India’s Health Insurance Experiment. Who will be the winners?


Though the exact cost of Modicare, the government’s extension of health insurance for poor people, estimated at one lakh crore (a trillion U.S. dollars), is open for debate, what is not disputable is that the cost of insuring India’s poor won’t fall with time. A sure way of accelerating healthcare inflation, that is speeding the rate of increase of healthcare costs, is by subsidizing or paying for health insurance. Insurance is like Newton’s Second Law of Motion – the velocity keeps increasing as long as the force is applied.

Healthcare is a peculiar industry. Cars get cheaper but medical care doesn’t. The Maruti eventually became cheaper than the Ambassador, and more aesthetically pleasing than its Neanderthalic predecessor. Medical care doesn’t get cheaper because a life saved from cancer is a life waiting to be killed by another disease, which needs treating, too. Survivors of cancer get heart attacks and survivors of heart attacks get cancer, and survivors of both get dementia.

It’s like a restaurant where you can’t just pay for lunch – if you pay for lunch you have to pay for breakfast and dinner and may be a few samosas in between the meals. But unlike eating, consumption of medical care is not guarded by satiety. The insatiable medical sciences keep delivering even more expensive ways death can marginally be deferred. For example, the once dreaded stroke which leads to paralysis is now treatable. However, the treatment is not cheap and comprises clot busters, dangerous drugs with fatal side effects. Further, to treat stroke you need rapid diagnosis by modern imaging – that is you need CAT scans and radiologists. If penicillin for pneumonia is like eating at a roadside dhaba, treatment for acute stroke is fine dining at the Taj.

Insuring all citizens is fine but someone must pick up the tab. Since the costs of medical care are shared by everyone – ill or well, which is the whole point of insurance, the market mechanisms for controlling prices disappear. Hospitals become more daring with their charges, as they feel more emboldened charging faceless insurers than patients. If you think the charges for an ICU stay at Apollo Hospitals are too high – wait till the insurance industry expands.

Then there is a well-known phenomenon called moral hazard – when people don’t pay specifically for individual episodes of care, they use more medical services – i.e. the use of both necessary and unnecessary care rises. Think of it this way – if you’re splitting the restaurant bill there’s a tendency for everyone to get the more expensive items on the menu, because you’re not saving money for your own thrift there’s no incentive to be thrifty. The bill is higher for everyone than if they had gone dutch. The total bill is also higher, and restaurants make more money.

Money spent on insurance premiums, rupee for rupee, doesn’t all go to medical care. Inevitably, administration is required to manage insurance claims. Insurers employ staff to ensure that hospitals are billing correctly, and what is being billed for is indeed medically necessary. Hospitals employ staff to make sure insurers pay for what is billed, and that doctors are billing correctly. Far from reducing the medical costs, the administrative costs of insurance increase net costs, which increases premiums, which keep rising.

Insurers may restrict which doctors the insured can see and hospitals may restrict which insurance they accept, diminishing patient choice. As far as jobs are concerned Modi’s stimulus, ostensibly for poor people, will create white-collared jobs – i.e. jobs for the middle class. This creates an intriguing trade-off – looking after poor people creates jobs for the middle class. Modicare is a windfall for doctors, economists, data scientists, talentless box tickers, statisticians, and the pharmaceutical and device industry, but not for school teachers or autorickshaw drivers or chaiwallahs.

Modicare will look after the health of unemployed Ramu Kaka with an acute stroke from rural Bihar. But economists warn us that there’s no free lunch – there is always an opportunity cost. The money spent on treating Ramu Kaka’s stroke, as humane as that is, is money not available for good schools and public works. Thus, unemployed Ramu Kaka gets a CAT scan for stroke, but his clever children still attend poor quality schools and remain working class. Meanwhile, mediocre Raj from urban Patna will become a claims administrator for an insurance company.

If you asked Ramu Kaka about his preferences, maybe he’d forego that free CAT scan for a job and for better education for his kids. Perhaps if he wasn’t unemployed, he’d not be smoking so heavily, and not have gotten that stroke in the first place.

There is only so much that medical care can do to improve the health of a nation. Without infrastructure, medical care is like a rose in a swamp. You can have all the CAT scans and clot busters to treat stroke but if the roads are so congested that it takes ambulances two hours to get to a hospital, all the medical effort is for naught.

Universal healthcare should be the goal of affluent nations. But the cost of Modicare isn’t trivial. And given the state of the air in many Indian cities, the lingering lack of basic infrastructure, and the desiccated state of public education, Modicare is a tad premature.

About the author:

Saurabh Jha is a contributing editor to THCB. He can be reached @RogueRad. This piece originally appeared in The Telegraph, India






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5 replies »

  1. “it is impossible for any Government to support the insurance with sponsoring.”

    The poor don’t want insurance, they want health care. Maybe India should ask Cuba about how to set up a patient centered health system.

  2. Maybe you are correct at some point, “Modicare” may not work at all but he is trying to recover all the problems especially for poor people. I think it is good to give insurance to poor people.
    Yes, there are very fewer people who really want this by heart and yes, there are still many doctors and people who really don’t think and contribute to their own for the great cause of helping poor.
    But Government can not ignore the solution for this great cause to those who really need this and who need medical tourism facilities. We can’t ignore them.
    Thanks for writing this post as this is very necessary to come up globally.

  3. The insurance attempt in India by ‘Modi’ may not work out with all complications to help poor as explained in the article. With vast population and 90% of population below poverty line, it is impossible for any Government to support the insurance with sponsoring. The day when doctors and hospitals are ethical and people contribute on their own for this great cause of ‘helping the poor’, this experiment remain as an experiment.

  4. Maybe Britain can pay back the billions in extracted wealth they stole from India’s GDP to help get that infrastructure up to date.

  5. They’ll probably use monopsonic purchasing–every government health program in the world does this except the U.S.–so that they will keep costs somewhat down compared to what we do….which is insane.