Get the model right: on state-sponsored
Mains Paper 3: Economy
Prelims level: Insurance Sector
Mains level: Indian Economy and issues relating to planning, mobilization of
development and employment. Inclusive growth and issues arising from it
- World Bank data, in 2015, showed that nearly 65% of health-care
expenditure in India is “Out of Pocket” (OoP).
- A report by the World Health Organisation has shown that around
3.2% of Indians would fall below the poverty line because of high OoP health
- Thus, a national health insurance scheme like the Ayushman Bharat
- The principle of insuring a vulnerable population is widely
accepted, what is contentious is the model that the government has adopted
that of using insurance companies.
- High premiums are paid for these schemes.
- Ayushman Bharat, for instance, has enhanced the Rashtriya Swasthya
Bima Yojana (RSBY) of the United Progressive Alliance government, to cover
around 11 crore families with a yearly coverage of ₹5 lakh.
- Experts estimate this will require ₹25,000 crore per year, when
fully implemented. Similarly, the Central and State governments jointly paid
₹17,796 crore for crop insurance (2017-18) under the Pradhan Mantri Fasal
Bima Yojana (PMFBY).
The flawed model
- Insurance works on the principle of pooling the risk of policy
holders. But another common sense idea must guide insurance decisions.
- If an individual, corporation or a government can bear a certain
quantum of risk by themselves.
- It is not financially sensible to insure with an insurance
- This is because administrative overheads and profit margins of
insurance companies are included in insurance premium costs.
- Another pertinent issue is finding reinsurers for government
insurance schemes, a problem that is being encountered by companies on the
Pradhan Mantri Jeevan Jyoti Bima Yojana because of high claims.
Costs of insurance companies
- Typical insurance company costs include designing insurance
products to suit customer needs; actuarial input to assess and manage risk;
advertising and marketing; empanelment (of approved service providers such
as hospitals); administrative expenses to provide prior approval of claims;
and processing, which includes functions such as fraud detection.
- Though the first three are not applicable to programmes such as
Ayushman Bharat which will be fully funded by the government as a blanket
- The government is also funding more than 80% of crop insurance.
- The last three functions, i.e. empanelling service providers,
pre-approving hospitalisation of patients and subsequently settling the
claim, are commonly outsourced to third-party administrators (TPAs) even by
Trust mode and cost cutting
- No insurance company has the kind of financial resources the
Centre and the States have. Hence, governments must consider bearing the
risk by themselves.
- It known as the “trust mode” instead of using insurance companies
as risk-bearers and intermediaries.
- However, in India, governments continue to pay hefty sums in
premium to insurance companies.
- Those who recommend the use of insurance companies allude that the
government lacks the expertise to manage insurance.
- The “government has no business being in business” is the
neoliberal mantra, insurance companies are a redundant layer in the
government’s social security structure.
- The government has already proclaimed that it wishes to cut the
intermediary through the JAM trinity (Jan Dhan-Aadhaar-Mobile) and direct
- It has also indicated that it wants to optimise fund utilisation
through the recently introduced Public Finance Management System.
- Shifting to the trust mode will be the next natural step in this
path, not only saving taxpayer money but also benefiting farmers and the
underprivileged instead of insurance companies.
Q.1) Consider the following about the Coalition for Epidemic Preparedness
Innovations (CEPI) that was recently seen in news.
1. It was launched by the World Health Organization (WHO).
2. It is a public-private alliance to finance and coordinate the development of
new vaccines to tackle epidemics.
3. It will fund programmes in LDCs that build a geographical information system
(GIS) for mapping epidemic prone regions.
Select the correct answer using the codes below.
a) 1 only
b) 2 and 3 only
c) 2 only
d) 1, 2 and 3
Q1. For state-sponsored insurance, governments should avoid insurance
companies. Explain it