The opportunity cost of state health insurance schemes

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Large-scale government-sponsored health insurance schemes (GSHIs) such as Ayushman Bharat are often heralded as the best way to address public health issues. But are they fiscally feasible and optimal for improving health care in India? A new National Institute of Public Finance and Policy paper by Mita Choudhury and others shows how basic healthcare can suffer following the introduction of GSHIs, especially in fiscally constrained situations.

In their analysis, they examine health insurance schemes implemented by Andhra Pradesh (including Telangana), Karnataka and Tamil Nadu between 2004-2017. They find that the fiscal burden was the highest in Andhra Pradesh with over 25% of total health spending directed towards the insurance scheme, compared to 10-13% in Tamil Nadu and 5% in Karnataka. The higher fiscal burden in Andhra Pradesh is attributed to the scale of the scheme which covered 1,000 procedures and about 85% of the population. In all three states, insurance schemes were gradually expanded from just covering the poor to other sections of the population. This, according to the authors, had adverse health and fiscal effects in the long run.

They show that spending on other important aspects of public health such as primary and secondary healthcare (which includes rural healthcare centres) fell. This, in turn, could result in more hospitalizations in the long run which can increase the cost of insurance schemes.

The authors also find that a higher budget on insurance does not necessarily translate to effectiveness. In Andhra Pradesh, only 10% of hospitalizations were covered by the insurance scheme while in Tamil Nadu, the figure was slightly higher (16%). One factor that worked in favour of Tamil Nadu was its strong public health system. As a result, most insurance claims came from public hospitals and the state could negotiate lower prices for health procedures in private hospitals.