People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 27

July 13 , 2008


Kerala’s Comprehensive Health Insurance Scheme: A Trail Blazer


Prabhat Patnaik


ON July 2, the Kerala cabinet gave its approval to a Comprehensive Health Insurance Scheme covering the entire state which will come into effect from October 2, 2008, and the like of which does not exist anywhere in the country. The Scheme builds on the Rashtriya Swasthya Bima Yojana (RSBY) of the central government which is meant for BPL workers (as defined by the Planning Commission) and their families, in the unorganized sector.


The annual insurance cover according to the RSBY is for a maximum amount of Rs.30,000 for a family of five, including the worker, spouse, children and dependent parents (if included in the BPL family list), and the annual insurance premium is not to exceed Rs.750 per annum. This premium is to be shared by the Central and state governments, while each beneficiary household is required to pay only an annual registration charge of Rs.30 per family.


The Kerala Scheme while building upon this is much more ambitious. The BPL population as defined by the Planning Commission is, as everyone knows, a gross underestimate. For Kerala itself, in addition to the 11.79 lakh families which are “poor” on the Planning Commission’s definition, there are, according to estimates available with the state government, an additional 10 lakh families belonging to the BPL category who are not recognized as such by the Centre. The state government’s Health Insurance Scheme will cover this additional population as well, who will get exactly the same benefits as the Centrally-recognized BPL families, but who will have to pay only Rs.100 per family per annum towards insurance premium. Their entire remaining premium, and the cost of “smart card” (which will be used for accessing this system and which will allow the avoidance of all cash transactions), will be paid by the state government. In addition, the scheme will also be open to all APL families, provided they pay the entire premium and the cost of the “smart card”. In short, the three categories of families, BPL (Centrally-recognized), additional BPL, and APL, will be covered for an annual amount of up to Rs.30,000 per family, while paying annual amounts, respectively, of Rs.30, Rs.100, and the entire premium plus “smart card” cost. This premium amount plus “smart card” cost will depend of course upon the outcome of the bidding process among insurance companies but, they are expected by knowledgeable people to total around Rs.550.


Even though the APL population will be paying the entire amount of the premium and the charge for the “smart card”, the Scheme will nonetheless be attractive for many of them, since the premium amount is likely to be small owing to the vastness of the Scheme’s coverage. Many of them therefore will enroll for it, which will make the Scheme a truly comprehensive one.




Health Insurance Schemes are a distinctly sub-optimal way of providing health-care to the people. Between the Insurance route on the one hand and the route of providing universal free healthcare through a National Health Service on the other, the latter is infinitely superior. The United States, for instance, which follows the Insurance route, spends a much larger proportion of the government budget on healthcare compared to the European countries, where social democratic governments, under the influence of the example of the former Soviet Union, had put in place systems of free healthcare. Even though these free healthcare systems have got eroded over time under the impact of neo-liberal policies, they nonetheless have managed to survive. And the standard of healthcare in the European countries is far better than that in the US.


The reason is simple. Insurance companies, which invariably are privately-owned in countries like the US, are extremely niggardly when it comes to settling claims. They employ an army of lawyers to fight claims, which contributes both to high insurance premia (since the costs are higher owing the employment of this army) and low settlement ratios (since the lawyers’ job is to ensure this). As the government contributes in varying degrees to insurance premia paid by the poor, there is in effect a transfer from the public exchequer to finance the army of lawyers employed in the Insurance business. A given magnitude of expenditure earmarked for providing healthcare therefore actually ends up providing much less healthcare than under a system of free National Health Service.




This is the reason that the Kerala government had always been averse to following the Insurance route. Its Approach Paper to the Eleventh Plan had come out strongly against Health Insurance and in favour of a free healthcare system. It had argued that the best results, if one followed the Insurance route, would be obtained if public insurance companies did the insuring and public medical facilities did the treatment; but in such a case, instead of following the roundabout route of Insurance, it would be better to put an equivalent amount of additional funds simply into the public medical facilities, and provide universal free healthcare for the entire BPL population. The Central government, however, has insisted on the Insurance route, and since the Kerala Scheme takes the Central Scheme as its base, the Kerala government willy-nilly has to go along the Insurance route in order to get its quota of central funds under the RSBY.


It has however reserved the right to choose the Insurance Company for its  Scheme. The criterion for choice need not be the mere mechanical one of which company offers the lowest tender. Likewise, it has stipulated that the private hospitals and healthcare facilities where the people can go, in addition to the public system, will be only those which accept a set of prescribed rates as the maximum charges for the various treatments. The RSBY itself stipulates this and prescribes such a set of rates, but, given the wide variations in medical charges that exist across the country, these rates can be worked out afresh by each state taking its own specific conditions. Kerala proposes to specify its own rates. These rates can therefore be pegged at levels such that the ceiling of Rs.30,000 per family per annum does not get blown up in, say, a mere three days of hospitalization but does indeed go some way towards meeting the family’s needs.




Kerala at present has a free public health system for the poor. The Insurance Scheme is supposed not to replace free healthcare but to build upon it. This means that those who were earlier accessing the Public System for free healthcare should continue to be eligible for free healthcare even after the Insurance Scheme comes into effect, but the Public System should get compensated for an amount up to a maximum of Rs.30,000 (the ceiling under the Insurance Scheme) from the Insurance Provider in each such case. In other words, if a poor person needs Rs.50,000 worth of treatment, and comes to the Public System for it, then the Public System should provide this treatment. It will be paid back Rs.30,000  by the Insurance Provider while the remaining Rs.20000 will have to be borne by it. Likewise if in a BPL family of seven, only five persons happen to be insured, then the two uninsured members should continue to get free treatment from the Public Health System even though the Public System is not compensated for the cost of their treatment. This point can be put differently: the Public System will continue its current practice with regard to charging for its services, which also means that it will not charge any money to the poor; the compensation it will claim from the Insurance Provider will only be against “notional payments”, calculated at certain specifically-fixed rates.


If the Public System is to continue with its provision of free treatment to the poor, irrespective of whether, and by how much, it is compensated under the Insurance Scheme, then it will have to be suitably strengthened. This is also necessary for another reason. Under the Comprehensive Health Insurance Scheme, private healthcare facilities will be empanelled for treating patients provided they accept the fixed rates. To ensure that the poor get a reasonable amount of healthcare within the Rs.30,000 insurance limit, these rates have to be kept at a moderate level, certainly below what the private facilities charge for their services at present. This will mean that a number of private facilities which currently treat patients and charge high rates will not be within the Insurance Scheme’s ambit, though many of the patients they treat will be coming into it. There will therefore be an excess demand for the public healthcare facilities with the launching of the Insurance Scheme. This has to be met through an improvement in the public health system, for which a number of urgent steps are proposed to be taken.




The “flowback” of Insurance Premia to the Public System will be used for improving the system itself, in addition to the improvement that is brought about through the NRHM. For this: (i) each Public Healthcare Institution will be allowed to retain the Insurance premium flowback that it obtains, at least for the first year, after which the matter will be reviewed; (ii) a system of bonuses for the medical and other staff in each public institution, based on the magnitude of flowback, will be worked out which provides incentives to individual members of the institution.


Since the flowback of insurance payments will take time, and public healthcare institutions in the state cannot wait that long to improve their facilities, they will be allowed to borrow within a limit from co-operative banks under an Escrow Account for undertaking expenditure for such improvement. These loans can be repaid as the insurance payments flow in. Such borrowing in anticipation of flowback will also be necessary for equipping the Public Healthcare Institutions to install the requisite facilities for dealing with “smartcards”.


Health Insurance Schemes in the country, even under RSBY, have till now been confined to a few districts in particular states. The Kerala Scheme in this respect is a trailblazer, since it covers an entire state, and even within that state a population that greatly exceeds what are currently counted as “poor” by the Planning Commission. At the very least, the Kerala Scheme will cover a total population of 1.1 crore. Getting “smart cards” prepared for a population of this size, distributing these in time, empanelling private institutions which are willing to participate in the Scheme by accepting the prescribed rates, and getting the public healthcare facilities to be ready for this Scheme, pose a formidable administrative challenge for the state. The LDF government, having accepted this challenge, will have to rise to the occasion.