The RSBY Rubik's cube

Rashtriya Swasth Bima Yojana (RSBY) or the National Health Insurance Scheme, covers people below the poverty line in India. It was one of the flagship programmes introduced by the previous Congress-led UPA government. One has been hearing for quite some time now that the present government is planning to replace this with a new scheme and have it run by trusts instead of insurers. There is also a strong counter view, that the non-life insurers should continue to be involved in the programme. The argument in support of this position, is that they only have the necessary expertise, to run health insurance programmes on such a mass scale.

As of today, the scheme is mostly in limbo with no clarity on its future. The proposal to move RSBY out of insurers could rob them of some topline, but is it such a bad idea? Haven't they failed to deliver?

To understand better, some questions have to be asked:

Dude, where is the ‘Bima’ in RSBY?

For a group insurance programme, one would normally expect some pooling of individuals with different risk profiles, followed by spreading the risk of each individual across many in the group. Such pooling helps take out anti-selection, as otherwise premium rates can be too high.

‘Pool and spread’ is largely absent in RSBY. Coverage is quite wide, with features such as no age bar for entry and pre-existing conditions included from day one. This makes it a high risk category, prone to anti-selection. The higher risk is not being spread across a larger group, which has also richer, healthier individuals with lower risk. The group doesn't pay the premium, but the government does. The beneficiaries only have to pay a small registration fee, to enrol into the scheme.

So essentially, RSBY is less of insurance and more of a cash dole out mechanism. Government is doling out money to hospitals, through insurance companies, for treating poor people.

Now the second question is:

If there is not so much of insurance involved, does the government need non-life insurers, to run the scheme?

Currently, the government floats tenders in the market, to find lowest quotes, for running the scheme across various states. For most tenders, the winning bids are much below a price point at which the insurer will likely burn cash. The net incurred claims ratio of government sponsored health insurance schemes including RSBY, for the Indian non-life industry, stood at 109% for the financial year 2015-16 and at 108% for the year 2014-15 respectively (source: IRDA Annual Report 2015-16). Add a minimum of 30% towards expenses of management and other costs, this portfolio is operating at a combined ratio of close to 140%. This means the industry is losing forty paise for every rupee of premium collected. RSBY market is vastly dominated by the government owned non-life insurers. Therefore, the arbitrage government is gaining by securing competitive quotations from the market, is largely contributed by these entities. So it appears that participation in RSBY is causing financial harm, to the insurers that are owned by the government (and by extension to itself), at a time when it is planning to make some cash out of a minority stake sale in them.

Given this situation, maybe it’s better that government self-insures this scheme, keep the pot of money that it gives to insurers with itself (or a trust) and find a better way of distributing it to hospitals for treating the poor.

That brings one to the third question:

What about distribution of the programme? Who will do it?

Like any other government scheme, there seems to be too much bureaucracy around the management of the scheme which pushes the cost upwards. There is an elaborate enrolment process, collection of biometric data, issuance of smart cards and so on.

Some of the current enrolment rules are either strange or absurd. It says no more than five members of a family can be insured. It also says if a family has more than three children, the head of the family has to decide which of his or her three children are to be insured. How can the government ask someone to make such a choice? The same rules say that if a man has more than one wife, all the wives can be covered (there is no upper cap specified!). However a situation where a wife has more than one husband is not specified.

Why come up these kind of rules and regulations? If the government takes the risk of insurance upon itself, it can proclaim that all poor families in the country irrespective of number of persons, are automatically subscribed into the scheme.Enrolment is required when insurers are involved, to identify who is covering whom. If government self insures, no such enrolment will be required. Auto-enrolment would also perfectly tie in with the government’s thinking, on making right to health, a fundamental right guaranteed under the constitution.

And the last question:

Who will run programme, particularly the claims administration? Shouldn't the insurers do it?

The process around RSBY claims settlement, are capable of being parameterised and hence could be done in a cost efficient manner, through employment of right technology. Identification of beneficiaries, can be done through Aadhar Card based biometrics, at the hospital point. Payment could be done electronically, once treatment is carried out and the documents uploaded, on a central IT system. The system could debit the government and credit the hospital, for the treatment rendered, as per standard pre-agreed rates. All these could be done in a speedy, cashless manner in addition to being paperless. This will encourage more private hospitals to actively participate in the scheme, as they will be assured of timely payment. Presently, many private hospitals don't want to be associated with government programmes, as they never get paid on time, if at all, due to corruption and red-tape.

So it all boils down to running a payment mechanism supported by a solid IT application.

May be a payment bank like PayTM, can also do the job at a much lower marginal cost per transaction, than an insurer or a trust.

The RSBY Rubik’s cube is solvable. The government has only to get its algorithm right.

Ask, and it shall be given you; seek, and ye shall find; knock, and it shall be opened unto you:

Matthew 7:7

I post articles on contemporary issues in non-life insurance in India. Views expressed are personal. Links to my previous articles as below:

1. Online insurance - the certainty of contract uncertainty?
2. Does India need an insurer of last resort?
3. Crop Insurance in India - intermediaries please excuse!
4. Real Estate Bill – missed insurance opportunity?
5. Insurance protection gap – the case for inclusion