Public Health Insurance: Reducing Poverty or Access to Equitable Health Care?

Abstract

Tax-financed public health insurance programs are a newer, but increasingly important form of social policy across developing countries, including India. With the scope of stemming the flow of people into poverty, public health insurance focuses on the vulnerable and provides them an avenue to seek quality health care without incurring exorbitant costs. Although enrollment in the program and its effectiveness in reducing out-of-pocket health expenditures remain low, it is expected that the importance of health insurance will increasingly become recognized everywhere. As the demand for health care increases, the key to its effectiveness could reside in the prioritizing of health as an important policy goal—recognizing health as a citizenship “right,” increasing budgetary allocation for health, improving the quality of health care infrastructure, and putting into place effective regulations to check unscrupulous practices by private health care providers—with the scope of equitable access to universal health care and overall improved health outcomes.

Introduction

While traditional forms of social safety nets work with the scope of assisting people in getting out of poverty, a certain set of people are still falling into poverty. Health shocks or medical expenditures—ubiquitous with improvement in life expectancy and rise in the incidence of noncommunicable diseases (NCDs)—are the predominant causes of descents into poverty. Health shocks are different from other economic shocks. Not only is ill health likely to befall upon the poor, but the idiosyncratic nature of the shocks also triggers multiple coping strategies, which in the absence of affordable health care infrastructure relegates even the non-poor into poverty. Once poor, the climb out of poverty becomes difficult because the health shocks not only cause an expenditure loss in the short run, but may also amount to loss of household assets, employability, and therefore, the ability to accumulate productive assets in the future. Most vulnerable households are, therefore “one illness away” from falling into poverty.¹

A North Indian farmer, Heera Gujar narrated his account of his descent into poverty, in Anirudh Krishna’s (2010) seminal book, One Illness Away: Why People Become Poor and How They Escape Poverty.

The bad days began when my father fell ill about 18 years ago. They say he was stricken by TB [tuberculosis]. We took him several times to the district hospital, about 35 kilometers away. Each time we spent a considerable amount of money. We must have spent close to 25,000 rupees on his treatment, but to no avail. When my father died, we performed the customary death feast, spending another 10,000 rupees. We sold our cattle, and we also had to take out some loans.

We worked harder in order to repay these debts. Then, about 10 years ago, my wife fell seriously ill, and she has still not recovered. We borrowed more money to pay for her medical treatments. More than 20,000 rupees were spent for this purpose. It became hard to keep up with our debts. Somehow, we could make do for another two or three years. Then, the rains failed for three years in a row, and that was the end of the road for us. We sold our land.

Now, my sons and I work as casual labor, earning whatever we can from one day to the next. On some days, we find work. On other days, there is nothing.

Heera Gujar’s misfortunes are not isolated occurrences. About a fifth of the Indian population face health shocks that could potentially be impoverishing, with 4% of them (55 million people) becoming poor because of catastrophic expenditures associated with the health shocks.² A resilient development process calls for not only pulling people out of poverty but instituting effective safeguards or insurance against potential descent into poverty. Residents of developed countries benefit from well-developed financial markets, and health insurance with a monthly premium is an important part of employment benefits. For the poor and those living in less developed financial markets, health insurance premiums are the last form of investment for which households’ budget. Even when they do, precautionary savings could reduce investments in capital accumulation, inhibiting development resilience. As a result, designing subsidized health care programs is becoming a priority of social policy in low- and middle-income countries (LMICs).³

Economic benefits and the social value of health insurance are, therefore, vast. Household welfare responds to economic fluctuations. Poor people, devoid of secure paychecks, face instability based on the low level of income they earn. The insurance against such risks is provided through community, family, or the state. The poor also live in impoverished communities and families. They live in places where either credit markets are absent, or they are not considered “safe” borrowers by the lending institutions. In the wake of an adverse shock, the economic conditions of the poor are worsened, so that they can resort neither to their family nor to financial institutions, thereby inhibiting their ability to accumulate assets and lift themselves out of poverty. As the earlier example of Heera Gujar reflects, even the assets of the non-poor get eroded, leading to poverty if the exogenous shock is large enough. Health shocks, being large enough, are therefore the leading cause of descent into poverty or being stuck in poverty traps. Health insurance, by covering for unanticipated expenditures, provides a “safety net” against a potential decline in income and earning capacity. Such social insurance, provided to those in the formal economy through employer or self-contributory investments, is absent for the poor and vulnerable. Publicly subsidized health insurance, therefore, has emerged globally as a key strategy against catastrophic health expenditure.

In the Indian social policy dialogue, the importance of publicly provided health insurance has risen considerably, which reflects a shift in the scope of social welfare programs from addressing symptoms of poverty toward focus on its immediate causes. Such a change has been correlated with the higher burden of diseases, rise in private health care services that are expensive, and a greater share of informal workers with no recourse to employment-based social security.⁴ The idea of unorganized labor without any form of social assistance, in the wake of a health shock, inspired the Indian Prime Minister Manmohan Singh to launch a national health insurance scheme, Rashtriya Swasthya Bima Yojana (National Health Insurance Scheme, RSBY), focused on the poor in 2008. In his 2005 speech, marking the Golden Jubilee of the All-India Institute of Medical Sciences (AIIMS), he is reported to have said, “We recognise health as an inalienable human right that every individual can justly claim. So long as wide health inequalities exist in our country and access to essential health care is not universally assured, we would fall short in both economic planning and in our moral obligation to all citizens.”⁵ The emphasis on universal assurance of health care, being a “moral obligation” of the state toward citizens, echoed other changes in the social policy—right to work and food, for instance, around the same time. RSBY, therefore, marked a major paradigm shift in social protection policy in the country: from social assistance to social insurance.

RSBY subsequently was rechristened as Pradhan Mantri Jan Arogya Yojana (Prime Minister’s Healthy Living Scheme, PM-JAY) in 2018, as a more expansive, publicly funded health insurance program with the scope of providing secondary and tertiary care hospitalization health care coverage up to Rs. 5 lakhs (~US$6,500) per household annually to over 107.4 million poor and vulnerable families, which would benefit the bottom 40% of the Indian population (500 million people). At the time of this announcement, 80% of the population did not have health insurance. In terms of the sheer number of targeted beneficiaries, PM-JAY is the world’s largest public health insurance scheme. PM-JAY forms a key component of the larger Ayushman Bharat, or the National Health Protection Scheme (NHPS)—an expansion in the primary health care centers to provide maternal and child health services, cure NCDs, and distribute free essential drugs and diagnostic services—with the aim of achieving Universal Health Coverage (UHC).

Although the expansion in demand-driven health insurance schemes is laudable, challenges to the promise of UHC abound. Health care systems are broken. Less than two years after PM-JAY was rolled out, as COVID-19 wreaked havoc in the country, the fragility of health care system in the country was laid bare.⁶ Those who could afford the costs struggled to find testing centers, doctors, hospital beds, emergency medicines, and oxygen; the poor were left to their own devices. The pandemic aside, the surging NCD epidemic—cardiovascular disease, high blood pressure, various kinds of cancer, chronic respiratory diseases, diabetes, and mental health, mostly driven by lack of attention to preventive care—has escalated medical costs and impoverishment.⁷ The largest share of expenditures for NCD treatment is on medicine and diagnostic tests, which are not covered under any form of public health insurance program.⁸

In such a context, where health infrastructure is brittle and public health insurance still in its infancy, how much can a public health insurance like PM-JAY act as a source of resilience: to stem the flow of households into poverty, allowing them to bounce back, and to increase future well-being? Although the short-run answer to this question depends on how well the government is able to iron out the logistics of implementation and program delivery of the massive program, its long-term assessment would be based on whether PM-JAY can effectively create an equitable health system for the poor and improve overall health.

Privatized Health Expenditure, Despite Public Health Infrastructure

Around 55 million Indians (4% of households) are pushed into poverty every year because of high out-of-pocket (OOP) expenditures on health.⁹ For those who are already poor, health shocks become a source of further destitution.¹⁰ These figures are astonishingly high for a country that boasts of one of the largest networks of a publicly run free health care system.¹¹ The devil, as the saying goes, lies in the detail. Despite the expansive public health infrastructure, a greater share of Indian households relies on private providers for treatment, which are often expensive. The most recent estimates by the National Sample Survey Organization (NSSO) suggest that 55% of Indians received treatment in private hospitals in 2017–2018. Treatment in private facilities costs six times more than in public ones. Households—poor and non-poor, without financial protection through health insurance against such expenses—are at risk for catastrophic expenses.

Low Public Investment in Health

Health is among the primary responsibilities of government.¹² However, there are different models of health care systems across the world. For example, the United Kingdom provides free health care through the government-run National Health Service (NHS), while in Canada, health care is provided by private sector, but the government finances health insurance premiums for all. France, Italy, Norway, and Sweden have similar models to the United Kingdom, in which private health insurance to cover additional expenses is optional. In some other European countries, like Switzerland and the Netherlands, health insurance is provided exclusively by private providers, but the insurance premiums are subsidized by the government. State-financed Medicaid for the poor, Medicare for elderly provide, along with employer-provided or personal health insurance is used to pay for health care (privately provided) in the United States. Overall, richer countries spend a substantially higher amount of their GDP on health and attain better health outcomes. Residents in low-income countries, with lower public spending on health, suffer from the risks of catastrophic and impoverishing health expenditures.¹³ As a result, there is a negative association between total health expenditures and impoverishment because of health shocks (Wagstaff et al. 2018a, b).

India’s public expenditures on health remain abysmally low—around 1% of GDP—despite a significant rise in overall income in the country over the last two decades. These figures pale in comparison with other LMICs, which spend almost twice the share (Panel A, Fig. 7.1). As a result of the low public investment on health, OOP expenditure on health is high. Even among countries with similar levels of economic development, India’s OOP remains at a much higher level, at around 60% of the total health expenditure (Panel B, Fig. 7.1). For instance, Ghana and Nicaragua, with well-developed public health insurance, incur substantially lower OOP expenditures.

Fig. 7.1

(Source World Bank Indicators [WDI]. https://data.worldbank.org/indicator)

Patterns of health expenditure—public and OOP—across countries

Inefficient Supply-Driven Public Health Care Infrastructure

The Indian health system is a hybrid of public and private services, with the former responsible for affordable health care for the poor.¹⁴ The public health care system follows a three-tiered structure. Free public health centers (PHCs) and their subsidiaries are the primary source of care, with community health centers (CHCs) at the sub-district level providing the second layer of health care services. Hospitals and medical colleges provide the tertiary form of care at the district level. At the time of its design—under the leadership of Sir J. W. Bhore, who headed the first Health Survey and Development Committee set up by the British Government in 1943—India’s public health infrastructure was envisaged along similar lines as the United Kingdom’s National Health Service. As of March 31, 2020, it consists of 810 district hospitals, 1,193 subdivisional hospitals, 5,649 CHCs, 30,813 PHCs, and 157,921 subcenters spread across the health care; however, it has failed to deliver effectively on the promise of affordability, equity, and quality (Balarajan et al. 2011). Health care is a classic case of “government failure” in most parts of the country, marred by high rates of absenteeism, lack of professionalism, and poor quality of services, which not only exacerbate the cost of health care but also reduce satisfaction with public services in general (Hammer et al. 2007). This has led to the gradual expansion of private health care providers—heterogeneous in quality and qualification—which are generally more competent and responsive to patient needs (Das and Hammer 2005; Das et al. 2016). Poorer regions of the country fare worse in both the quantity and quality of public health care, leading to higher cost of care and potentially greater health-induced impoverishment (Das et al. 2020).

The early emphasis on publicly owned health care infrastructure was motivated by the idea of curing the most important health issue of that time—child and maternal mortality. As the nature of the disease burden has moved toward NCDs from infectious ones, the public health care system’s response has been slow, except for highly specialized health facilities. However, there is a continued effort to expand the public health system in the form of the National Health Mission (NHM), which aims to achieve “universal access to equitable, affordable and quality health care services that are accountable and responsive to people's needs.”¹⁵ NHM has specifically focused on reproductive, maternal, neonatal, child, and adolescent health (RMNCH+A), along with the spread of communicable and noncommunicable diseases. Among its stated goals, NHM seeks to “reduce household out-of-pocket expenditure on total health care expenditure.” The idea behind NHM is to improve the existing health system—improved physical infrastructure, greater availability, professional upgrading of human resources, greater supply of doctors, better management of the system, encouragement of community participation, and use of information technology for tracking care performance. It further created a new cadre of community health care workers in rural areas—Accredited Social Health Workers (ASHAs)—female residents who are paid an honorarium and some task-based incentives to raise community awareness about health and its social determinants and facilitate access to health services—as the interface between the community and the public health system.¹⁶ The National Health Policy 2017 further highlighted the role of government in “shaping health systems in all its dimensions—investments in health, organization of health care services, prevention of diseases and promotion of good health through cross sectoral actions, access to technologies, developing human resources, encouraging medical pluralism, building knowledge base, developing better financial protection strategies, strengthening regulation and health assurance” (GoI 2017, p. 1). Corruption in NHM is, however, rife and its focus primarily on maternal and child health services does not yet provide the necessary financial protection against much of the OOP health care expenses.¹⁷

OOP Health Expenditure and Its Financing

Poor quality of public health infrastructure and high costs of health care in private facilities escalate health-related OOP expenditure, in the absence of adequate financial protection such as insurance against health shocks. Before PM-JAY was launched, only 14.1 and 19.1% of the rural and urban populations, respectively, reported having any form of health expenditure coverage (Panel A, Fig. 7.2). Insurance coverage is particularly low for the poor; individuals in the bottom expenditure quintiles had lower coverage. Health insurance in the rural areas is largely dominated by RSBY and other state-level initiatives.¹⁸ This is true in urban areas that are dominated by informal employment as well. Only 1% of the rural population and 6% of the urban population reported having an employment-based insurance to cover health-related expenses (Panel B, Fig. 7.2). Poor financial protection against health shocks leads to significant OOP expenditure because around 60% of treatment takes place in the private sector. For those seeking health care in the public system, expenses of medicines comprise the largest share of expenditures (Panel C, Fig. 7.2). Further additional expenses add to OOP in private health facilities, which are financed largely through savings or borrowings that can often be catastrophic to the poor (Panel D, Fig. 7.2).

Fig. 7.2

(Source NSSO 2017–2018 Health Expenditure)

Health insurance, OOP expenditure, and its financing

Lack of financial protection against health shocks is detrimental for household welfare in the anticipation (ex ante) as well in the coping strategy adopted (ex post). Devoid of access to quality health care infrastructure and missing markets for health insurance, households tend to “save for the rainy day” against the expectations of future illness or related health shocks. These precautionary savings—among low resource-endowed households—affect both their short- and long-term investment choices, with negative consequences for investments in productive assets—and except for health shocks—perpetuating the cycle of ill health and poverty (Kochar 2004). Ex post, lack of social insurance against income shocks leads to large welfare losses to households near the subsistence standard of living, through risky economic decisions such as taking children out of school or reduced spending on long-term investments (Chetty and Looney 2006).¹⁹

Research has shown that a large share of Indian households, similar to other LMICs—with meager savings and access to financial resources—is unable to smoothen their consumption over time and often resort to coping mechanisms that further perpetuate poverty when faced with illness and health shocks.²⁰ For households that are able to smoothen consumption on immediate needs, such as food, housing, or festivals, research suggests that there is a reduction in spending on long-term investments in child education and food security (Mohanan 2013; Dureja 2021). Health shocks further reduce monthly earnings through a decline in wage earnings and overall income (Dureja and Negi 2022). Such costs prove disproportionately more catastrophic for the poorest and marginalized groups.²¹ Although health shocks reduce wages by 5% on average, they could be as high as 15% of the total household spending for the poorest households (Srinivas et al. 2021). Furthermore, socio-economic status—based on education, employment, wealth, rural/urban residence, and caste/religious affiliations—determines the accrued damage arising out of OOP, in terms of both the losses incurred and the coping strategy adopted (Sangar et al. 2019).

Disadvantaged groups—rural residents with poorer access to health infrastructure, households headed by women, those with elderly and disabled members, those working in the informal sector, lower caste groups, and Muslims—are most likely to be affected by health shocks (Dhanaraj 2016). The same set of households are more likely to resort to risky coping strategies, such as sale of assets or borrowing credit, which further lowers their ability to prosper and undermines household resilience. Insurance can improve resilience by providing financial incentives to the most vulnerable and addressing persistent disparities by offering greater access to health care and ensuring more equitable intra-household distribution of resources. For example, Aiyar and Sunder (2022) found that RSBY contributed to long-term health gains through a decline (around 5%) in the child mortality rate, with greater benefits to the poorest households, resulting in more favorable outcomes for female children and children born later in families, who are reported to receive lesser expenditure on health care.²² These effects were largely mediated by greater access to maternal health services.

The Emergence of Demand-Driven Health Insurance

To provide insurance against health-induced OOP expenditures and their potentially catastrophic impact, the first nationwide, publicly subsidized health insurance program, RSBY, was developed in 2008. RSBY was introduced as a part of the “welfare agenda” of the Congress Party-led government, which also introduced other rights-based legislations—food and work—that form the two important pillars of existing social welfare architecture in the country. Recognizing the limitations of the public health care infrastructure in reducing OOP health expenditure and health insurance for the poor, RSBY was introduced with the scope of providing financial protection against the expensive access to expensive quality medical care (Virk and Atun 2015).²³ The insurance route (form)—instead of strengthening the demand-oriented public health systems, like the British NHS, which were already in place—was chosen because of the inherent inefficiencies and poor accountability in existing health systems. It was argued that the demand-side insurance model would entail patients seeking health care providers of their choice while the government worked with professional insurance agencies to monitor each transaction and to reimburse them accordingly. Such a program would also foster greater demand for better quality health care providers and create competition in the health care industry for overall welfare. In its initial conceptualization, the focus of RSBY was on poor, unorganized, informal workers who lacked employer-based social security, but the program was targeted specifically at those identified as poor, that is, in possession of a BPL (below poverty line) ration card.²⁴

There were two key features of RSBY that were unprecedented among other any other social welfare programs in the country. First, it was designed as a public–private partnership (PPP) exercise, wherein the government funded the scheme, but private insurance companies were the implementing agencies. It was believed that the private insurance firms, by virtue of being more experienced than the government in the insurance sector, would bring efficiency to the scheme. Encouraging the enrollment of beneficiaries would increase profits and pool risks to bring down operational costs. In building the entire infrastructure, the reliance upon information and communications technology to vet every transaction through the RSBY smart card, which allowed for portability, was the second key feature of the scheme.

The nature of health care expenses covered under the scheme was limited only to hospitalization expenses—up to 30,000 INR (US$400) annually—with the expectation that outpatient care costs a negligible amount in state-run PHCs.²⁵ Eligible households (BPL cardholders) could obtain biometrics-based “smart” RSBY cards upon registration for the scheme. There was no copayment component to the scheme, and it relied upon patients presenting the smart card to access in-hospital care. Each transaction would reduce the eligible amount on the card, based on the government’s fee for the treatment, until the ceiling was reached. The insurance facilities were provided by private companies, the selection of which was based upon competitive bidding in each district. The insurance companies created a list of empaneled inpatient care facilities—public and private—and reimbursed them for the care provided to the RSBY-cardholding beneficiaries. The insurance claims were paid by the government to the companies. States selected into the implementation of the scheme. Central government contributed to 75% of the premium, while the state governments financed the rest.²⁶ RSBY reached more than 130 million people within five years of its launch and paved the way for similar health insurance programs in many states.

Initiatives by State Governments

We have highlighted the role of subnational governments in being the driving forces for innovation in social welfare programs and the national health insurance program.²⁷ RSBY, similarly, had precedent in the Yeshasvini (2003) and Rajiv Aarogyasiri (2007), two innovative health insurance programs in Karnataka and Andhra Pradesh, respectively. Under the Aarogyasri scheme, the state government set up a trust headed by the Chief Minister who, in consultation with insurance and medical professionals, devised the insurance scheme with an insurance premium of Rs. 250 (~US$3) and maximum coverage of health expenses of Rs. 1.5 lakh (US$2,000) per family for inpatient care for a fixed set of treatments. There was a buffer provision of an additional sum of Rs. 50,000 (US$600) if costs exceeded the original allocation. The scheme covered around 85% of the population. Yeshasvini, on the other hand, was introduced as community insurance with a focus on cooperative rural farmers and informal sector workers. It was a voluntary, not-for-profit, cashless health insurance scheme, with the scope of financial protection against “highly” catastrophic and less discretionary inpatient surgical procedures, with a low level of personal contribution. It provided an annual coverage of Rs. 2 lakh (~US$280) per family.²⁸ Subsequently, the scheme was merged with the Arogya Karnataka scheme, renamed later as Ayushman Bharat-Arogya Karnataka (AB-ArK) in 2018, with the health department at its helm.

The success of Aarogyasiri, Yeshasvini, and RSBY—and the political appeal of these schemes—spurred other states to announce their own independent health insurance schemes. In 2009, Tamil Nadu launched Kalaignar Insurance Scheme (renamed in 2012 as Chief Minister’s Comprehensive Health Insurance Scheme, or CMCHIS) to provide financial protection against “serious and life-threatening ailments” to the poorest and unorganized sector workers. Yet, by targeting the scheme to families below an annual income of Rs. 72,000 (~US$1,000), Kalaignar included the poorest as well as the lower middle-class families. The insurance covered inpatient medical expenses up to a maximum of Rs. 100,000 (~US$1,250) per family over the four-year insurance period. The competition among state governments to introduce health insurance led to a series of state-sponsored programs, which led to added coverage of treatment, amount, and beneficiaries to the RSBY (Fig. 7.3). In 2018, RSBY was subsumed under PM-JAY, which provided more comprehensive care with a higher insurance coverage for the bottom 40% of the population. Many of the state government schemes subsequently have been rechristened but add to the benefits provided by PM-JAY from their own finances.

Fig. 7.3

(Source Authors, based upon government sources)

Timeline of introduction of various national and subnational health insurance schemes

The Impact of Health Insurance on Building Resilience

Have these health insurance programs achieved their goals in providing financial protection to the poor? This question has led to a rich body of literature that has evaluated the impact of RSBY and state government schemes. A comprehensive review of such studies, in terms of the impact of health insurance on utilization of health care, willingness-to-pay, and financial risk protection, found that, although the scheme increased utilization of health care services by beneficiaries, the evidence on financial protection—that is, the reduction in OOP—is inconclusive (Sriram and Khan 2020; Reshmi et al. 2021).²⁹ In fact, there are concerns about the insurance schemes increasing OOP and nonmedical expenditures, arising out of greater health care utilization. The health insurance creates conditions of both adverse selection (greater usage of insurance by those who are ill) and moral hazard (greater usage of insurance by the ill increases insurance premium). While greater access to the medical system is welfare enhancing, lack of reduction in health care costs could either mean warranted expenditures on the required treatment that could have potentially gone undiagnosed (improving health), or an exorbitant increase in the price of health services (undermining the effectiveness of health insurance).³⁰

One must note, however, that any generalized argument around the effects of insurance could be misleading when the enrollment in the scheme, its implementation, and the health care provision infrastructure varies widely across regions and over time.³¹ The challenges of program evaluation using observational design, unlike transaction-level data, conflate many of the findings.³²

Yet, there are some generalizable facts important to understanding the potential effects of health insurance in India. First, increasing enrollment in the program remains a major bottleneck to its success, even after a decade of RSBY.³³ States with particularly poor performance on governance, and also have the poorest share of the population and inferior health infrastructure, fare the worst in terms of enrollment (Nandi et al. 2013). There is also a low level of awareness among people of the scheme and its benefits, and often, the commercial insurance agencies resist creating awareness (Hooda 2015). Second, given the program’s focus on the poor, there is a high degree of targeting errors. The deserving beneficiaries are often left behind while the undeserving gain access (Fan et al. 2012).³⁴ Therefore, the poorest have been unable to benefit from the health insurance programs, as intended, which implies that despite the insurance, health inequalities persist (Selvaraj et al. 2021).³⁵ Third, one of the main challenges to financial protection against rising OOP is the high cost of outpatient care and medicines, which are not covered under the insurance. Expenditures on medicine comprise a substantial share (72%) of the total OOP payments and hence, do not adequately protect the poor against impoverishment (Shahrawat and Rao 2012). Fourth, with the growing strength of private insurance companies and private health care systems, overtreatment or unnecessary health expenses potentially inflate the costs of health care, much to the detriment of the poor. There have been many reports of denial of care for the empaneled households because of delayed reimbursement from the government (Rajasekhar et al. 2011; Ghosh 2014). Often the health care providers charge for services not covered by the insurance or participants are forced to buy expensive drugs and diagnostic tests (Devadasan et al. 2013). Together, these concerns suggest that subsidized health insurance programs have provided a “partial” financial protection for the poor, at best.

Financial protection—through health insurance—can facilitate greater access to health care and more equitable distribution of resources within the household. For example, RSBY has contributed to a decline (around 5%) in the infant mortality rate among children. Greater benefits have accrued to female children and children born later in families, who are reported to receive lesser expenditures on health care. These effects are mediated through greater access to maternal health services.

Facilitating Resilience: Equitable Health Care and Improved Health Outcomes

Catastrophic income loss due to illness is becoming increasingly important, as India is undergoing an epidemiological transition, with the burden of disease shifting from infectious diseases to NCDs, even among the poor. Public health infrastructure, which was traditionally designed to address the spread of communicable diseases, is particularly constrained in providing quality care to everyone. Private providers remain the dominant providers of health care services, making health care expensive. As a result, the Indian health care system has been criticized for being inefficient as well as inequitable. Public hospitals provide a low quality of treatment while subsidized health insurance fails to provide adequate financial protection against OOP health expenditure. The emerging question, therefore, is how can subsidized health insurance programs like PM-JAY facilitate equitable access to health care?

We would like to argue that the raison d’etre for a robust health care system is to improve health at the lowest possible cost to patients, and therefore, the scope of health insurance policies should be earmarked as UHC and for improvement in health outcomes.³⁶ Financial protection for the poor should be an intermediate goal. Health insurance, as a form of safety net, therefore, is only a key “intermediate” step in accessing health care.³⁷ Otherwise, insurance subsidy focused on the poor would remain as just another tool of an anti-poverty policy, which could fall short of the transformational aims of building resilience. With the scope of affordable and equitable access to quality health care, health insurance programs would not only allow households to cope with shocks but also continue investing in productive investments (improved health and its impact on productivity and income), which is key to building resilience.³⁸ In order to get there, numerous hurdles need to be surmounted, which are discussed below.

Increasing Enrollment

First and foremost, there is an urgent need to increase enrollment rates in the health insurance programs, which currently stand at very low levels. Lower enrollments in health insurance are caused by lack of literacy and awareness among the beneficiaries, or low rates of scheme utilization in their networks.³⁹ India’s poor only recently received universal bank accounts, and their financial literacy remains very limited. Information campaigns by the government through widespread use of education and communication (IEC) methods, which include information pamphlets, health camps, etc., should be undertaken on a large scale to increase awareness about the health insurance scheme, its benefits, and clarify eligibility criteria in a simple manner. Such campaigns have proven successful in some states, such as Karnataka, in increasing the uptake and utilization.⁴⁰ Insurance agencies often subcontract such campaigns to third-party agencies, which have little incentive or ability to increase awareness. Awareness drives need to be accompanied by enrollment drives, helplines, and grievance redressal systems. In the villages, awareness meetings are particularly helpful, as they are well attended and the spread of word in the social network could have a cascading effect in awareness, as well as utilization.⁴¹ The need for awareness is particularly high in regions where the utilization of the scheme is low and social networks are denser.

Expanding Health Care Coverage Beyond Hospitalization

Narrow focus on secondary and tertiary care hospitalization has been a major criticism of India’s public health insurance model. Traditionally, India’s public health has concerned itself with the aims of eradicating infectious diseases, immunization, and encouraging family planning, with curative care responsibility remaining with the patients. The importance of financial protection against health shocks is expected to rise as the nature of the disease burden changes.⁴² Countries, along their path of economic and demographic transformation, also go through an epidemiological transition, in which NCDs emerge as more important health hazards than the infectious, maternal, neonatal, and nutritional diseases, which are traditionally the causes of high mortality rates in early stages of economic development. While maternal and child mortality has declined substantially in India, NCDs now amount for 55% of the disease burden (Dandona et al. 2017). NCDs include cardiovascular diseases, high blood pressure, diabetes, neurological disorders, cancers, musculoskeletal disorders, and chronic kidney disease, which have substantially higher costs of inpatient and outpatient medical care. PM-JAY and most other state-level health insurance programs do not cover the NCDs.

Medicines and diagnostic tests comprise about 80–85% of the outpatient treatment costs.⁴³ Providing financial protection against preventive outpatient expenditures on doctor fees, diagnostic tests, and medication has long-term effects on reducing costly curative inpatient expenditures later. Encouraging the use of preventive health care facilities would not only improve community health through regular check-ups but also reduce the financial burden for the government in the long run through a reduced need for subsidized catastrophic health expenditure. To directly address the cost of medicines, initiatives like Jan Aushadhi (translates as “drug store for the people”), which subsidized generic drugs, have not been noteworthy but limited in reducing OOP health expenditure.⁴⁴ Designated stores under the scheme are mostly located in more urbanized and developed districts which means a larger share of the population does not have access to them. There are also concerns about quality. Lack of regulatory oversight on substandard and spurious drugs, along with doctors’ preferences for branded medicines, reduces the popularity of the generic drugs among patients.⁴⁵

Social health insurance for curative care, with the rising cost of preventive medicines, is therefore only likely to delay the burden of disease and the incurrence of OOP health expenditure, with little impact on either financial protection against health shocks or improving long-term health outcomes.

Expanding Coverage: Move Toward Universality

Subsidized health insurance for the poor such as PM-JAY leaves a substantial proportion of the middle-income population (around 400 million individuals) without financial protection against illness, exposing them to the risk of potentially catastrophic descents into poverty. The “missing middle,” which comprises about 30% of the population, overlaps substantially with the section of population—the self-employed, farmers, and workers in the formal and informal sector that lack employer-based social security—which RSBY for which initially intended to provide coverage. A recent report of India’s planning body has suggested that PM-JAY should be extended to include the middle-income population, because the catastrophic effect of OOP health expenditure is not limited to the poor but impacts all segments of the population (Sarwal and Kumar 2021).⁴⁶ The policy paper recommends a newer insurance product in the medium term—once PM-JAY is functioning and people are familiar with how health insurance works—the product could be considered as PM-JAY+ with voluntary insurance premiums.⁴⁷ The aim is to provide low-cost health insurance coverage to 80% of the population with free and subsidized premiums.

Although the government has yet to announce any concrete plans around the proposed scheme, it is expected that providing a larger share of the population with health insurance coverage would pool risks and bring insurance premiums down. The challenge for such a program, however, is in identifying the “missing middle.” It is relatively easier to identify the poor, based on the possession of a BPL or RSBY card, as forms of proof of poverty. The absence of information about who occupies the middle-income distribution of the population, thus, could create an administrative nightmare. The absence of civil registry data, weak administrative capacity, and the requirement to pay partial insurance premiums pose challenges to increasing enrollment and the continuation of beneficiaries in the program.Experimental evidence from India highlights these concerns in identifying the non-poor for public health insurance.⁴⁸

Despite the challenges, the idea of expanding insurance coverage is important, as errors of targeting often exclude the deserving. Including a wider set of beneficiaries would further increase utilization, as awareness gaps would be plugged. Instead of charging premiums for the non-poor as PM-JAY+ envisages, it may be more prudent to learn from the initiatives of various state governments that already have programs providing greater coverage for health insurance—in terms of population as well as health care costs—than PM-JAY. For example, anyone with an annual income below Rs. 72,000 (~US$1,000) in Tamil Nadu, which is much higher than the median income, is eligible for the insurance scheme. In Odisha and Haryana, all residents are entitled to public health insurance, while Andhra Pradesh,  Karnataka, and Chhattisgarh also cover significant shares of non-poor families. Instead of a PM-JAY+, a more reasonable policy would be an expanded PM-JAY to cover all sections of the population, which would reduce targeting costs and improve access. Once the Indian population is more “experienced” with the insurance product, the non-poor may be charged a small amount. Universal enrollment would also create a larger pool of the insured population—many of which healthier—which could be eventually bring down the insurance premium for the government. A continued incremental effort toward expanding beneficiary coverage is therefore essential to achieving the goals of UHC.⁴⁹

Investment in Public Health Care Infrastructure

How useful is access to health insurance without adequate quality health services? Very little. Overall, the capacity of health systems—both private and public—is poor, even by developing country standards. Health care infrastructure (per 1,000 people)—hospital beds, physicians, and primary care staff—in India needs substantial improvement (Fig. 7.4). The poor numbers also mask a huge gulf between the qualities of care across regions and the rural-urban divide. For example, it is widely known that public health infrastructure is significantly better in Tamil Nadu and Kerala when compared to poorer states like Bihar, Odisha, UP, or Jharkhand. Within states, secondary and tertiary care health care facilities are largely located in urban areas which increases the cost (transportation and accommodation) of care. Demand-drive health-focused social insurance to be successful therefore needs to be matched with the corresponding supply-side availability of quality health infrastructure (doctors, hospitals, pharmacies, equipment, medicines, etc.). Lower-level service providers at the public health infrastructure are overworked, and underpaid, while doctors are often absent and put in less effort in treatment.

Fig. 7.4

(Source World Development Indicators 2017. https://openknowledge.worldbank.org/handle/10986/26447)

Number of health care facilities per 1,000 people in India compared with countries in other income classes

The National Health Policy, 2017, proposed to increase public health expenditure to 2.5% of the GDP by 2025. Under the Ayushman Bharat scheme, there are further plans to increase primary public health infrastructure through the creation of 150,000 Health and Wellness Centers—which includes upgrading existing PHCs and subcenters—along with the use of PM-JAY to cover secondary and tertiary care. Greater spending, however, may not be done so equitably. Increasing the quality of health services and motivation for health care providers currently stands as the most important supply-side hindrance to increasing access to health.⁵⁰

Although investment in public health infrastructure without improving quality is certainly a futile effort, one cannot throw the baby with the bathwater, as the proverb goes.⁵¹ The fragmented public health system needs a new lease on life. PHCs, along with ASHAs, provide the first point of contact for patients with health care workers and have been instrumental in eradicating smallpox, polio, improving maternal health, and currently, in fighting against the COVID-19 outbreak by providing door-to-door information campaigns and vaccinations. As part of the Ayushman Bharat program, improved management of PHCs, better training of staff, and coordination with secondary care should be promoted to provide equitable access to quality preventive care, especially in underserved regions. It is well established that the poor, often residing in regions with underdeveloped public health infrastructure, tend to pay more for health care, causing further impoverishment.⁵² Effective preventive strategies for health concerns, therefore, can substantially reduce the need for complicated and expensive curative care at the specialized tertiary level.

Investments in secondary and tertiary public health systems are key to spurring and motivating private health providers. In LMIC, the structure and performance of the public sector health institutions are linked to public sector performance.⁵³ A healthy competition between the two sectors is necessary, as the private health care providers tend to collude and set higher prices or encourage unnecessary hospitalization expenditures. In the absence of an alternative option—a public health system with free quality health care—health shocks could have an increasingly catastrophic impact, even for common illnesses.⁵⁴ Maintaining high quality secondary and tertiary public health infrastructure has further long-term benefits. For instance, the presence of a strong public health system in Tamil Nadu has allowed the state to keep the health care costs to the patient, as well as for the exchequer, low. The strong and competitive public health system in Tamil Nadu has contributed to the lower prices charged in private hospitals, and better quality has led to a large share of the insurance-backed treatment being made available at public hospitals. To achieve UHC, the role of public health care infrastructure, therefore, is paramount, despite the increasingly important role of private health care providers in the health insurance program.

Improved Regulatory Oversight over Perverse Private Incentives

The behavior of private health care providers depends upon the institutional environment in which they operate (Bennett et al. 1994). While India’s public health care has been faulted for its inefficiency, profit-driven private health care systems have also been criticized for their exploitative practices. Patients are not only charged higher fees but referred for irrelevant and excessive diagnostic tests and for inpatient care beyond need. Corruption in the health sector is a fairly well recognized “dirty open secret” and the “opportunity to engage in corrupt practices by dint of being in a position of power in a system with inadequate oversight; financial, peer, or personal pressures felt by officials; and a culture that rationalises and accepts corruption” is a typical feature of the Indian medical fraternity (Jain et al. 2014).⁵⁵ Often, private hospitals provide time-specific “financial targets” to doctors, which they achieve through prescribing expensive—but unnecessary and even harmful—tests and surgical treatments, increasing the health-seeking costs for patients.⁵⁶ While private hospitals provide better quality, and therefore, attract patients with public insurance cover, they tend to charge governments and patients more, by manipulating claims and charging for free services.⁵⁷ Qualitative studies also suggest that patients often do not understand the various costs and coverage of services they are entitled to, and as a result, often end up spending a significant amount on OOP expenses (Ahlin et al. 2016; Nandi and Schneider 2020a, b; Ecks 2021). Conspicuous by its absence, in the contract design between the government and the insurance agencies, monitoring strategy and mechanisms do not find mention with discussion around the role of incentives for the various stakeholders for effective implementation of the program and the quality of care.⁵⁸ There is little recourse for patients if they are denied the benefits based on empaneled (rostered) care. As a result, contractual breaches are commonplace. Often, beneficiaries are not provided information about treatment packages, location of hospitals, transportation cost coverage, or food during hospitalization. Such malpractices not only lead to high OOP but also have negative consequences for equity and access, two important parameters of UHC.

Given the poor state of India’s current health system, the idea, while laudable, of health insurance anointing the private sector to deliver essential services such as health care as a PPP model is fraught with challenges: there is limited institutional oversight, regulatory frameworks, monitoring, and optimal price-setting. Malpractices in the Indian health care sector are rampant because of a weak regulatory climate, with poor quality standards and no institutional mechanisms to address grievances against ethical violations. This weakness leads to a low level of trust in in the health care sector—both public and private—that could further lower health-seeking behavior until absolutely necessary, leading to poor overall health. As a result, a study summoned by India’s planning body suggested that to ensure health insurance models achieve the objectives of equity, there is a need for a “robust regulatory system for quality and price control, supported by periodic technical and social audits” to discourage private health care from becoming unaffordable (Reddy et al. 2011). Addressing these regulatory issues first requires upgraded data and monitoring systems that can provide real-time records of each transaction undertaken—diagnosis, treatment, price, provider, length of stay in the hospital, patient history, etc.—sharable across the service providers and which can then be used to dynamically update the cost of treatment and quality of care (Morton et al. 2016).⁵⁹ Such a database would also allow regulators to monitor, authenticate, and arbitrate patients’ claims or when the government finds reimbursement claims suspicious. It would also facilitate quality ratings of service providers and create a national benchmark, which potentially allows for pricing treatments differentially according to the service provided.⁶⁰ This might foster more competition among the providers, bidding down the price of health care coverage.

In the absence of appropriate data systems and regulatory mechanisms, there is little monitoring of the value chain beginning from patient benefits received, claims made by providers to the government, and the subsequent payment made to the insurance firms, which makes the system vulnerable to malpractice. In response to such malpractices by the insurance agencies, many of the state governments, which are entrusted with the task of implementation using funds allocated by the central government, are increasingly switching to a trust-based model or a mixture of trust-based and private insurance agency models.⁶¹ Insurance companies hesitate to share patient claims, which puts the legitimacy of the treatment under scrutiny. Although the short-term issue of trust may be fixed in a PPP model, it also creates doubt about the long-term sustainability of trust-based or mixed models, as the government appointed trusts are inexperienced insurers. There is an urgent need to rethink the delivery mode of an insurance-based health system in India which generates synergies between both public and private health care infrastructure and strengthen the quality of fragmented health care delivery systems.⁶²

Recognizing the “Right to Health”

Finally, while public health insurance programs, such as RSBY and PM-JAY, have been key incremental steps toward the scope of providing financial protection and access to UHC in India, continuity of these initiatives and their long-term success must rely upon recognizing “right to health” as an inalienable part of the citizen-state social contract. While financial protection needs have motivated the need for health insurance, the success of the programs will rely on thinking them as basic citizenship “rights,” essential for human flourishing. It would be useful to look at the reforms in other emerging economies, such as Brazil, Thailand, Indonesia, Turkey, or South Africa, at how public health insurance schemes incorporate health care as a “right.” Such an approach would enable addressing the equity aspects of health care through creating institutional arrangements that advance the scope of health insurance as equitable access to health care and improved health outcomes, rather than as solely financial protection per se.

Experience from other social safety nets—the Public Distribution System (PDS) and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)—has suggested that their recent successes have relied significantly on the recognition of the rights to food and to work. Health, being an inalienable right of citizens, was recognized at the time when RSBY was introduced, but there has been little movement on this issue since then.⁶³ Recognizing health as a fundamental right would provide the necessary boost to the fragmented service-delivery model of Indian public health systems. It would also establish a clear set of legal obligations of government to its citizens, which would not only put health on the political agenda but also empower citizens in demanding their right to improved quality of health care. Greater involvement of citizens would increase accountability of service providers, public or private, and pave the way for regulatory reforms that could provide patients with greater influence and trust in the health system.

Summing Up

There is no one definitive and correct path toward reducing poverty or improving health. Multiple arms of social policy are needed to cope against economic shocks. Subsidized public health insurance is one only such tool, which is increasingly becoming an important lever of anti-poverty policies in developing countries, as the costs of health care—partly driven by rising NCDs—have increased along with the inability of public health infrastructure to provide quality care to a rising share of the population. India’s public health insurance is still in its infancy, with a shockingly low share of expenditure on health, limited insurance coverage (in terms of people covered and types of health expenditures), poor quality of health infrastructure, lack of financial literacy, and poor regulatory institutions to check perverse incentives for the private health providers. As a result, although health insurance has increased health access, it has not yet been able to deliver either on reducing out-of-pocket health expenditures or on improving health outcomes that increase household resilience. Long-term, broad-based gains from the health insurance program can only be realized once there is a credible political commitment to universal health care, which, in turn, can only begin by recognizing the “right to health” as a fundamental right of the citizens.