs (less than Rs. 1000 to Rs. 1200 per household). It is however, important to recognise that the magnitude of financial protection extended by these schemes is also low. In Andhra Pradesh and Telangana, the two States which (together in undivided Andhra Pradesh) initiated one of the earliest and largest such health insurance schemes in the country, covered more than 80 per cent of the families in the respective States at the time of NSS survey. In 2015-16, the total claims paid out by both the State Governments was less than a fifth of the total hospitalisation expenses reported by the poorer 80 per cent of households in the respective States. Most of these hospitalisation expenses were well within the ceiling of the insurance cover: in Karnataka too, the financial protection extended by the health insurance scheme was lower than in Andhra Pradesh and Telangana. This is partially due to a smaller set of medical procedures covered in Karnataka in comparison to Andhra Pradesh and Telangana.
Importantly, the cost for the government (by way of insurance premium) is likely to increase even at this level of financial protection (i.e. insurance claims). Information from insurance companies, which implement such health insurance schemes and report to the Insurance Regulatory and Development Authority of India (IRDAI), suggests that the ratio of claims to premiums (claims ratio) was about 122 per cent in 2016-17. Also, the claims ratio has increased rapidly from 87 per cent in 2012-13 to 122 per cent in 2016-17, indicating the need for the Government to revise the premium rates upwards for existing schemes. 
In sum, at the announced cost of NHPS, the financial protection that can be potentially extended through the scheme is likely to be limited. The low premium rates of existing State-level health insurance schemes have been cited to argue that NHPS can be implemented at a low cost/premium. Evidence suggests that the low cost/premium rate in schemes initiated by State Governments also corresponds to low levels of financial protection against hospitalisation expenses. In general, with low premium rates, financial protection will remain low in such health insurance schemes.
Dr. Mita Choudhury is Associate Professor, and Arpita Chakraborty and Jay Dev Dubey are Consultants at NIPFP, New Delhi.

The views expressed in the post are those of the author/s only. No responsibility for them should be attributed to NIPFP.

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