For state-sponsored insurance, governments should avoid insurance companies
World Bank data, in 2015, showed that nearly 65% of health-care expenditure in India is “Out of Pocket” (OoP). A report by the World Health Organisation has shown that around 3.2% of Indians would fall below the poverty line because of high OoP health expenditure. Thus, a national health insurance scheme like the Ayushman Bharat is welcome.
While the principle of insuring a vulnerable population is widely accepted, what is contentious is the model that the government has adopted — that of using insurance companies. High premiums are paid for these schemes. Ayushman Bharat, for instance, has enhanced the Rashtriya Swasthya Bima Yojana (RSBY) of the United Progressive Alliance government, to cover around 11 crore families with a yearly coverage of ?5 lakh. Experts estimate this will require ?25,000 crore per year, when fully implemented. Similarly, the Central and State governments jointly paid ?17,796 crore for crop insurance (2017-18) under the Pradhan Mantri Fasal Bima Yojana (PMFBY).
The flawed model
Insurance works on the principle of pooling the risk of policy holders. But another common sense idea must guide insurance decisions. If an individual, corporation or a government can bear a certain quantum of risk by themselves, it is not financially sensible to insure with an insurance company. This is because administrative overheads and profit margins of insurance companies are included in insurance premium costs.
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