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Government shuts doors on private insurers in Rashtriya Swasthya Bima Yojana

This is set to happen in the next few months as part of the shift to a direct benefit model from one mediated by insurance firms in a bid to provide health insurance for all.

Last Updated: Jan 06, 2015, 10.51 AM IST
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This is set to happen in the next few months as part of the shift to a direct benefit model from one mediated by insurance firms in a bid to provide health insurance for all.
This is set to happen in the next few months as part of the shift to a direct benefit model from one mediated by insurance firms in a bid to provide health insurance for all.
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NEW DELHI: India’s flagship state-run health insurance programme for the poor, which has been held up as a model for the rest of the world by the World Bank and the United Nations, could be under threat as the Narendra Modi government is looking to end the involvement of private insurance companies in the Rashtriya Swasthya Bima Yojana or RSBY.

This is set to happen in the next few months as part of the shift to a direct benefit model from one mediated by insurance firms in a bid to provide health insurance for all. This comes at a time when the government has liberalized foreign direct investment limits in the insurance sector through an emergency decree.

The move could mean insurance companies won’t be able to get any part of the thousands of crores of rupees that would potentially come into the business, considering the scale of RSBY’s planned expansion, according to industry estimates.

The move has been opposed by several states, a senior government official told ET.Besides, starting April 1, the scheme will be run by the health ministry, which will be responsible for disbursement of funds and monitoring implementation. It’s currently handled by the labour ministry.

“A decision to this effect has been jointly taken by the ministry of labour, ministry of health and department of financial services under the ministry of finance despite resistance from several states,” he said.

According to the official, who did not want to be identified, the Centre has asked all states to end their contracts with insurance companies by March 31 and instead set up a trust that would run the scheme, along the lines of what Andhra Pradesh has done.

“This has led to all the confusion as not many states have the expertise and human resources to do enrollment and empanelment with hospitals through trusts,” the official cited above said. In such cases, the Centre will insist that states rope in public sector insurance companies until state nodal units can take over.

ICICI Lombard, Max Bupa Health Insurance, Religare Health Insurance, Cholamandalam MS General Insurance and Tata AIG GIC are some of the many private companies that have been enrolling and empanelling hospitals as well as providing insurance to beneficiaries under RSBY.

“This could be the beginning of the end of the much-celebrated RSBY model as it strikes at the root of the programme,” said a health economist at an international financial institution. “Insurance companies had an incentive to enroll more families as their premium depended on it.”

RSBY has been praised by the World Bank and the United Nations Development Programme for its success. Studies have shown that it has significantly reduced out-of-pocket expenditure on health among the below poverty line (BPL) population covered under the scheme.

 
“A primary factor behind premium cost significantly slipping for government under RSBY was competition among insurance companies,” said the person cited above. “Also, a handful of states may be running tertiary healthcare programs directly, but none to my knowledge run a secondary healthcare program without involving insurance companies. That is because the number of people claiming benefits under secondary healthcare programs is much higher and difficult to manage.”

A recent committee constituted by the labour ministry had observed that the key challenge for RSBY was the low involvement of state nodal agencies and lack of checks to ensure accountability of insurers or hospitals participating in the scheme. However, it concluded that RSBY should continue with the insurance model for now as very few states have developed the expertise needed to buy services from hospitals.

“While reviling insurance companies for being-for-profit entities is fine, we also need to take an objective look at the capacities of government agencies,” it said.

Representatives of private insurance firms declined to speak on record. On condition of anonymity, they said RSBY would crumble under the system that was being proposed.

“This model is trying to reinvent the wheel,” said a senior executive at a private insurance firm. “Every state would have to convert its government agency into a health insurer, which would have to do actuarial calculations, anticipate claims and create a corpus, not an easy capability to develop. Earlier, some large public sector units have tried and failed to develop this expertise in-house and ended up outsourcing it to insurance firms.”

A colleague of his added: “We are at least regulated by the Insurance Regulatory Development Authority. Who will regulate these trusts?”

Under RSBY, beneficiaries are entitled to coverage of up to Rs 30,000 for most diseases that require hospitalization. More than 3.75 crore eligible households or over 11 crore people are covered under the scheme, which was launched by the previous UPA government in 2008. The beneficiaries need to pay only Rs 30 as registration fee while the central and state governments share the premium payment to the insurer. Being a centrally sponsored scheme, 75% of the premium is paid by the Centre and the rest by the state. The central government currently spends more than Rs 1,600 crore on RSBY annually, but this is expected to swell with coverage widening as part of India's universal health coverage plan.

RSBY was initially designed to target only below poverty line (BPL) households, but has recently been expanded to cover a number of non-BPL categories such as informal sector workers. The target is to extend coverage under the scheme to 7 crore households by the end of the Twelfth Five-Year Plan (2012-17).
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