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Flaws of Insurance-based Healthcare Provision

The Tamil Nadu Healthcare Model

Gayathri Balagopal ( is an independent researcher based in Chennai. M Vijaybaskar ( is with the Madras Institute of Development Studies, Chennai.

Tamil Nadu is recognised for its achievements in human development, especially in the area of healthcare. In light of the central government’s recent move to launch insurance-based targeted healthcare provision, a case is made for paying attention to building public health infrastructure based on Tamil Nadu’s experience with healthcare provisioning. The pitfalls of insurance-based provisioning and targeting, and the need to recognise regional trajectories and institutional innovations in this regard are highlighted.

The authors thank the anonymous referee whose comments were helpful in finalising this article.

Although the National Democratic Alliance government’s 2018–19 budget reduced the National Health Mission’s budgetary allocation, it also marked the unveiling of two new initiatives under Ayushman Bharat. These were health and wellness centres with a budgetary outlay of ₹ 1,200 crore, and the National Health Protection Scheme (NHPS) with a budgetary outlay of ₹ 10,500 crore. The Ayushman Bharat–National Health Protection Mission (AB–NHPM), also referred to in the budget speech as the National Health Protection Scheme, is a targeted health insurance programme for hospitalisation-related expenditure with an annual coverage of ₹ 5 lakh per family, catering to 10 crore poor families identified using the deprivation criteria from the Socio-economic Caste Census data. Subsuming the Rashtriya Swasthya Bima Yojana (RSBY), this scheme will cover almost all secondary and tertiary care procedures—including for pre-existing diseases—at empanelled public and private hospitals and will be portable across the country. The implementation modalities are in the process of being finalised.

The scale of the announced scheme is definitely unprecedented, but it is hardly novel in its approach. The RSBY, which was introduced by the United Progressive Alliance in 2008, was similar. The RSBY was preceded by state-level schemes, like Karnataka’s pioneering Yeshasvini Cooperative Farmers Health Care Scheme introduced in 2003, Andhra Pradesh’s (AP) Rajiv Aarogyasri Community Health
Insurance in 2007, Kerala’s Comprehensive Health Insurance Scheme in 2008, Tamil Nadu’s (TN) Chief Minister Kalaignar Insurance Scheme in 2009, and Karnataka’s Vajpayee Arogyasri Scheme in 2011. Other states too have similar schemes. At the all-India level, evidence based on three rounds of National Sample Survey Office (NSSO) data (1999–2000, 2004–05, and 2011–12) indicates that the RSBY was not successful in reducing the out-of-pocket (OOP) expenditure burden for treatment among poor households (Karan et al 2017a). Since the intervention seems to be inspired by state-level initiatives, and also since health is a subject of state governments, we use TN’s experience with public healthcare provisioning to argue against relying on insurance-based provisioning of healthcare at the expense of the public healthcare system by comparing evidence on healthcare utilisation and expenditure from the other southern states.

Public Health Infrastructure

TN is known for its ability to combine relatively high levels of human development with economic growth. Key to its high human development are its achievements on the health front (Muraleedharan et al 2011; Drèze and Sen 2013; State Planning Commission 2017; Kalaiyarasan 2018). The state has a well-run public health network at the primary, secondary, and tertiary levels, with many services being provided free of cost. One key innovation that has kept the prices of medicines low in TN is the establishment of the Tamil Nadu Medical Services Corporation (TNMSC) in 1995, which has adopted a centralised and streamlined procedure for the procurement, storage, and distribution of drugs (Lalitha 2008). The state is also known for its early commitment to preventive public health. In fact, out of the total outlay of ₹ 11,326.3 crore for health and family welfare in 2018–19, the largest share (28.5%) went to public health and preventive medicine. TN and Kerala are the only South Indian states that have no shortages of sub-centres, Primary Health Centres (PHCs), and Community Health Centres (CHCs), and their government hospitals provide better population coverage (MoHFW 2017; CBHI 2017). TN also has a surplus of doctors in its PHCs (MoHFW 2017). However, the latest data reveal a shortage of human resources like auxiliary nurse midwives (ANMs), pharmacists, radiographers, and laboratory technicians in PHCs and specialist doctors in CHCs (MoHFW 2017). The shortfall of a key resource, namely, ANMs, began from 2009. Interestingly, it was in 2009 that TN launched a public non-contributory targeted health insurance scheme called Chief Minister Kalaignar Insurance Scheme, which was renamed as Chief Minister’s Comprehensive Health Insurance Scheme (CMCHIS) in 2011, to address OOP expenditure on hospitalisation. We do not have evidence to attribute causality between the introduction of the scheme and human resource shortfalls, but it could well be a possibility. The scheme has an annual coverage of ₹ 1 lakh, which goes up to ₹ 2 lakh for specialised procedures (HFWD 2017). The Tamil Nadu Health Systems Project (TNHSP) implements CMCHIS and routes funds to a public sector insurer, United India Insurance Corporation. Third-party agencies are given the responsibility of payments to hospitals (Karan et al 2017b). The scheme has empanelled 155 government hospitals and 616 private hospitals (Karan et al 2017b). Certain procedures are reserved for government hospitals and the TNHSP has fixed the rate for packages for different procedures. TN has allocated ₹ 1,361.6 crore, accounting for 12% of the health outlay, towards CMCHIS in 2018–19. Except for 2013–14, in all the other years under consideration, TN has spent more than or equal to the amount that was allocated towards the scheme (Figure 1).


Although a majority of outpatient and hospitalised treatment in TN takes place in private healthcare facilities, the importance of publicly provided health services is evident from Table 1. The proportion of ailments that were treated in public healthcare facilities (outpatient and hospitalised treatment) was the highest in TN among South Indian states in rural areas, and the second highest in urban areas, after Kerala. In fact, there was an increase in the utilisation of public healthcare facilities for outpatient treatment in rural TN between 2004 and 2014 by 13 percentage points (NSSO 2006, 2016).


However, coinciding with the introduction of the state health insurance scheme in 2009 that covered hospitalisation expenditure, there is a decline in the use of public hospitals for hospitalisation by 7.9 percentage points between 2004 and 2014 (NSSO 2006, 2016). While proximity, perception of quality, and better behaviour from staff could be reasons for higher use of private hospitals in urban areas, we cannot discount the role of the insurance scheme in driving this change given that this trend is observed mainly with respect to hospitalisation. This shift could result in a spurt in unnecessary surgical interventions and reduced commitment to strengthen public hospitals. However, the continued reliance on public healthcare has contributed to lower OOP expenditure among households in the state.

Expenditure on Treatment

Household medical expenditure on outpatient treatment or OOP expenditure was the lowest in TN and Kerala, where the government subsidises healthcare to a larger extent (Table 2).


Given that OOP expenditure in private hospitals was nearly 20–25 times that of public hospitals for outpatient treatment and nearly 42 times for hospitalised treatment, it is clear that public health facilities play an important role in keeping OOP expenditure on medical treatment down in TN (NSSO 2016). The data also shows that nearly three-fourths of the population that incurred health expenditure on hospitalisation did not receive any form of health expenditure support and less than 20% were covered by government-funded health insurance in TN (Table 3, p 20). This could be due to the continued reliance on public health providers.

Notably, TN’s achievements in the health sector predate the state’s own health insurance scheme. The limitations of a targeted insurance-based approach are evident even at the national level, with less than 10% of the bottom quintile and more than 15% of the top quintile households’ health expenditure being supported by government-funded health insurance schemes (NSSO 2016). Targeting is particularly problematic. As Anirudh Krishna has famously and convincingly argued, poverty is always just “an illness away.” Highlighting the dangers of viewing those living below the poverty line as a stock, he points out that there is a continuous flow of households into poverty due to health-induced vulnerabilities and economic shocks.

The government-funded health insurance scheme has further resulted in financing private health providers at the expense of the government and resulted in the private hospitals lobbying to increase the budget in AP (Reddy and Mary 2013). Reddy and Mary also highlight the surge in unnecessary surgical interventions by private hospitals to claim insurance benefits. Evidence from the available data on CMCHIS supports Reddy and Mary’s argument of the government subsidising private hospitals, since private hospitals have cornered a larger share of the total number of claims between 2012–13 and 2015–16 (Figure 2).

Data on the average amounts claimed and approved shows that both were higher in private hospitals than in government hospitals between 2012–13 and 2015–16, suggesting that the inclusion of private hospitals leads to an escalation in the cost incurred by the government (Table 4).

It must also be borne in mind that most insurance schemes are discriminatory in that they exclude certain conditions like psychiatric disorders. In addition, for a state like TN, which has a high epidemiological transition level, the dominance of non-communicable diseases (NCDs) necessitates long-term expenditure on outpatient treatment, which is not covered by government-funded health insurance schemes (ICMR et al 2017).

In Conclusion

Despite growing evidence on how the rising cost of healthcare is a significant source of vulnerability among poor households, the response of successive central governments has been inadequate. Public health expenditure constituted 1.1% of the gross domestic product in 2014–15 (NHSRC 2017). The large share of treatment in the private health sector has established path dependence, with new strategies being designed to strengthen this approach, a claim borne out by the health insurance experience in TN, which witnessed increased use of private hospitals for hospitalisation after the introduction of the scheme. Despite TN producing a large number of human resources in health, the public health system is confronted by emerging human resource shortages (Planning Commission of India 2011).

Policy shifts towards an insurance-based healthcare provision can, therefore, downplay the role of the public health sector. Drèze and Sen (2013) point out that the insurance-based approach to universal health coverage is not only inadequate, but importantly can also incentivise the private insurance sector lobby to exert pressure on the government to prevent any dilution of this strategy. Further, health insurance schemes ignore outpatient care. TN provides highly subsidised outpatient care, with medicines and consultations being delivered free of cost through the public health system. This is important as the state has a high prevalence of NCDs.

With many states having developed their own approaches to universal health coverage based on responses to regional specificities, the central government scheme can undermine spaces for such innovative responses by state governments and weaken public health infrastructure. In the case of TN, what has worked is a combination of publicly provided health services and an efficiently functioning drug distribution policy. At the national level, priority has been accorded to coping and curative social protection measures over prevention (Kapur and Nangia 2015). As has been well established, public health regimes ought to aim to prevent occurrence of disease and death and protect against health expenditure shocks. TN demonstrates the importance of this approach.


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Updated On : 11th Jan, 2019


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