Should financial protection be separated from universal health care?

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The choice of financing method that countries make has a strong influence on the evolution of their health systems. In this context, the question that receives the most attention is the extent to which countries choose to direct fiscal resources towards health care rather than towards other social protection tools. However, another perhaps equally important question regarding health care financing, namely how to best use pooled funds for health care, is receiving much less attention. Answering this question involves thinking about how to compensate providers for the services they provide. These problems are very path-dependent and can set health systems on irreversible paths that either gradually converge towards the best possible health and financial outcomes, or move further away from them.

Health systems purchase health care through an indemnity insurance approach in which the patient is compensated for the actual financial costs associated with health care, with the insurer / payer playing no role in the provision of services. This allows the patient to direct and control their own care, that is, to choose the level of care; approach the health care providers of their choice; choose any service from a range of reimbursable services within a limit. This structure has a simple design and automatically allows competitive forces to operate. It limits the involvement of the payer (which may be a government trust or a private insurer) to mere payment for the care the patient has received, making such an approach easy to develop and implement. As a result, ignoring its long-term implications, many national health systems choose this path. For example, in the United States, government-run Medicare and Medicaid established in 1965 mainly took a form of indemnity insurance. PMJAY has adopted a similar view, following the example of the Indian commercial insurance industry. By the late 1980s, indemnity insurance made up nearly three-quarters of all private health plans in the United States.

The compensation insurance approach is based on fee-for-service contracts (FFS) and remunerates providers for each service they provide. Such an approach prompts both patients and providers to increase the total amount of care instead of focusing on maintaining patient health. Inflation in health care costs fueled by FFS has proven to be the bane of many health systems. For example, in the United States (US), total health spending fell from 5% of gross domestic product (GDP) in 1960 to nearly 17% in 2018, mainly thanks to benchmarks established by Medicare and Medicaid. Germany, Japan, Switzerland and Taiwan are some of the other countries that have taken this path and are facing similar challenges. Changing course is difficult for them because the system has become accustomed to this mode of operation.

FFS payments reflect a deeper design flaw in indemnity insurance, the separation of financial protection from health care and health outcomes. As a result of this separation, P&C insurance does not provide any guarantees related to the delivery of health care nor any assurance on the nature of population level health outcomes for its members. This approach offers half of a car (financing), the consumer being left alone to find the other half (health care) and make it work for himself.

Another approach adopted by health systems, designed to address some of these problems, is to integrate the functions of financial protection and health care and place providers directly on the risks associated with the poor health of their covered populations. These are called Managed Care models. In these models, insurers / payers transfer a fixed amount per person to the owner / manager of a well-integrated provider network, at no additional cost for the care provided to their members during the period of coverage. Such an approach aligns the incentives of payers and providers and forces providers to focus more on curing illness towards maintaining member health. With the integration of financial and health protection, consumers now have access to a complete product and the pursuit of health is no longer their responsibility. To a member of such a program, it looks like a free care environment at the point of health care delivery. However, the downsides of this approach are that providers, having received advance payments, might refuse or provide inadequate care, and consumers may worry about being “forced” to see the same provider.

Within the public sector in India, current government-run health systems (and ESIS) are already very similar in design to Managed Care. However, they suffer severely from problems of inefficiency and under-delivery of care in the absence of serious accountability measures. Countries like the UK and Thailand have shown that in publicly owned health systems, the integration of care and financial protection must also be accompanied by a strong buyer-provider divide for this very reason. . These countries have completely redesigned their health systems to give consumers a measure of choice while ensuring that even public providers are exposed to financial risk related to the health outcomes of the populations covered.

As health systems evolve, more and more countries, recognizing the limitations of the indemnity insurance approach, have turned to such integrated models of care and insurance, notably Colombia, Israel , Thailand and even the United States. Despite these global trends, in India, within the private sector, the current regulations unfortunately do not allow such integration for commercial insurance. The government, through PMJAY, is also choosing to offer indemnity insurance and is trying to move away from the integrated care provided by the government. Such integration is seen as restricting competitive forces and choice instead of shifting competition to another level – now between multiple Managed Care providers instead of being separately between insurers and providers. This continues to give customers a choice, but now between more comprehensive offerings. The consequences of indemnity insurance-driven approaches, such as rapidly rising health care costs, overproduction of surgeries, and poor health outcomes in general, are already becoming very visible even among the smallest child. Indian health insurance industry and will be further strengthened as programs like PMJAY grow. .

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