Friday, October 03, 2008

Healthcare with a Communist Twist

Gouridasan Nair's op-ed on Kerala's modified RSBY health insurance scheme for the below poverty line (BPL) families was interesting to read. So what is this 'Kerala model' he talks about? Four things - expansion of the scheme to those above the poverty line for a higher premium, preference in contracts to government insurance providers, lower payment rates for procedures than suggested by the Center and incentives to government health personnel for bearing the 'additional burden' once the scheme gets going.

Expanding the scope of the scheme may not be a bad idea by itself though if I had to make that decision, I would probably have waited to for a couple of years to see how it works before doing that. The remaining changes are all debatable.

One of the purposes of an insurance scheme is to improve efficiency and cut costs through competitive bidding. If the government declares beforehand that the lowest bid will not necessarily be selected (as he says), it defeats the purpose. One of the big concerns about insurance schemes in the Left is that it will undermine government healthcare institutions. But government hospitals can still be empaneled even if the insurer is a private entity - in fact, he declares that the public health system will be the scheme's mainstay. Besides, 3/4ths of the cost is borne by the Center for this scheme; so its impact on the state's finances is relatively limited which means hospitals run by the state ought not to be significantly affected from the funding standpoint (unless Central disbursment of grants to the state get altered owing to the introduction of the scheme). In any case, so long as the poor are able to get the care they need, what does it matter whether it comes from the government or the private sector? That is a fundamental question to which I have not yet seen a clear answer from the Left.

The other idea seems to be to save money by cutting the rates prescribed for various procedures. If the rates are too low, the bid is unlikely to attract many interested parties.The government may be able to pressure the state insurers to compete but again, if it is turns into a losing venture, the health of these companies will be adversely affected who will have to be put on life support through state subsidies. If that happens, it simply weakens these companies without saving much either. I am not sure who gets to keep the money but my understanding is that the state will not be able to expand coverage to other districts on its own even using the resources it is able to conserve (if any). How this will play out though remains to be seen.

The same question applies to the hospitals which the government is asking now to accept more people. Will they actually gain if they are overloaded with patients from below the poverty line even if that means more revenue? Again the answer depends in part on whether the fixed rates are profitable or not. The other unknown is how all of this will impact efficiency. Outpatient facilites at district hospitals are often overburdened as it is; will this worsen matters to such an extent that the physicians are not even able to properly glance at the patient? Some of these places also suffer staffing shortages - doctors in some cases and paramedical staff in many instances.

If someone reports back in a year or two with an audit on how things are going, we might learn something about how it has worked.


Dirt Digger said...

There a couple of questions on this socialist plan:
1. How is the state going to fund this tower of babel?
2. How does this solve the problem of providing more doctors and hospital facilities when the existing facilities are already over burdened?

Pilid said...


1. The Center and State share the expenses 75-25%. I suppose the money comes from allocations in the budget.

2. Until now, the government would allocate money to these hospitals and expect them to treat patients for free. This scheme for one thing covers many of the same people who are unable to afford care. So even if the burden goes up, it would be limited even if significant (perhaps only to the extent that 'moral hazard' contributes - that is, the fact that these people paid to sign up and are covered by a scheme wants to make them use the facilities more). The difference however is that the hospitals get paid a nominal fee for seeing all these patients unlike in the past. Will that help them expand their existing facilities? That depends on whether the pay is sufficient to not only cover cost but for capital expenditure and how the remainder of their allocations from the state are impacted. If Nair reports back once it starts, we might learn something about how it is doing.