Under normal circumstances, the decision of the Insurance Regulatory and Development Authority of India (IRDAI) to form working groups for health insurance reform to improve transparency, coordination
between hospitals and insurers, and the patient experience should be a welcome measure. But these are not normal times for those forced to buy commercial health insurance because of uncontrolled premiums, fragmentation of patients in numerous small risk pools, and the absence of a law to regulate healthcare.
Infusion of private equity into healthcare is further raising pressure for profits. Private health insurance is the only alternative for millions left out of the Pradhan Mantri Jan Arogya Yojana (PMJAY) or the State Health Insurance Programmes (SHIP), and as health economists have been underscoring for long, this capitalist model has an incentive to collect higher premiums but not settle claims. The rising tensions echoed in the Lok Sabha recently when Union Minister of State for Finance Pankaj Chaudhary defended rising premiums as a consequence of citizens growing older, the sum assured in the policy going up, and changes to policy features, including coverage of pre-existing diseases.
Quite extraordinarily, the Union government admitted in Parliament that the IRDAI, the regulator, had done no study on the rate of medical inflation and its correlation with health insurance premiums. It is useful to remember that only 41% of families had one member covered by any health insurance in 2019-21, as per the NFHS-5 data. Even accounting for a higher share of those insured through PMJAY and SHIPs, much of the middle class is left to fend for itself in a sector ridden with disputes. Moreover, care purchased by the government from the private sector is not done transparently. Many hospitals turn away PMJAY policyholders.
As the Nobel-winning economist Kenneth Arrow pointed out as early as 1963, competitive markets in healthcare do not deliver optimal results because patient-consumers cannot judge correctly the need for particular care, the quality of care and its adequacy even when it is free. Besides, healthy individuals do not take out insurance until they actually need it as they age, reducing the pool of the insured. Governments are only too aware of these fundamentals.
Yet, they ignore important recommendations, such as those made by the erstwhile Planning Commission’s High Level Expert Group to move to universal tax-funded care and regulate the sector through national, state and district authorities. The immediate problem is the runaway growth in insurance premiums, which has created a vicious cycle of people dropping out and thus shrinking the pool, in turn raising costs for those who remain. The IRDAI’s circular on no-claim bonus and capping of senior citizen premium increase at 10% annually has found few takers among insurers. Fines levied on some insurers are no more than a blip in their vast premium collections. The IRDAI must get its act together and bring this runaway system to heel.
