ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Decoding Ayushman Bharat

A Political Economy Perspective

Shailender Kumar Hooda ( is faculty at Institute for Studies in Industrial Development, New Delhi.

The challenges before the components of Ayushman Bharat, the (ir)rationality behind raising the insurance coverage manifold are highlighted, a political economy narrative of the changing health financing scenario is drawn, and how the design of Ayushman Bharat will feed into executing the proposed public–private partnership model in public facilities and facilitate the strategic purchasing agenda of the National Health Policy is examined. Ayushman Bharat is a step towards creating a system that would facilitate in relinquishing public funds and public institutions to already dominant private players, which will have serious implications for the healthcare delivery system in India.

The world has observed “transitions in health financing and policies” for achieving universal health coverage (UHC). UHC is a system in which everyone in a society can get the healthcare services they need without incurring financial hardship (WHO 2005). This argues for creating a system that expands access to care, improves equity, and pools financial risks. Despite having heterogeneous approaches to achieve UHC, developing a risk pooling mechanism is central to it. The pooled share is sometimes mobilised as taxes and channelled through governments that provide or subsidise care; in other cases, it is mobilised in the form of contributions to mandatory insurance schemes (Savedoff et al 2012). Some countries have sought for insurance cover for the poor and underprivileged through fully subsidised insurance premiums, while the non-poor have the option of voluntary (or compulsory) enrolment (GoI 2011).

The strengthening of essential primary, secondary and tertiary healthcare in the public system has always been a half-hearted priority in India, but the focus has now been shifted towards promoting an insurance-based system. The country has witnessed a plethora of central- and state-level pro-poor health insurance schemes since over a decade. The funding nature of most of these schemes is rather different from the resource pooling mechanism of other countries, as they are mostly funded from government (tax) sources with minimal to no contribution from beneficiaries. Until recently, public investment in health was mostly used for financing the public health system for service provisioning, and now the (tax) funds will be diverted to finance the insurance-based system. This will lead to an important shift in the fundamental nature of healthcare financing in the country.

In the 2018 budget, the government came up with a big-bang plan called Ayushman Bharat to transform India’s healthcare system towards achieving universal access to primary, secondary and tertiary healthcare. To achieve these targets, Ayushman Bharat is framed around two components, namely health and wellness centres (HWCs) and National Health Protection Scheme (NHPS), renamed as Pradhan Mantri Jan Arogya Yojana (PMJAY) at the time of its launch on September 2018. The former aims to strengthen and upgrade the existing 1.5 lakh sub-health centres (SHCs) into HWCs to address primary care needs relating to maternal/child health and defined category of NCDs (non-communicable diseases) care. PMJAY aims to ensure financial protection for accessing secondary and tertiary care from public and private providers with an insurance coverage of `5 lakh per annum to 10.74 crore poor and vulnerable families. The HWCs strengthen the public system, while PMJAY would facilitate service purchasing from public and private providers.

This paper highlights the challenges that lie before the execution of both the components of Ayushman Bharat, the (ir)rationality of raising the insurance coverage manifold, draws a political economy narrative of the changing health financing scenario, and examines how Ayushman Bharat by design will feed into implementing two recent health policy pronouncements of the Government of India, that is, Public Private Partnership for NCDs in District Hospitals-2017 and National Health Policy (NHP), 2017. These policies sought to execute the PPP model in public facilities and promote strategic purchasing of health services through health insurance, respectively.

The HWC and Its Challenges

HWCs are envisaged to deliver an expanded range of services that go beyond the existing maternal and child healthcare services to include detection and prevention of select NCDs, mental and adolescent health, old-age care, palliative and rehabilitative care, oral, eye, nose, and throat and dental care, lung disease, hypertension, diabetes, common cancers, first-level care for emergencies and trauma, including free essential drugs and diagnostic services through 1.5 lakh SHCs, which are to be upgraded into HWCs. Their upgradation is an important step towards transforming the existing primary healthcare system to deliver comprehensive primary healthcare to the community. Challenges, however, are immense to make them operational. Not only does the existing staff need to be reoriented, but more numbers of dedicated paramedical, specialists and technical staff equipped with modern technology are to be deployed to cater to detection and prevention of specified NCDs’ care. The staff situation in these SHCs reveals over half of them are lacking with regard to the combination of male/female health workers (GoI 2017b). These SHCs require around 12.6 lakh “human resource for health” by 2022 (Planning Commission 2012).

The magnitude of inputs required to strengthen primary care was high. Therefore, the operationalisation of HWCs was planned in a phased manner, with a target to upgrade 15,000 centres in the first year (2018–19) and in the following years to 40,000 (2019–20), 70,000 (2020–21), 1.1 lakh (2021–22), and 1.5 lakh by December 2022. Their operationalisation was planned through the upgradation of existing infrastructure under the National Health Mission (NHM) by allocating more funds for the mission components. The budgetary allocation for the NHM, however, is declining. It declined by 2.5% between 2018–19 and 2019–20 (RE [revised estimate]) (GoI 2020b). The share of the NHM in the total health budget of the union government declined from 60.25% in 2018–19 to 52.12% in the 2020–21 budget (Figure 1). The expenditure on the National Rural Health Mission declined from 48% to 42% in this period. Within the NHM, the allocation towards HWCs constitutes a meagre share of around 3%–4%. In addition, the allocation for the NCDs flexipool declined significantly in 2019–20 (Interim Budget) by 41% over the previous year’s RE (CPR 2019–20). The launch of Ayushman Bharat was indicative of the commitment towards the making of a healthy society, but less than the expected/required allocation may hamper the desired upgradation speed within the stipulated time. For instance, the upgradation performance of the first 18 months (April 2018–September 2019) reveals that only 27% (8,756) SHCs could be operationalised into HWCs as against the target of 32,210 SHCs (GoI 2019a).

The original plan/announcement was to upgrade only SHCs (MoHFW 2019). The upgradation agenda was revised later on. As per the revised guidelines, 1.5 lakh health centres consisting of SHCs, primary health centres (phcs) and urban primary health centres (UPHCs) will be transformed into HWCs. Many rural–urban PHCs are included, while many SHCs are excluded. What motivated such a strategic change? This is because the existing PHCs must have at least a certain number of beds, technical staff, medical–paramedical and specialists doctors, and can meet the HWCs’ requirement easily with little funds. Their upgradation performance of the first 18 months reveals that 11,791 PHCs and 2,771 UPHCs were transformed into HWCs as against the target of 7,288 PHCs and 1,220 UPHCs; around 62% and 127% more upgradation than the targets. This extraordinary achievement could be envisaged in a period when fund allocation towards the NHM also declined. It is quite likely that better functional centres and/or those that qualify the Indian Public Health Standard (IPHS) might have been selected in the first phase, which might have incurred the cost of reprinting of the centre’s name only.

If that is so, the pace of upgradation in the next phases is likely to be hampered because all is not well with the existing PHCs. Many PHCs along with Community Health Centres (CHCs) suffer from huge staff shortage. The Rural Health Statistics for 2017–18 reported that over 74% of PHCs do not have a female doctor (MoHFW 2018). The CHCs alone have more than 80% shortage of all specialists (surgeons, obstetricians and gynaecologists, physicians and pediatricians). Only 9% of CHCs have a combination of all four specialists and only 4% of PHCs have four or more doctors. There is a 65% shortfall of radiographers at CHCs and 40% shortfall of laboratory technicians at PHCs and CHCs, which is a mandatory requirement to help early detection of diseases. Only 11% of SHCs, PHCs, and CHCs each qualify on the IPHS. Thus, the upgradation process requires huge public funds as against the scanty amount (`1,191.54 crore) allocated towards HWCs in 2018, while the budget provision was raised to `1,600 crore in the 2020 budget (GoI 2020b).

HWCs: An Instrument to Execute PPP Model

The central idea behind upgrading the existing centres into HWCs was to cater to the NCDs care requirement, as non-infectious illness are on the rise in the country. Steps towards upgrading such primary care were imperative. Mere upgradation for detection and early prevention of NCDs, however, is not enough. A robust healthcare system is required at the secondary and tertiary levels for referral. Till now, the government has been able to establish just 221 intensive care units and 1,705 clinics at the CHC level for NCD care (GoI 2017b). Budgetary commitments towards making a robust healthcare system are not visible, as government spending hovered around 1.4% of the gross domestic product (GDP) in 2017–18 (GoI 2020a) as against the target of 2.5% of the GDP (GoI 2017a).

Instead, NITI Aayog came up with an agenda of implementing public–private partnership (PPP) in district hospitals (DHs) for NCDs care in 2017, just few months before the announcement of Ayushman Bharat. The PPP project guidelines are that a 50-bed and 100-bed private facility will be co-located within the identified DHs for treating select NCDs, which were mentioned for HWCs as well. The essential qualification for establishing PPP is to have a fair amount of patient load at the DH, preferably an annual average of 1,000 outpatient department (OPD) patients per day. It is quite likely that a limited number of DHs qualify on the patient load criterion out of the total 779 DHs and 1,108 subdivisional hospitals that exist. Therefore, it is recommended to establish a downward linkage with the existing (25,650) PHCs and (5,624) CHCs of the district and the neighbouring districts where the project is being implemented for referring patients to DHs. The wide network of existing (1.58 lakh) SHCs spread across the remotest rural parts of the country can also be used to identify or refer patients. Thus, the identifying of 1.5 lakh centres for upgradation into HWCs with special emphasis on NCDs care detection was a well-thought plan to feed into the requirement of the PPP project implementation. It is indicated that the downward linkage with all levels of existing public facilities is important for the successful implementation of the PPP project. So, effectively, the purpose behind the launching of HWCs is to play a referral role in the upward facility chain and boost the implementation of PPPs in more hospitals via increasing the patient load. Some specific PPP model guidelines, types of models, and responsibility of the government and DHs are presented in Box 1.

High patient load should have been considered as a measure of performance, and such hospitals should ideally have been incentivised/rewarded. The corollary is that performance has now become a curse, as they have to facilitate PPP models within their premises. The hospital has to allocate space within the built-up structure as well as on the vacant land of the hospital. The hospital authority will have to allocate 30,000 square feet and 60,000 square feet space for a 50-bed and 100-bed facility respectively for setting up a PPP (Box 1). A minimum of 75% and 50% of this space would be allocated within the existing built-up structure and the remaining on the vacant land within the premises of the hospital. The staff (from the attendant at the registration desk to chief medical officer) has to refer patients and facilitate reimbursement of expenditure incurred on referred patients to the PPP project. The reimbursement can be made either from the chief minister wellness funds that have to be constituted in the hospital and/or by linking it with state- or centre-level financial protection insurance schemes, including PMJAY.

The government will facilitate the private players in land allotment, special window clearance, and providing viability gap funding (VGF) for improving the financing viability and bankability of the project (Box 1). Budget 2020 also proposed to set up a VGF window for setting up hospitals in the PPP mode in tier-2 and tier-3 cities with an emphasis on the aspirational districts. This is basically to address the shortage of qualified medical doctors, general practitioners, and specialists. It is proposed to attach a medical college to an existing district hospital under the PPP mode, though details of the scheme would have to be worked out. Promotion of the PPP mode at every level of public health facilities has come to the forefront. This is indicative of a push towards making every public health institution facilitate the already dominant private players flourish further. A process has started where the private sector over time will overtake the entire public health system/institutions, including land, building, staff, etc, which were built in the country in the 70-odd years since independence.

PMJAY: Economic Rationale and Sustainability

Of the two components of Ayushman Bharat, PMJAY attracted considerable attention, as it aimed to cover 40% of the Indian poor and vulnerable population with a high amount of coverage of `5 lakh per family. The per family cover amount under existing central- and state-level government-funded health insurance (GFHI) schemes is not only lower than PMJAY but also varies considerably ranging from `30,000 (Rashtriya Swasthya Bima Yojana; RSBY) to `2,00,000 (Yeshasvini Karnataka) to `3,30,000 (BSBY; Bhamashah Swasthya Bima Yojana, Rajasthan) (Hooda 2019a). At the time of the PMJAY launch, around 33 central- and state-level GFHIs were practically witnessed, which covered a diversified set of people ranging from the poor, informal workers, self-help groups, farmers, to old-age persons. The beneficiaries under PMJAY are identified using the Socio-economic Caste Census (SECC), 2011 on the deprivation and occupational criteria. In terms of comprehensiveness, the benefits of the scheme are extended to families that were earlier covered under RSBY but were not present in the SECC 2011 database. The cost of implementation of the scheme is shared between the centre and the states with a 60:40 ratio. The scheme covers all pre-existing conditions with 1,393 procedures, including but not limited to drugs, supplies, diagnostic services, physician’s fees, room charges, surgeon charges, OT and ICU charges, etc, no bar on family size, three days of pre-hospitalisation and 15 days of post-hospitalisation expenses, such as diagnostics and medicines on the receipt of services from empanelled public or private hospitals, and the benefits of the scheme are portable across the country.

Though 10.74 crore families were identified, official records of PMJAY state that, as on 4 January 2020, around 7.11 crore families were issued e-cards, while 4.68 crore families had cards of state-level schemes, making it to around 11.79 crore e-cards. If there is no discrepancy in official data and actual possession of insurance cards by households, then PMJAY, by any global standard, is the world’s largest pro-poor health insurance scheme. But, the analysis of existing GFHIs shows high discrepancy between official data and actual possession of the cards by households. Information from 27 state GFHIs shows that till 2017–18, around 10.90 crore families were covered, while estimates from 75th round of the National Sample Survey (NSS) (a household-level survey on health) conducted during June 2017–July 2018 recorded that an estimated 3.46 crore families possessed GFHIs (Hooda 2019a). The actual coverage reported by the households is 68.2% less than the official claim. The actual coverage share falls short in many states, from around 31% in Andhra Pradesh to as high as 99% in low-income states like Uttar Pradesh and Bihar (Hooda 2019a). This discrepancy raises serious concerns on the implementation of schemes at the ground level and what the government claims.

Due to manifold increase in coverage up to `5 lakh, almost 17 times higher than the existing central RSBY scheme, PMJAY attracted major attention. But, the question arises: Has there been any economic justification and rationale behind such a massive hike? In order to understand this question, GFHIs’ experiences, limit and pattern of medical expenditure made by the bottom 40% quintile (the quintile is estimated using per capita monthly consumption expenditure of households) households (which are expected to receive PMJAY benefits) are studied.

First, for the `30,000 annual coverage, `2,000 crore budget was allocated towards RSBY in financial year 2019, while `10,820 crore were proposed for PMJAY (Figure 2); over five times higher than the budget for RSBY due to high coverage. Thus, the scheme poses a huge financial implication in the form of premium payment. The corollary is that, due to limited fiscal space, the scheme got only `6,400 crore in the maiden budget 2019–20 (BE); an allocation less than the proposed amount. The budgeted amount was even revised later in 2019–20 (RE) to `3,200 crore (Figure 2). This is also interesting as against the budgeted/revised amounts, the official site of PMJAY mentions that the government has spent `7,996 crore on the scheme in its first year of implementation (Bhushan 2019); a kind of discrepancy in the official/budgetary statistics that hardly leaves any room as to what to believe. Further, the PMJAY experience shows that with increase in enrolment, hospital admission increased from 25,407 admissions as on 30 September 2018 to 80,52,808 admissions on 29 January 2020 (Bhushan 2019), which resulted in high costs to the government. After completion of enrolment of all targeted families, more hospital admissions would occur and require even more funds.

Second, estimates show that out-of-pocket (OOP) medical (excluding indirect) expenditure of the bottom 40% quintiles households, which are expected to be covered under PMJAY, was `23,171 crore in 2017–18 (Figure 2). Their medical bill was `14,960 crore in 2014. If the idea is to provide free cashless care to these poor and vulnerable families, an amount equivalent to this bill will have to be borne by the government in the years to come. No doubt, most of the existing GFHIs offer cashless benefits, but in reality, beneficiaries are compelled to pay a share of the medical bill from their pocket, which is beyond the approved package rate. For instance, it is estimated that in 2017–18, GFHI-covered households paid a net amount (netting out reimbursement) of medical bills (excluding indirect expenses) equivalent to `7,476 crore from their pockets (Figure 2). Even if the government was to reimburse the hospital on behalf of beneficiaries, they would still end up paying a significant amount from their pocket due to moral hazard or other problems. Estimates from the NSS 75th round suggest that only 3–4 GFHI holders of the 100 cases usually receive free cashless treatment.

Third, the rate of premium of existing GFHIs showed increasing trends over time from less than `300 to `600–`800 per family in different phases of the RSBY’s implementation and `600 to `1,200 per family within a few years of implementation of the BSBY Rajasthan scheme. This resulted in an incremental financial burden from budget allocation of `550 crore in 2014–15 to `2,000 crore in 2018–19 under the RSBY (Hooda 2019a). If this increase in premium phenomenon continues under PMJAY, the scheme would consume a major chunk of funds allocated towards Ayushman Bharat. If the overall health sector does not get adequate attention, the scheme might turn into a financially non-sustainable model. One has to see how Ayushman Bharat components are prioritised over time. In the 2020 budget, PMJAY got `6,400 crore, while HWCs only `1,600 crore.

Fourth, an enquiry into what proportion of households has how much medical expenditure is another way of looking at the economic rationality of the scheme. Analysis shows an estimated 4.68 crore persons from 3.63 households made positive medical (excluding indirect) expenditure on hospital admission. At the aggregate level, of the total, around 83% and 96.28%, households had medical bills within the `30,000 and `1 lakh range, respectively, while 88.77% and 97.89% of the bottom 40% households had medical bill within this range (Figure 3). Around 99.52% of these bottom-quintiles households incurred medical expenditure within the `2 lakh range. Evidence from PMJAY also suggests that 92.3% of the claims were less than `30,000 between the time period of the scheme launch to 15 May 2019 (Dong Di et al 2019). On an average, about 37 in 1,00,000 beneficiary households have incurred claims exceeding `1 lakh. The high-value claims (>`30,000) account for only 7% of the total claim volume and only 354 households had exhausted the `5 lakh limit by May 2019. This suggests that the majority of medical expenses could have been met by setting either a `1 lakh or a maximum of `2 lakh coverage limit rather than inviting huge financial implications due to unnecessary hike in coverage.

Despite most GFHIs having an insignificant impact on UHC targets (Prinja et al 2017; Hooda 2017), the country, for over a decade, has witnessed a sharp competition between the states and the successive central governments in launching a scheme with a high amount of coverage range between `30,000 and `3,30,000 earlier, which has now been raised to `5 lakh under PMJAY. Review studies reported that while utilisation of healthcare did improve among those enrolled, there is no clear evidence yet to suggest that these schemes have resulted in reduced OOP expenditures or higher financial risk protection (Prinja et al 2017). GFHIs largely remained unsuccessful in reducing unit cost and OOP burden from households and in protecting people from falling below the poverty line (Hooda 2017). The predominant argument behind raising the coverage limit is that if the benefit packages and cover amount is less than adequate, several high-cost illnesses might leave the family/individuals at risk of impoverishment.

We examined the merit in this argument by analysing the impact of existing GFHIs by classifying the states with the level of coverage using unit-level data of the NSS 75th round. The states are classified into low, middle and high coverage amount categories with coverage of `30,000 (low), `30,000 to less than `2 lakh (middle) and `2 lakh and above (high). The mean medical (excluding indirect) expenses of the bottom 40% quintile households incurred in private facilities (excluding public) are compared between GFHIs holders and non-GFHIs holders/uninsured. The mean medical care spending of GFHIs holders (`24,170) was found to be 8% higher than the uninsured patient (`22,353) at the aggregate level. The difference in mean medical care spending of GFHIs holders and the uninsured was found to be very marginal in low- and middle-coverage categories, while insured persons with high insurance coverage incurred significantly high medical expenditure compared to the uninsured. Mean medical spending is recorded to be 45% higher among the insured (`30,927 per case) relative to that among the uninsured (`21,259) (Figure 4).

Another intention behind raising the coverage and cover amount could be to subsume all existing central- and state-level under PMJAY, especially to bring uniformity and universality in implementing the insurance-based financing mechanism in the country. The existing schemes vary considerably in cover and coverage, implementation and enrolment strategies, level of awareness, empanelment hospitals, portability of the scheme benefits in other parts of the country, and uncertainty around continuation of the scheme (as in the recent past, several states opted out of the central RSBY and did not implement their own schemes as well) (Hooda 2019a), etc. The high cover/coverage can compel the state not to opt out from the scheme, as it involves financial loss equivalent to 60% of the central share proposed under the scheme. The states that avoid taking part under the scheme even have to advance the cover/coverage due to electoral politics, like Odisha proposed `7 lakh insurance cover while Delhi declared to implement universal health insurance before the 2019 general election. Thus, the scheme has some characteristics to bring an insurance-based financial protection mechanism on to the pan-India level.

PMJAY: Facilitating Strategic Purchasing Agenda

The NHP had a clear agenda to achieve UHC through strategic purchasing of health services through insurance (GoI 2017a). The objective behind promoting strategic purchasing through insurance is to ensure access to affordable and quality secondary and tertiary care services in healthcare deficit areas from private providers. The policy mentions that strategic purchasing would play a stewardship role in directing private investment towards those areas and those services for which currently there are no providers or few providers. But, how far insurance has been able to meet the deficient area demand needs evaluation. Available information on public (3,771) and private (4,926) hospitals empanelled under RSBY in 2017, 2,130 empanelled hospitals in undivided Andhra Pradesh’s scheme in 2018, 33,000 hospitals registered under ROHINI (Registry of Hospitals in Network of Insurance) in 2018, 14,121 large and corporate hospitals covered under IMS health survey of 62 cities in 2012, 9,83,018 health entities reported in the Sixth Economic Census 2013–14, and 10,43,979 estimated health enterprises in the NSS 73rd Services Sector Enterprises Survey, 2017 reveals that the majority of empanelled hospitals, more than half of the large hospitals, two-thirds of corporate hospitals, and four-fifths of health establishment enterprises are located in the five million-plus population cities and in the urban areas of a few districts (state capitals) of some states, respectively (Hooda 2019b). This suggests that insurance does little to encourage and redirect private investment towards filling critical gaps. Such hospital concentration results in adverse implications for cost and access to hospital care in vast areas where there are no or few providers.

Estimates (from the NSS 72nd tourism survey in 2017) suggest over two-fifths of patients (of the total 4,87,92,883 persons who made overnight visit trips to seek health and medical care in the last 365 days) had to travel outside their district/state to receive medical care in 2017 due to the non-availability of health facilities in their districts. This resulted in a high medical cost of around `22,403 and `15,938 per case when service was received outside the state and outside the district, respectively, while it cost `9,766 for care received within the district they reside. Stepping outside the state to access care generally cost two times more (Hooda 2019b). The cost difference varies between being four and five times higher across states when care was accessed outside the state relative to care accessed within the district.

The insurance sector as a whole also reveals that Maharashtra, Delhi, Karnataka, West Bengal, Tamil Nadu and Gujarat account for 70% claim volume and 73% claim value out of the total 15.2 lakh claim volume and the `5,166 crore claim value in the country (IIB 2013–14). Due to high hospital concentration, metro cities, namely Mumbai, Delhi, Kolkata, Bengaluru, Chennai and Hyderabad and some other cities remained centres for attraction for a large number of patients from neighbouring states, while the share of claims paid was found marginal in Odisha, Uttarakhand, Jharkhand, Assam, Chhattisgarh, Jharkhand and Bihar where the network of hospitals was less dense.

The RSBY experience shows that access to hospital care (hospitalisation ratio) was almost six times lower in districts where numbers of empanelled hospitals (per targeted person) were low (Figure 5). The enrolment ratio (enrolled to targeted family ratio) under the scheme also increased from 54% to 90% with the increase in the availability of hospitals in the proximity/district.

The distribution of 18,236 empanelled hospitals under PMJAY in 2019 was also found to be highly unequal. Many regions face significant facility/capacity gaps. The lack of provider capacity in some regions restricts the ability of the patients to fully benefit from PMJAY. The portability feature of PMJAY, however, allows the patients to seek care in other districts/states, while it is likely that not all patients have the financial resources and knowledge to effectively seek care at a distance (Dong Di et al 2019). PMJAY data from the 115 most laggard/aspirational districts of India, identified by the NITI Aayog programme on India’s “Transformation of Aspirational Districts, 2018” to expedite their socio-economic progress, show that in the first year of the implementation of the scheme, these districts reported having fewer empanelled hospitals, made less progress on beneficiary verification, and recorded lower claims volume and value as compared to their peer districts (Smith et al 2019b). The empanelled hospitals in these aspirational districts were found to be smaller (an average of 20 beds compared to 30 beds elsewhere) and less likely to be accredited. Interestingly, in states that are more in need of financial protection measures, the results are not commensurate accordingly, as PMJAY recorded fewer claims as well as lower claim outlays in states with higher poverty as well as a high disease burden (Smith et al 2019a). States with higher poverty rates have verified fewer beneficiaries as well. Interestingly, in hospitals with a large volume of high-value claims were concentrated in some districts and big cities, and the top 20 hospitals account for 17% of all high-value claims (Dong Di et al 2019).

A Political Economy Narrative of Changing Health Financing

Until recently, public investment in healthcare was almost entirely tax-based for financing public health system provisioning, and the currently promoted insurance-based system will also get finance in the same way as the public sector. The implication of this changing nature is conceptualised in a political economy framework using the theory of institutional economics (the rule of game) concept. Institutional economics is relevant to understand the transformation in systems because each type of system has its own “rule of game” and has its own organisation that is governed under a system and performs different functions. The change in the rule of game due to the emergence of a new system and how the changing system will bring transformation in the organisation of financing, payment and delivery is described in Box 2.

Unlike other countries, the currently promoted insurance-based system in India is not based on the framework of a resource pooling mechanism. The government alone has to earmark contributions from tax for insurance—separate financing from the provision. In this framework, the amount of coverage, size of targeted population, number of treatments and procedures, and benefit packages and package rate will determine the resource allocation towards the sector. A high cover and coverage for several treatments and procedures with high package rates would cost the government more in the form of premium payments and would have an impact on the state exchequer. Low rates might not work for hospitals. The Indian Medical Association demanded raising the rates of PMJAY, as the current package rates cannot even cover 30% of the cost of procedures and “no hospital” can work on these rates (Raghavan 2018). In such a situation, if the overall budget allocation towards the health sector does not get substantial increment, as historically it has not received adequate space, this would compel the government to restructure/reallocate the health budget from provisioning to insurance financing in the years to come. In case any reallocation from provision to insurance happens, one can expect the collapse of the already underfunded public healthcare system.

The scheme provides financial protection for medical care only and excludes outpatient care entirely. While outpatient care is the largest source of OOP payments in the country, constituting around 63% share in the total OOP burden on the household (Hooda 2017). These pro-poor schemes promise to cover only a fraction of the population. A large proportion of near poor and near middle-income people who are largely unable to afford costly medical care from private providers, and wish/prefer to avail service from the public sector, might not get the required services from the underfunded public healthcare system. If the public system fails to meet outpatient and other demands of the general population, the next level of argument would be to cover outpatient care under insurance. The fragile condition of the public system might force the government to cover all sections of society under the insurance umbrella to meet both inpatient and outpatient care demands. Political economy comes into play here, where the government feels a compulsion to ensure protection to the entire population and for all type of care. This will bring a fundamental transformation in the existing healthcare system where the rule of game will change in favour of privatisation with private sector expected to provide all types of care and treatments. The government’s role would be minimal, to provide financial protection. The changing nature of budgetary priority will minimise the political decision-making powers of the government on financing, management, operation and establishing a robust healthcare system through the input line budget, as different stakeholders will come into play in determining the budget.

Under the emerging system, insured persons would have (a legal) entitlement to receive benefits specified in the benefit packages, which means that money would follow the patient and providers will have to attract patients. This is going to set some rules to establish a level economic playing field for public and private providers to compete with each other, where all providers have to follow the rules of the purchaser. That is, the public, non-profit and for-profit independent hospitals/clinics will be competing on a level economic playing field. Such a competitive market will set some rules for decision-making under which the hospital management has to respond to patient demand. The public hospitals will largely be responsible for their own financial solvency. Since the objective of the public sector is welfare-oriented rather than moneymaking, they may suffer from a fund crunch (if they do not receive enough government support) and may be out of the competition. Under a competitive market, small providers will not be able to sustain themselves, except as referral centres for large hospitals, as a high coverage amount may attract people to avail care from bigger hospitals in lieu of better quality and availability of a wide variety of services. Over a period, one would see the rise of large corporate hospitals in the country with a monopoly of a few corporate entities, as has happened in the United States (US) over and with recent experience of PMJAY.

Regulatory Mechanisms

This system is going to attract massive moral hazard problems if not regulated strictly. The countries that have high reliance on an insurance-based system have not been able to or are struggling to regulate the private providers and insurance market, including the US. Proper regulation of providers, insurers and controlling monopoly power is imperative. It is evident that India till now has not been able to regulate the private healthcare market on pricing, quality, ethical issues, etc. There have been instances of inflated bills for treating dengue fever, declaration of living infants as dead, fires, and deaths of many children due to medical negligence in state-of-the-art private facilities in different parts of the country in the recent past. The private sector was also found performing c-section deliveries among insured women (around 63.9%) as against only 11.7% in public facilities (IIPS and Macro International 2016). Examples are also prevalent of unnecessary removal of uteri of thousands of women in the private sector in Andhra Pradesh, a state with high insurance cover. High value claims in large corporate hospitals are happening under PMJAY.

In order to regulate the emerging system, India needs to establish not only agencies like the National Health Authority (NHA) at the central level, but nodal and regulatory agencies across states as well. This requires huge volumes of capital funds. If the health sector does not get enough budgetary support for the same, the existing institutions may collapse at the cost of some new institutions that will emerge. These agencies should be highly competent, and an efficient purchasing agency will be required, especially to select the qualified providers to contract services, negotiate with providers for payment methods and price, contracts for quality of care, etc. That is, they have to regulate the market on several aspects, including premium, pricing, quality, unethical practices, moral hazard issues, and so on. This, however, depends on market information on price and accurate information on cost, which needs to be collected across different settings/states/regions. If the government decides the package rate on the basis of the available price from the private sector dominated market, it would cost more to the government in the form of premium payment.

The overall success of the system would further depend on the NHA board composition that would do negotiation, contracting, monitoring and evaluation. If the private sector, insurers, pharma, and the medical industry dominate the board, which is expected to be, this would certainly minimise the decision-making power of the bureaucracy and ministries of health and finance in the future.

The Ayushman Bharat has come up with a system that would facilitate the implementation of two recent policy agendas. This would result in relinquishing the public health institutions and public money to private players. Promoting private players at the cost of public money would cost more to government than strengthening the public system for service delivery. The launch of Ayushman Bharat has confirmed that the country is moving towards a fundamental shift in the nature of healthcare financing where insurance would be financed entirely from public sources while provisioning would now be shifted almost entirely to the private sector. Private hospitals show a high concentration in metros, while aspirational districts are facing a substantial capacity gap. Insurance has largely been unsuccessful in mending the service deficiency gap. Clear policy guidelines are required for addressing concentration, restricting the monopoly power of large corporate hospitals, and proper regulatory guidelines are required for insurers and private providers.


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Updated On : 23rd Jun, 2020


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