Why Modicare numbers just don't add up and may just remain on paper

Sample this: 100 million families, 500 million individuals, Rs 500,000 medical insurance per family, Rs 1,000 premium per family (according to government) and Rs 100 billion total estimated cost. This, in short, seems to be plan envisaged by the Union government (along with states’ contribution) to launch the world’s biggest healthcare plan – the National Healthcare Protection Scheme (NHPS).

Now, let’s look at the other side of the story: Rs 500,000 medical insurance per family means Rs 50 trillion medical insurance coverage for 100 million families. Even if 1% people claim this amount (or say, 2% claim 50% of the amount), then the insurance company will be staring at claims of Rs 500 billion. Given that the policyholders of this scheme will be the poor or people below poverty line, there could be significant claims. Even if the government takes it slow and covers only 20% of the targeted families in the first year, Rs 100 billion as premium doesn't seem to be enough. This would be an unviable business for any insurance company or a group of companies.

Compare these numbers with the present Rastriya Swasthya Bima Yojana (RSBY), and the difference is significant. The premium per family in this scheme is Rs 500 (75:25 Centre:State ratio) and the cover is just Rs 30,000. The policy was expected to cover 50 million people. Even the premium per family for Rajasthan government’s Bhamashah Swasthya Bima Yojana (BSBY), is Rs 1,261. The cover is Rs 300,000. All these numbers indicate that the government doesn’t seem to have thought through the numbers. It’s a grand scheme, but will be a cash guzzler.

What can the government do to make NHPS work? One, increase the premium significantly to make it an attractive option for insurers. But where’s the cash to do it? The 1% rise in cess might help matters, but not significantly. The other option: After the merger of its three general insurance companies – National Insurance Company, United India Insurance Company and Oriental India Insurance Company – Centre can ask the combined entity to underwrite this policy on a ‘pilot’ basis. Depending on the claims, the premiums can be adjusted in the future. But asking this merged entity to underwrite this cash guzzler can hurt its valuations. If the government proposes to list the merged entity, it could be tough job.  

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