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India's ambitious 'Modicare' raises hopes and doubts

World's largest government-funded health insurance to cover half a billion people

NEW DELHI -- Prime Minister Narendra Modi's plan to roll out health insurance covering 500 million of India's poorest people is drawing both praise and concerns over implementing and financing a program for a population larger than South America's.

While optimists project the scheme will help reduce poverty, opposition is so strong that one state last week declared it would pull out of the plan.

Set to launch by early October, the National Health Protection Scheme, dubbed Modicare, is the centerpiece of the budget announced for the fiscal year beginning April. The prime minister has tweeted that the program's scale is "unparalleled" and it will bring a "paradigm shift" in India's health sector.

The insurance will benefit 100 million low-income households or half a billion individuals, covering 40% of the country's population, the government says. Addressing the Indian community in Muscat, the capital of Oman, on Feb. 11, Modi said the system "will allow free medical treatment of up to 500,000 rupees ($7,700) per family annually." 

"Considering that out-of-pocket expenses cause many households to slip back into poverty, this will impart a huge measure of security to lower-income families," the Confederation of Indian Industry said in a statement.

According to the World Health Organization, Indians paid 62% of their health care costs out of their own pockets in 2014 -- $60.6 billion out of the total $97.1 billion.

World Bank data shows India spent just 1.4% of its gross domestic product on health care in 2014, a small rise on the 1.1% in 1995. In comparison, China spent 3.1% of GDP in 2014, while the U.K., the U.S. and Japan spent 7.6%, 8.3% and 8.6%, respectively.

Calling the plan India's version of Obamacare, Mumbai-based analytics firm Crisil, an S&P global company, said it is "certainly ambitious, as it proposes to cover a whopping one-third of Indian households." India Ratings and Research, a Fitch Group firm, described the program as beneficial for the hospital sector "as it will increase addressable market size."

Niti Aayog, a government think tank, expects annual premium payments covering all beneficiaries to cost up to 120 billion rupees, with the central government providing 60% of the amount and the rest to come from state governments that accept the plan. For states in the country's long-neglected northeast, the central government will provide 90% of funding, as has been the case with other programs there.

People enrolled in the program will not have to make any payments, and about 50% of them are likely to be covered in the first year.

Rajiv Kumar, vice chairman at Niti Aayog, called Modicare "a game changer." Referring to criticisms of the program, he told the PTI news agency that "completely baseless and false propaganda" is being spread against it.

But many do see the world's biggest government-funded health insurance program, along with several other proposals in the budget for India's poor, as an attempt to woo voters in next year's general election, when Modi will seek a second five-year term.

The opposition Indian National Congress leader and former Finance Minister P. Chidambaram criticized the government, saying "no money" has been provided for the plan in the budget. A "scheme without money is like flying a kite without a string. The kite flyer will say that the kite is flying, but there will be no kite and nothing will be flying," he tweeted.

Some states have also voiced aversion. Just last week, media reported that West Bengal in the country's east, which is governed by the opposition All India Trinamool Congress party, plans to opt out, contending that it has its own health care program and will not allocate resources for a new one.

While the insurance proposal gives hope to poor households, such expectations have been dashed before. Two years ago, the Modi government proposed another national health care initiative to cover up to 100,000 rupees per family, but it failed to take off.

"The Health Ministry could not finalize contours of that scheme, and funding also remained an issue, with states not showing keenness to join," said Archana Jyoti, a New Delhi-based health columnist. "This time also, the success of the initiative depends on the number of states coming on board."

The government is looking to launch Modicare either on Aug. 15, the country's Independence Day, or Oct. 2, the birth anniversary of Mahatma Gandhi.

The government does have ideas for funding the plan, though not everyone is convinced. In his budget speech on Feb. 1, Finance Minister Arun Jaitley gave assurances that "adequate funds" will be provided to implement the scheme smoothly. The government has set aside an initial 20 billion rupees in the next fiscal year and says further funding will be provided once the contours of the system take shape and details are worked out.

Niti Aayog's Kumar said the allocation for the health sector in the budget has been raised by 60 billion rupees.

There already is a 20 billion-rupee provision for an existing program that will be subsumed by Modicare. An additional 1% education and health tax proposed by the finance minister in the budget will generate 110 billion rupees annually. All these measures will help the government fund the program.

According to the State Bank of India's economic research department, Modicare is a necessity as many countries established universal health care decades ago -- Japan in 1938, Germany in 1941 and Belgium in 1945, just to name a few.

The central bank expects the initial cost of Modicare to be less than the market estimate of 120 billion rupees, arguing that the number of claims in the first few years will be low as it generally takes time for awareness to spread.

The plan will replace an existing program covering hospitalization expenses of up to 30,000 rupees for families living in extreme poverty. Only 36.5 million families, or 61% of the total eligible households, were enrolled in this program last year.

"The present scheme was inadequate" both in terms of benefits and enrollment, the SBI research said.

The Ministry of Health and Family Welfare has started consultations with the states to discuss further details of the program, assess their preparedness, and to learn from them about their experiences in implementing their own health insurance.

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