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‘The Private Insurance Trap’ – Amartya Sen and Jean Dreze

Amartya Sen and Jean Dreze are vehement advocates for universal health coverage. In their fine 2012 book An Uncertain Glory: India and its Contradictions, they devote an entire chapter to ‘India’s Health Care Crisis’. One of the important topics they discuss is the proliferation of govt-sponsored insurance schemes (relying on private insurance companies) over the past decade in India. While admitting that these programs are an improvement over the previous non-existence of good safety-nets, they also express concern over the rising influence of profit-oriented private entities in India’s health system, and warn us against replicating, even if partially, the absolutely catastrophic American model of dominant private health insurance.

Here are some relevant excerpts from the section The Private Insurance Trap from their book:

Subsidized private health insurance under RSBY… is certainly an improvement over the current ‘out of pocket system’ (OOPS). But what sort of health system is it supposed to lead to, or be part of? One interpretation is that private [or commercial] insurance is expected to become the backbone of India’s future health system… There are very serious reasons to be deeply concerned about this health care model.

Distortion issue: A health system based on commercial health insurance is likely to be biased against preventive health services, and more generally, against non-hospitalized care… It is also the case that health care for many types of non-communicable diseases such as diabetes, circulatory problems and cancer can be best dealt with by early – pre-hospitalization – treatment, against which a system focused primarily on hospitalization [i.e., the commercial health insurance system] might be biased. A general undermining of public health and preventive services can be expected to follow from increased reliance on schemes like RSBY [which use the services of private insurance companies]. Quite likely, private health insurance would also end up promoting further privatization of health services and affect the resources, time, energy and commitment available to strengthen public health services, and this could undermine precisely the channel through which health transition has been brought about across the world – in Europe, Japan, East Asia, Latin America, Canada and even the USA.

Targeting issue: The idea that the government will pay the insurance premiums for poor households raises all the problems associated with ‘BPL targeting’, including the unreliability of the BPL identification process. In the context of health, these problems are particularly serious, for two reasons. First, health contingencies can rapidly ‘push’ families into poverty. Thus, a family that was ‘above the poverty line’ yesterday may be below the poverty line today. BPL lists, for their part, are quite rigid (even renewing them every five years or so has proved extremely difficult in most states), and it is simply not possible to revise them as and when people fall into poverty due to health contingencies. The second reason is that taking into account people’s health status creates problems for the entire logic of the BPL approach, based as it is on the per capita expenditure criterion and proxy indicators of it. For instance, a person with some disability but not severely low income may be severely deprived and in dire need of health insurance because of the costs and deprivations associated with that disability, and yet fail to qualify for the BPL list.

Efficiency issues: [The problem of ‘moral hazard’ helps shed some light on the limitations of the commercial health insurance model.] One of its manifestations is that the insured patients – and health care providers – have little incentive to contain the costs. [To make it worse,] every ‘solution’ to this raises its own problems. For instance, incentives to contain the costs of health care can be created by reimbursing costs on some sort of ‘presumptive’ basis (e.g. fixed amounts for specific procedures such as a delivery or treatment of tuberculosis). But then the health care providers (doctors, hospitals and so on) have strong incentives to use the cheapest possible method for each procedure, even if it goes against the interests of the patient. They may also be tempted to indulge in ‘cream-skimming’, that is, focusing on patients who can be treated at low cost and turn away the rest.

Equity issue: A health system based on targeted insurance subsidies is very unlikely to meet basic norms of equity in health care, as four different sources of inequality reinforce each other: exclusion errors associated with the targeting process; screening of potential clients by insurance companies; the obstacles (powerlessness, low education, social discrimination, among others) poor people face in using the health insurance system; and the persistence of a large unsubsidized component in the health system, where access to health care is linked with the ability to pay [voluntary private] insurance premiums.

Irreversibility issue: Last but not least, the private health insurance model can be, in effect, something of a one-way street – the health insurance industry can easily become a powerful lobby and establish a strong hold on health policy, making it very difficult to move away from that model if it proves ineffective. The current drift in India towards private health insurance, without developing a solid base of public health care, has that problematic feature – aside from others, just discussed.

The fundamental need for active public[/governmental] involvement with health care (including a strong foundation of public provision) in India was recognized at least as early as the Bhore Committee Report of 1946, and reaffirmed recently – in a somewhat different form – by the Report of the High Level Expert Group on Universal Health Coverage for India. The actual trajectory of the health sector, however, has been very different, at times even diametrically opposite – moving more and more towards privatized health care and insurance systems that do not preclude exclusion of ‘unprofitable patients’. Meanwhile, many other developing countries – not just China, but also Brazil, Mexico, Thailand, Vietnam, among others – have made decisive progress towards universal health coverage, based on clear commitments to publicly funded universal health coverage and well-functioning public health services. This is an aspect of public policy where very important choices remain to be made in India.

[Final note: Sen and Dreze of course do not summarily reject the utility of private health insurance. For example, about Canada, they say its exclusion of private health insurance, except for very limited purposes, may be seen as too extreme (it is not clear why the rich should not be allowed to pay for extra health insurance while remaining quite free to spend money on expensive holidays or yachts. One can infer that they consider the ‘private health insurance model’, or a nation’s dependence on it, as a problem; rather than private health insurance per se.]

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