Traditional health insurance is not the path that leads to universal healthcare. It misaligns incentives, inflates costs and wastes resources. There are many examples of efficient healthcare around the world, of which Britain’s state-funded National Health System is only one.
The model of healthcare providers taking on the responsibility of keeping an assigned set of people healthy and treating them when they fall ill, in return for a fixed amount paid yearly, which developed in California in the 1980s, deserves the attention of our policymakers.
It is useful to begin analysing policy options with some unbundling. Let us start with costs. The core component is the actual cost of providing the needed healthcare. In theory, in a state-funded system, this is the only element of cost. When a private provider enters the scene, one has to add its profits. When you introduce a health insurance provider, who then pays the care provider, you add, at the least, the profit margin of the insurance company as well.
In reality, because of the lack of alignment between the interests of the care provider and of the insurance companies, needless investigations, procedures and medicines enter the picture and inflate costs.
Let us unbundle what an insurance company does. It performs the vital task of pooling payments for a large number of people, with different risks of falling ill. Everyone does not fall ill every year, but pays a premium every year. The money collected from a large population over a number of years will add up to a sum large enough to pay for the healthcare costs, as charged by care providers, of those insured, along with profits for the insurer. This pooling distributes costs across the population and over time, so as to save those who do need care a sudden, huge bill they find difficult to pay.
‘ The insurance company performs, in this process of pooling, the additional, vital task of prepaying for healthcare, so as to avoid costly out-of-pocket payments at the point where healthcare services are purchased. It performs probability calculations to assess the likely expenditure on individual buyers of insurance, given their age, history and level of fitness, and assigns the premium to be paid.
Finally, it pays the care provider while tracking costs to eliminate waste and fraud. This part is now mostly outsourced to third-party administrators, or TPAs.
Now, let us repackage these unbundled elements differently from the traditional insurance-led model. Suppose the healthcare provider takes on the pooling, prepayment and actuarial estimation functions, in addition to actual provision of care.
In California, some of the so-called Independent Physicians’ Associations that contracted to care for people in return for capitation payments nearly bankrupted themselves, because they got their actuarial estimates wrong and charged too little. Over time, they got it right and the model has made its way to the US east coast, in a variety of forms called Accountable Care, Managed Care, etc.
Where do we have competing healthcare providers in rural India for this model to work? The government should look at a hospital chain called Glocal, mentored by former Sebi chairman M Damodaran and run by Sabahat Azim, a doctor who left the Indian Administrative Service to set up and run these hospitals in small towns that offer primary and secondary care at low cost and still turn in decent profits.
Where does India have the doctors to man more hospitals? There is a serious shortage of medical colleges, particularly for postgraduate degrees in medicine. The biggest cost in setting up a medical college is setting up a functional hospital. Why not ask every Apollo, Fortis, Max, etc, hospital to attach a college to itself, and increase the supply of doctors? Convert every large hospital into a teaching hospital, in short.
Private health insurance can supply unbundled services for a fee and also provide traditional insurance to those who want private rooms, bells and whistles. The government must step up the game in regulation, besides raising healthcare and public health engineering outlays. Universal healthcare is an achievable goal.