Continuing problem of health financing

Healthcare expenses across the world are growing faster than the economy. People are spending money on their health needs despite having access to free services and some form of health insurance cover. People tend to seek freedom of choice in accessing healthcare. They prefer to seek services from providers they trust. They want to be treated with dignity. They do not want to be discriminated upon. As a result, people end up paying for their health expenses out of their pockets. Healthcare cannot be equated with other goods and services. Financing health care needs of people has therefore become as vital as their access to healthcare.

Given the unpredictability of healthcare needs in terms of when, where, and how much of it is needed, financial systems have begun innovating in designing solutions. Over time, societies used to out of pocket payments with poor social security net evolve into ones with a culture of savings and borrowings. Gold remains the most preferred mode of saving in India, as it tends to appreciate during economic recession and is liquid. Real estate is the next preferred saving option as it is easy to mortgage to borrow money. Family, friends, and communities also come to the rescue on many occasions. Chit funds evolved as a means of financing each other’s needs through monthly contributions to a pooled fund. Private informal lending grew as a part of this culture. Since needs are unforeseen and unpredictable, lenders exploit the situation by charging astronomical interest rates. Healthcare expenses are a major reason why people get into the debt trap from which they may not recover for years on end.

Governments try to address health financing needs by providing free services through the public health system and through financial protection. Financial protection is provided through either mandated social health insurance for formal labor or by tax-funded public health insurance programs for poor people. Governments are trying to provide subsidies or lend money to meet various essential needs of poor people. However, this practice of public lending to meet health expenses is not prevalent in many countries. Even the banking sector has not shown any significant interest in consumer lending for health expenses.

People-centered health insurance solutions

Insuring oneself and family against future health expenses (pre-paid) that are usually sudden and unexpected is better than arranging to pay at the time of receiving care for a medical emergency (post-paid). The cumbersome process of buying a health insurance product and then claiming its benefits when the need arises, deter many people from opting for a health insurance plan. Like many other service sectors, the insurance sector is also transforming on account of rapid advances in digital technologies. Aggregator platforms are helping people choose the right product. Customer-friendly payment options (monthly premium payments instead of yearly etc.,) help people purchase the products more easily. Linking these payments to bank accounts makes the process automatic and simpler.

Health risk assessment is the most important prerequisite for arriving at the premium amount for various products. Compared to the imperfect existing methods, more advanced and scientific risk assessment methods based on validated algorithms from simple health data are being used increasingly. As we move towards standards-based, interoperable electronic health record systems, it becomes much easier to arrive at the risk profile of individuals based on their personal health records.

Regulatory frameworks need to be strengthened further to safeguard the beneficiary’s interests. As health risk assessment methods become more reliable and robust, no one should be denied health insurance products based on current their health status. Population health data analytics using AI solutions are improving the calculation of applicable premiums. Insurtech or insurance technology solutions are being applied to streamline the entire process of authorization (emergency and elective) to provide detailed information on services not covered to claims processing, thereby improving the experience with these insurance products and services.

People-centered financing solutions

There are many reasons why people end up paying for their health needs throughout their lives, despite the availability of free public healthcare services, public and social health insurance coverage, and private health insurance products. People resort to borrowings after they have exhausted their savings and assets. For non-emergency health needs, some appeal for help from public charities or special earmarked government funds. People encounter the greatest challenge during unexpected medical emergencies.  

Advances in digital information and communication technologies are disrupting various sectors, including the financial sector (clubbed under FinTech solutions). Digital payments are increasingly being adopted by all people including street vendors. Since most of the digital financial transactions can be tagged to the unique digital ID of each person through biometrics, Aadhaar card, PAN card, bank account, or mobile number, a person’s credit rating can be assessed instantaneously for on the spot consumer financing. People in India are spending close to INR 3 lakh crores every year on health. Many more are not seeking healthcare due to issues of affordability. Hence, there is a case for the banking and non-banking financial sector to take active interest in consumer health financing.

Access to loans for poor people is limited by their high credit risk and no assets to mortgage. Governments have been providing guarantees to banks for them to extend agriculture loans to farmers. Similar guarantees can be extended to poor people to meet their healthcare needs. With the growing penetration of banking services to many households across the country through the Jan Dhan initiative, governments have been transferring the benefits directly into the beneficiary accounts ( through direct benefit transfers or DBTs). In order to prevent its misuse by financially well-off people, governments need to have a more robust system to assess the socio-economic status of people more accurately. Dated socio-economic surveys and census data are being used to classify people and families into quintiles, for a large part. As financial transactions move more and more into the digital space and get linked to unique IDs, the ability of the governments to validate socio-economic status is set to become more robust. 

The concept of mutual help through chits, widely prevalent in India, is being scaled up to ‘mutual aid’ digital platforms. Members can contribute specified amounts at specified periodicity to create a fund from which the members, after due verification, can draw loans for unforeseen health expenses as per limits. While the concept works well in small social groups, a larger platform may need stringent regulation to safeguard its members. Many chit funds in India came into disrepute on account of fraud and irregularities.

Crowdsourcing help for unaffordable medical treatments is catching up in India. Online platforms are being created to channelize the societal goodwill to deserving people in need of money for expensive medical treatments. These platforms can connect patients, providers, and donors with each other for transparency. Governments can also create online application systems to access special funds in times of need.

Future of health financing

In addition to the ongoing health reforms aimed at achieving universal health coverage (UHC), advances in digital fintech, insurtech, and health tech solutions and their convergence will encourage innovations in health financing towards meeting unprotected health expenses, while respecting people’s right to choose the healthcare providers they trust. There is an urgent need to bring all these actors together in order to accelerate this process.

Dr Krishna Reddy Nallamalla
President, InOrder
Country Director, ACCESS Health International

*Photo Credit: WHO