India’s insurers are being left out of the country’s national health insurance scheme

• The Ayushman Bharat scheme, which will cover nearly 110 million families to the tune of ₹500,000 per year, is set to be launched on September 25th.
  
• Out of the 26 states which have signed MoUs for the scheme, only 4 have opted for the insurance model, while 20 have chosen to set up trusts.
  
• Under an insurance model, the state appoints a insurance company to handle all claims, while in a trust model, they establish a trust to disburse health payments.

In his inaugural Independence day address, India’s prime minister Narendra Modi announced that his government’s national health insurance scheme, Ayushman Bharat, would be launched on September 25th. The scheme, which covers families to the tune of ₹500,000 per year, is expected to reach 500 million Indian citizens - making it the world’s largest public health insurance programme of its kind.

When the scheme was first announced, it was assumed that India’s insurance companies would be key facilitators of the wide-ranging scheme, which has an expected premium outlay of ₹100 billion in the first year itself. However, a month before the scheme’s launch, it looks like the scheme won’t generate a lot of business for them.

Trust vs insurance model

The scheme is being carried out by state governments, who have two options. Either they take the normal insurance model, wherein they appoint a insurance company to handle all claims, or they opt for a trust model, wherein each state establishes a trust and disburses health payments and reimbursements through that fund.

In the trust model, the fund involves a 60% contribution from the central government, with 40% coming from the state’s coffers. The central government has set aside ₹852 billion in its budget for the scheme.

Out of the 26 states which have signed memorandums of understanding (MoU) for the scheme, only four - West Bengal, Jharkhand, Manipur and Nagaland - have opted for the insurance model, while 20 have chosen to set up trusts, according a report in the Indian Express. The states which are estimated to have 40% of the scheme’s intended recipients - Uttar Pradesh, Madhya Pradesh, Haryana and Bihar - have all opted for the trust model.

Two other states, Gujarat and Chhattisgarh, have chosen a hybrid approach that combines both models, with the former awarding a contract to the state-owned Oriental Insurance Company and the latter contracting the services of Religare Health Insurance. OIC successfully bid a price of ₹361 to cover each family to the extent of ₹50,000 while Religare bid ₹1,100 for the same level of coverage. For any payouts above ₹50,000, the state government’s trusts will step in.

The popularity of the trust model isn’t without reason. Given the natural uncertainty around insurance payouts and premium increases, it’s a lot easier from a budgetary standpoint to establish a trust with government funds than be on the hook for payments to insurance companies. A trust model allows the government to set prices.

Under the UPA government’s health insurance scheme, the Rashtriya Swasthya Bima Yojana (RSBY), a lot of state governments ran into arrears after having to subsidise the health insurance premiums of so many citizens. The RSBY scheme was also tainted with concerns that insurance companies were submitting very low bids and not honouring their claims.

The trust model could overcome some of the hurdles of the previous national health insurance scheme, but its success rests on the ability of state governments to process claims and disburse payments in an efficient manner.