Voluntary health insurance and its expansion

With the launch of Pradhan Mantri Jan Arogya Yojana (PMJAY), insurance is no doubt set to play a dominant role in India as seen in other countries, in its path towards universal health coverage (UHC). Approximately 46% of the population in India is covered through some form of health insurance, mostly shallow, providing in-patient services. These schemes form multiple risk pools extending from social health insurance like the Central Government Health Scheme (CGHS) and Employee State Insurance Scheme (ESIS) for formal employees (10% of the population) to private and commercial health insurance plans purchased by private companies, individuals and families voluntarily, also termed as Voluntary Health Insurance (VHI). The PMJAY, a central and state government-sponsored insurance scheme, was introduced in 2018 to cover those below the poverty line (BPL), expected to cover 40% of the population. There are variations seen in the breadth and depth of coverage in PMJAY across states. Some states have expanded the scheme to cover those on the edge of poverty but not BPL, while others are moving towards universal health insurance coverage for the entire population like in Meghalaya, Odisha, West Bengal and Tamil Nadu. According to the National Health Accounts, 14% of the total health expenditure for 2019-20 fell under insurance schemes. According to the Insurance Regulatory and Development Authority of India (IRDAI), the penetration of insurance and the number of lives covered have increased considerably in the last decade, with 520 million lives (36%) covered by some form of health insurance in 2022 – this excludes CGHS and ESIS. But there still remains a large section of the population, over 30% in the informal sector, that is bereft of any health insurance. They are known as the ‘missing middle’ – they are neither supported by an employer-based scheme due to informality of work nor do they fall below the poverty line to be covered under the government-sponsored schemes. Their income ranges from very low- to high-income brackets. The upper classes in this category purchase insurance voluntarily.

Given the low commitment of the government towards health spending for decades, experts contend that this scenario might continue for some time with some incremental increase. Till the government commits to spending substantively on health, India might have a case for expanding VHI by making it more accessible to its population. The VHI in its present form is regressive due to its commercial nature, targeted to those who can purchase the expensive policies and also denies insurance for individuals who are at high risk due to age and/or pre-existing illnesses. The government could take the initiative to expand VHI by making it more accessible to the ‘missing middle’ and in doing so has to play a strong regulatory role in addressing the inherent market failures that arise. Regulatory frameworks and operationalising these under government stewardship must be a pre-requisite and a necessary condition for expanding VHI. The expansion would include increasing demand for health insurance for a larger risk pool. This could be possible with complete to partial subsidisation for those in the informal sector who are poor and not covered by PMJAY; by making contributions income-rated so as to allow cross-subsidisation; and by standardising packages, protocols and pricing through negotiations with insurance companies and private providers. This also becomes a way of regulating the private sector. Drawing lessons from countries such as Indonesia, Japan, South Korea, China, Thailand, Chile and Mexico, one gets insights on VHI enhancement; the extent of subsidisation for non-poor informal-sector workers; creating standardised packages across income groups; and the establishment of an autonomous insurance regulatory body pooling funds for the entire population that regulates insurers and providers.

The IRDAI in its present form plays a limited role that is restricted to standardising health insurance policies and regulating the entry of private insurance companies into the market, and does not wield its capacities to the fullest. IRDAI could play the role of the regulatory body and have a separate sub-agency looking just at health insurance (along with the National Health Authority - NHA). Apart from creating standards, it could pool funds; minimise frauds in the system that harm beneficiaries; generate and collate quality data from providers so that evaluations can be done and the system can be made more efficient through reforms by creating space for experimenting, piloting and innovations and move towards greater depth of coverage. Data with IRDAI and NHA should be made public for evaluations leading to reforms.

Making VHI accessible under the government’s stewardship and regulatory frameworks would be an interim step towards providing shallow but universal coverage, to begin with. As government funds are made available, VHI schemes can move towards mandatory national health insurance to merge with PMJAY with a greater depth of services.

The idea of UHC is the equitable expansion of health services with adequate financial protection for the entire population with comprehensive services. Equitable progress towards UHC requires attention to the regressive approach of VHI. It should not be blindly promoted but should be used as an interim tool towards the path to universal coverage. This would also mean restructuring the supply side for making the national insurance scheme effective, especially strengthening of primary health services. Given the complex health service system in India, this could be one way of moving towards minimising market failures; reducing fragmentation in financing, provisioning and governance; and the gradual reduction of Out-of-Pocket Expenditures on Healthcare (OOPE).

This article is authored by Madhurima Nundy, fellow, and Pankhuri Bhatt, research analyst, Centre for Social and Economic Progress, New Delhi.