To achieve its healthcare goals, the Government must meet its medium-term target. This Budget should focus not merely on higher public health spending or increased allocations. It must encourage the health insurance industry to come up with a standardised, affordable healthcare plan

In tomorrow’s Union Budget, allocation for health is expected to increase by 11 per cent against the health Ministry’s demand for a 33 per cent raise over previous year, reported Reuters recently. A modest increase in the health Budget will not be surprising, given a tight fiscal situation against the backdrop of the newly-introduced Goods and Services Tax regime that has imparted uncertainty in indirect tax collection. lower-than-expected increase in central health allocation will make achieving the medium-term target of Government health spending a little more difficult. In the National Health Policy 2017, the Government set the target of raising the share of public health spending to 2.5 per cent of the Gross Domestic Product by 2025. Nonetheless, the health Minister continues to exude confidence in meeting the medium-term target.

Tax-financed public health spending is the best way to improve health outcomes as well as provide financial protection. But when such spending is low, people have to pay out-of-pocket (OOP) with all its attendant adverse consequences. Indeed, the share of OOP health spending at 62 per cent of the total health spending in India is considered to be quite high. In its three-year action plan, Niti Aayog has set the target of reducing the share of OOP from 62 per cent to 50 per cent by March 2020. But a truncated health Budget will make it difficult for the Government to expand its initiatives, aimed at making healthcare affordable for the people.

Continuation of low public health spending, coupled with rising medical care costs, is increasingly forcing people to turn to private health insurance market. Recent Fortis and Max-like incidents are further fueling this trend. As a result, private health insurance market is growing at a healthy rate. Health insurance premium grew by around 25 per cent in 2016-17 over the previous year. Similarly, the number of lives covered also increased by over 20 per cent in the same year. In fact, the number of lives covered has more than doubled in the last five years. Still, with only 44 million people insured for health by the formal insurance sector, the insurance companies reckon a huge market potential to be tapped.

While any form of risk pooling mechanism is better than having households to incur OOP health expenditure at the time of care, risk pooling through private health insurance market is not really suitable for covering population at scale. It is well-known that private health insurance companies do a good job in controlling insurance claims but not necessarily in controlling healthcare costs! Still, a few Government-sponsored health insurance schemes, including the Rashtriya Swasthya Bima Yojana, use formal health insurance provider channel to deliver healthcare benefits. However, Government-sponsored health insurance schemes are up for a redesign. The proposed National Health Protection Scheme (NHPS) may take some time before it is launched. In any case, NHPS will mostly target the poor and the weaker sections of the society. However, no such scheme is being thought for the middle class that constitutes a sizable share in the total population.

For promotion of health insurance among the middle class, India Inc has been asking the GST Council to slash the share of GST tax from 18 per cent to a lower slab. And on the eve of Budget, the middle class have been asking and expecting the Finance Minister to either raise the financial limit on benefits allowed under the income tax rules or allow for a separate deduction for health insurance premium.

Even for the middle class, there is a need for providing financial protection against rising hospitalisation expenses. A tax-financed method, which is ideal for providing such protection, may take quite some time to develop. Till such time, incentivising purchase of health insurance from formal insurance providers may be the way to go. And the best approach will be to have the health insurance industry come up with a basic, standardised, affordable plan that health insurance providers would have to mandatorily offer. Those needing additional protection can always top-up the basic, standardised plan with purchase of additional insurance cover from the market.

However, placing such a requirement on the health insurance industry may not go well particularly with the private insurance players who are eyeing this segment of the market as a lucrative business opportunity. Indeed, 90 per cent of the total health insurance premium is generated from sale of insurance to individuals and groups that account for only 23 per cent of the people insured by them. The remaining 77 per cent of the people insured by them are under Government-sponsored health insurance schemes — not a very lucrative segment! In other words, Government sponsored health insurance (including RSBY) drives the number of people insured while it is individual policies and group policies that account for a substantial share of health insurance premium.

Therefore, from the standpoint of the middle class, what is worth asking for now is not a higher public health spending (that can be a medium-term ask). Nor asking for higher financial limit on the benefits allowed under income tax. What is probably worth asking for is having the health insurance industry come up with a basic, standardised, affordable healthcare plan that covers much of the hospitalisation care needs of the middle class. Even though the Budget is all ready to be presented, the annual Budget is not the only occasion. This is an ongoing ask by the middle class from the Government.

(The writer is a development economist, formerly with the Bill & Melinda Gates Foundation and the World Bank)