Unhealthy scheme

The health insurance scheme for the poor launched by the UDF government turns out to be irregular and infeasible.

R. KRISHNAKUMAR in Thiruvananthapuram

A LOW-PREMIUM health insurance scheme offering "cashless medical treatment" for people living below the poverty line ought to have been the last of all the initiatives of the Congress-led United Democratic Front (UDF) government that the incumbent Left Democratic Front (LDF) administration in Kerala should have run down. But, surprisingly, one of the first significant decisions of the four-month-old LDF government was to do away with just such a scheme, launched a few months before the UDF bowed out of office.

"Not without reason," Communist Party of India (Marxist) leader and State Finance Minister Thomas Isaac told Frontline. "But we are now in a catch-22 situation."

When the Oommen Chandy government ordered the launching of the Kudumba Suraksha health insurance scheme in January 2006, it did appear that a battle-ready UDF had scored one over its rival Front on the eve of the State Assembly elections.

It then looked like a dream health insurance scheme for the poor, who could, for a personal contribution of a mere Rs.33, obtain cashless medical treatment for all existing illnesses, including mental illness and maternity needs; treatment at home; and insurance cover in the case of accidental death or disability, for five members of a family.

The insurance scheme was one of the two political instruments that the UDF used to outsmart the LDF in the election campaign. The other was the move to establish a Smart City Information Technology mega project in Kochi in collaboration with Dubai Internet City, an IT park in Dubai's Free Economic Zone.

However, on the eve of the elections, the UDF government announced it would not sign the Smart City deal without a fresh mandate because of the "unnecessary hurdles and doubts" raised by the Left Front over the related land deal and the benefits of the project. And, in another politically smart move, it claimed at every election meeting that the insurance scheme had already been launched through a private company, ICICI Lombard General Insurance Company, and would benefit 25 lakh families among the poorest of the poor.

But no sooner had the LDF government come to power than it began to question the genuineness of the scheme.The UDF, on its part, launched a campaign alleging that the CPI(M)-led LDF was refusing to implement a much-needed scheme for the poor just because it was drawn up by a Congress-led coalition.

Indeed, it appeared that for the first time a State government had offered the really poor in Kerala "cashless medical treatment", for an insignificant contribution, through an insurer and a network of government, private and cooperative hospitals across the State (one in every 15-25 km).

Under the proposed scheme, the total premium for a "typical" five-member BPL family was Rs.399 a year. The beneficiary's contribution was Rs.33. A Central government subsidy of Rs.300 under the Universal Health Insurance Scheme (UHIS) and an additional subsidy of Rs.33 each from the State government and the local body concerned accounted for the balance amount.

The proposed benefits included Rs.30,000 a year as the total medical expenses for a family of five; up to Rs.60,000 a year for treatment at home, if required; up to Rs.15,000 a year for maternity needs; a subsistence allowance of Rs.50 a day (if the bread-winner is hospitalised); a bystander allowance of Rs.50 a day; coverage of all "existing" illnesses; and, as mentioned earlier, cashless medical treatment on production of the photo identity cards supplied by the insurer. The scheme also included an accident insurance benefit of Rs.1 lakh for death or full disability and Rs.50,000 for partial disability.

The UDF government said that though it had placed its scheme for competitive bidding involving all the Insurance Regulatory and Development Authority (IRDA)-approved general insurance companies, including the four public sector insurance companies, the only one that offered to provide all the benefits formulated by a government committee, and quoted the lowest premium, was ICICI Lombard. Among the public sector companies, the National Insurance Company alone agreed to provide all the benefits under the scheme but it quoted the highest premium (Rs.750).

The scheme was to be implemented through the Kerala State Poverty Eradication Mission's (Kudumbashree) community units in association with the local bodies. The identification and enrolment of eligible BPL families was to be done by the neighbourhood groups under Kudumbashree. ICICI Lombard had also agreed to implement the scheme for three and a half years without any change in premium and to enter into a "Service Level Agreement" with the government.

The UDF government issued orders entrusting the implementation of the scheme to the company on January 3, 2006.

But barely four months into LDF rule, as the Opposition launched a campaign demanding the immediate implementation of the health insurance scheme, the LDF government announced that the scheme was a "betrayal" and that it was organised in an "irregular" manner.

Among other things, the new government alleged that the UDF had sought the services of a private company in violation of the then existing Central norm that the subsidy of Rs.300 would be available only if the scheme was put into operation through a public sector company; that ICICI Lombard had never signed any agreement even though a large part of the family premiums and subsidy from local bodies had already been deposited with the company; and that the number of families on the State BPL list was almost double that in the Central list (because of the different criteria used to identify BPL families) and the government had failed to propose where the additional amount required for them would be found.

Local Administration Minister Paloli Mohammed Kutty told Frontline that, somehow, while discussions were in progress, ICICI Lombard entered the fray and quoted the lowest bid (initially Rs.149 a family and, when the tender was invited again, Rs.99 a family). In order to justify its entry, the UDF government also went ahead with a re-tendering process, after which the Cabinet approved the proposal, he said.

Thus, even without entering into an agreement with the private company, the UDF government had enlisted nearly 15 lakh families in the scheme, obtained the additional subsidy share of Rs.33 each for all of them from the local bodies, and deposited a large share of the money with ICICI Lombard. According to Chief Minister V.S. Achuthanandan, the UDF government announced the launch of the scheme on the basis of an impression that it would get the Rs.75-crore UHIS subsidy from the Central government, and not really after ensuring that it would indeed get it.

The UDF government had insisted on two conditions in the proposed agreement with the company. One was that the premium should be valid for a period of three and a half years starting from the middle of the financial year 2005-2006. The other was that it would be the responsibility of ICICI Lombard to obtain the eligible UHIS subsidy of Rs.300 a family per annum from the Central government and that the State government would only "facilitate" ICICI Lombard to receive the above subsidy "by issuing recommendatory letters to the Government of India".

In effect, what it meant was that the premium that the company agreed to implement would remain the same for three and a half years and that it could not be made conditional on the company receiving the subsidy from the Central government.

Paloli Mohammed Kutty said that since there was a Central government direction that the UHIS subsidy should be released only through public sector companies, the private company was unable to get the Central subsidy and it withdrew without signing a formal agreement. Union Finance Minister P. Chidambaram had also informed the then Chief Minister that the Central and State governments and the company had conducted no effective talks on the matter and that since the proposed scheme was against the directions of the IRDA, it did not have the sanction of the Central government.

However, according to the Minister, the UDF government had forced the panchayats to remit their subsidy share and deposited Rs.5.66 crores, collected from the families and the panchayats, with the private company without an agreement being signed. Moreover, Rs.2.46 crores collected additionally has been kept aside in various offices to be remitted to the company. "The UDF government failed to put in its share of the additional subsidy and did not even include it in the Budget proposals," he said.

According to a senior Finance Department official, when the question of signing the agreement came up subsequently, ICICI Lombard instead sent an "alternative draft agreement" to the government, which mentioned that the premium would be Rs.399 a family (and not Rs.99) and that if the Central government's assistance of Rs.300 a family was not received within three months, the company would no longer be bound by the insurance obligations. The company also said that the premium would be valid only for one year and not three and a half years.

Opposition Leader Oommen Chandy said that though there had been a bar on private companies earlier, the UDF government had gone ahead with the scheme because it offered all the benefits that the government had drawn up for the poor at a very low premium. His government had the confidence that it would eventually be able to obtain Central sanction to implement the scheme through the private company and include the 25 lakh families on the State BPL list in the scheme. (The Central list for Kerala includes only about 9.5 lakh families in the BPL category.)

A study conducted by the Kerala Sastra Sahitya Parishad (KSSP) has found that 15 per cent of the State's population is extremely poor and 35 per cent is considered above the poverty line but is still unable to meet basic needs; the 10 per cent that constitutes the rich corners 41.2 per cent of the total income. Ten per cent of the population at the lowest rung shares a mere 1.3 per cent of the total income, and an important factor that pushes it further into poverty and indebtedness is medical expenses.

Expenses for medical care are higher in Kerala than in other parts of the country, and the poor spend nearly 35 per cent of their income on treatment, which pushes them into hunger and debt. The study found that though morbidity rates had come down, treatment costs had escalated in the State.

According to Dr. C.R. Soman, chairman of the Thiruvananthapuram-based Health Action by People, though the insurance scheme of the UDF had raised hopes of the poor getting medical insurance cover at a nominal cost, it was clear from the beginning that it would be impossible for any insurance company to go ahead with the scheme.

Though ICICI Lombard would get Rs.99.75 crores as the total premium during a year, the cost that it would have to incur to provide insurance cover to at least one person from each of the 25 lakh families, at a per capita treatment expense of Rs.1,000, would be Rs.250 crores. (According to the KSSP study, the per capita treatment expense a year in the BPL category is Rs.1,550.) Add to it the treatment costs for maternity needs and other benefits and you get a scheme that is not at all feasible.

"You can only imagine what would happen if the government goes ahead with the scheme. Middlemen and autorickshaws would queue up before government hospitals and public health centres to whisk away patients to private hospitals. Even the poorest of the poor would be forced to abandon government hospitals and seek maternity care in private hospitals. They would all become consumers of insurance schemes. In three years, the company would say it is impossible to go ahead with the scheme for such a premium. But, by that time, government hospitals would have fallen into disuse and it would require a lot of effort then to revive them again," Dr. Soman said.

Thomas Isaac told Frontline that there was no rational calculation by which this scheme could go forward. "Even if 10 per cent of the members of the scheme from 25 lakh families are to claim Rs.30,000 a year, will the company be able to pay it with such a premium? Only a company that is willing to bear a loss for the initial years in the hope of making a killing later on would have decided to take such a plunge. It can result in the total destruction of the public health sector if it is not carefully planned," he said.

Isaac said one of the key objections of the State government was that the scheme was open to the private sector. An insurance scheme that will be primarily dependent on the private health care sector will result in the undermining of the public health care system.

"Why should the State government support an insurance company by putting money to undermine the primary health centres in Kerala? What will be the premium after three years, by which time the scheme would have undermined the PHCs? Will the Central government continue to pay the premium after three years? The UDF's scheme can only result in the elimination and undermining of the public health care sector so that the government will have no bargaining power vis-a-vis the insurance company. They will start dictating terms," the Finance Minister said.

The other important hurdle is regarding the number of BPL families in the State. While the State government says there are 25 lakh families, the Central government has informed the State that as per its norms, there are only about 9.5 lakh families. Paloli Mohammed Kutty told Frontline: "There is a running argument between the State and the Centre regarding this. The question here is, who will pay the Rs.300 subsidy component to the rest of the 15.5 lakh families in the State BPL list?"

But would it not be possible for the State government to bear the burden? The Finance Minister said: "Today, perhaps, the State may be able to contribute Rs.20 crores or Rs.30 crores required additionally for those families. But tomorrow, when the premium goes up and the Central government is unwilling to foot the bill, how will the State continue to finance the scheme? By that time, the public health care sector in Kerala too would have been totally undermined."

Would entrusting the scheme to a public sector insurance company have helped avoid the undermining of the public health care sector? "There will be problems. It is indeed a catch-22 situation," Isaac said. "We are now trying to introduce a curious instrument that would undermine Kerala's public health care sector, which, unlike in other States, is well established. But the State government cannot also go back fully because individuals (among them people who have already paid the premium) would now be looking at what he or she can get from the scheme. It is no longer a collective choice. Every individual member who has been promised cashless medical treatment for the next three years would not be bothered about the long-term implications. They would now be worried only about losing their short-term benefits. So we cannot take a position on it outright."

What would happen to the money already collected? "Nobody knows," the Finance Minister said. "There is no agreement. The company is not even sending a letter to us." ICICI Lombard authorities were not immediately available for comment.

There are indications that a compromise scheme may soon be in place if the State government fails in its efforts to seek Central assistance to meet the additional burden for all the families on the State BPL list. "If the Centre is unwilling to do it, we may restrict the scheme to the public health care system and make it self-limiting. That is, subsidise part of it or offer full subsidy to the rest of the BPL families and provide an option for the rich too to be in the scheme, provided all of them are willing to use the public health care system. It will be a new scheme that will help maintain the public health care system, with the insurance company paying only to patients in government hospitals," Issac told Frontline.

The Finance Minister said the government would finalise an alternative scheme this year "so that it could be announced in the next Budget". "We will have to devise a scheme that will not undermine the public health care system. Even if we are unable to find a solution for all the 25 lakh families, why should we deny it to the over nine lakh families who are already on the Central list?" he asked.

He also indicated that members might be required to pay a higher premium in the scheme being evolved. "If premiums have to come down, a lot of other factors too will have to come into play, such as provision of drinking water supply and better sanitation and nutrition, which together bring down morbidity in any society. Then, premiums will become affordable. Along with the insurance scheme, the government will have to concentrate on measures that would bring down morbidity," he said.