ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintTitle ChevronIcon Twitter

Modicare -- Devil lies in the detail

India needs more money, more doctors and increased competition to avert health crisis

| India

Indian Prime Minister Narendra Modi has made headlines around the globe by promising hospital care insurance for 100m families -- the world's largest government-funded health programme.

"Modicare" has caught the imagination and provoked widespread political debate since it was announced earlier this month by Finance Minister Arun Jaitley in his annual budget. But implementing Modicare is full of challenges ranging from the risk of corruption to shortages of money, administrators and doctors.

India faces a looming heath crisis caused by the dual burden of high rates of communicable diseases and an increasing incidence of lifestyle illnesses, such as cancer, diabetes, hypertension and heart ailments. Young children still die from conditions that are easily treated in many other countries, such as diarrhoea.

Life expectancy at birth in India in 2015 was 68 years, compared with 76 in China, according to the World Bank. India's infant mortality rate per 1,000 live births was 38, compared with just nine in China.

According to a UNICEF report, 1.2 million Indian children aged up to five years died in 2015, out of a total 5.9 million worldwide. Premature birth and neonatal complications were the top killers (39%), followed by pneumonia (14.9%), diarrhoea (9.8%) and sepsis (7.9%). While 94% of Indians have access to clean drinking water, almost the same as 95% in China, proper toilet facilities were available to only 40% of Indians, almost half the proportion in China.

To make matters worse, given the low penetration of health insurance products and meager government spending on health care, 62.4% of total health-care expenditure in the country comes straight out of people's pockets, compared with a global average of 18% in 2014, according to the World Bank. These unavoidable health-care expenses are pushing an estimated 60 million people a year into poverty, according to state think tank Niti Ayog.

As well as the huge human costs involved, India's health problems will impose limits on its ability to reap the economic and social benefits of its youthful population. 

But Modicare alone is not the answer. India does not have the governance capacities to run such a massive program successfully, as shown from the near failure of a similar national health insurance program started by the Congress-led government in 2008. This provided 30,000 rupees of health cover for households below the poverty line. But it failed to bring down out-of-pocket expenses and covered only 12.7% of poor households.

There were other problems, including corruption and perverse incentives that often led to the prescribing of unnecessary tests and procedures to inflate reimbursement claims by insurance companies.

Modicare, which offers 500,000 rupees of annual cover ($7,830) is, in essence, a demand-side health-care measure. But India's problem is on the supply side. There are simply not enough hospital beds, doctors and nurses or equipment available.

Backed with insurance cover, Modicare's 100 million families (an estimated 500 million people in a population of 1.3bn) will demand services that will prove difficult to provide. Even India's high-cost private hospitals are overcrowded. Unless the supply of hospitals, doctors and equipment improves substantially, Modicare will remain a paper-only programme.

To be fair to the government, Jaitley has also announced the setting up of 24 new government medical colleges and hospitals through the upgrading of existing district hospitals. However, some of the newly established medical colleges and hospitals, such as the All India Institutes of Medical Science in Patna and Bhopal, are not functioning smoothly, partly because of the shortage of funds and medical staff.

Most of the targeted beneficiaries of Modicare live in rural areas, so providing proper facilities is even more challenging. Health-care professionals do not want to live n rural areas because of the lack of basic amenities, and more incentives will be required to tempt them to do so.

That is not all. Even a conservative estimate of the insurance premium for 500,000 rupees of cover is 5,000 rupees per family, so the government's total premium costs each year would reach 500 billion rupees. However, Jaitley has raised the health budget for the financial year 2018-19 by just 2% to 546 billion rupees, against inflation projected at 3.5%. The increased budget will simply be exhausted in maintaining existing health-care operations. The lofty announcements on Modicare do not come iwth much financial backing.

Theoretically, treatment at government hospitals is already almost free for any Indian. Even without any new insurance coverage, poor patients can secure free treatment. But the government-run hospitals are relatively few in number for a country the size of India, and plagued by shortages. Corruption and lack of accountability make matters worse.

To fill the gap, private hospitals have sprung up across the country, but they are mostly concentrated in big cities such as Delhi and Mumbai. They are expensive and out of reach of the poor. So providing health insurance cover to 500 million people will only put further pressure on already inadequate health-care infrastructure.

The supply of infrastructure must improve. However, that would require raising government spending on health care substantially from the current low level of 1.4% of gross domestic product (0.9% from the states and the balance from central government). Indian government expenditure on health care compares with spending of 3% of GDP in China and 4.3% by Brazil, according to India's official Economic Survey.

India's 2017 National Health Policy does aim to boost government spending on the sector to 2.5% of GDP, but only  by 2025 -- and not much has happened yet. The low spending is reflected by data on medical services. There is one mainstream government doctor for every 10,189 people, one government hospital bed for every 2,046 people and one state-run hospital for every 90,343 people, according to the Central Bureau of Health Intelligence's 2017 report. This is not enough, given an annual population increase of 26 million. In the absence of qualified doctors, quacks rule the scene, especially in rural areas.

As well as improving access and quality at government-run hospitals, the government must provide an effective primary health-care system. This would help in the early detection of serious diseases and reduce the need for more expensive speciality services, including hospital care.

The authorities should also promote more private investment to boost the supply of doctors and hospital beds. However, restrictive regulations such as price controls, protectionist import duties on medical devices and lax enforcement of intellectual property rights currently deter investors.

India should let increased competition drive down the prices of health-care products and services. Unethical profiteering by private hospitals is a serious issue. Competition from quality government-run hospitals is a better way to force private facilities (often run by politicians or their cronies) to cut prices and improve service than using price controls.

Meanwhile, the government should battle against noncommunicable diseases by encouraging a healthy lifestyle, for example through the prudent use of taxes on food items to nudge people away from junk and towards healthy eating.

Modicare makes sense in the face of the looming crisis. But implementing it will be difficult, not least financially. And even if implemented well, it will not be enough.

Ritesh Kumar Singh is a corporate economist in Mumbai and a former assistant director of the Finance Commission of India.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more