Cracks show after just a month of Ayushman Bharat

Touted as the world’s largest health insurance scheme, the Indian government’s Ayushman Bharat programme was never going to be easy to implement. The team tasked with its roll out knew this when it was first announced in February 2018. How would the Centre convince states, especially those which already had similar schemes in place, to come on board? After all, why should a state that is already successfully running a health insurance scheme adopt the Centre’s more elaborate version?

The Centre’s answer to this was simple. Flexibility. It gave states the option of deciding how to execute the programme. Rajasthan, for instance, had a very similar scheme—Bhamashah Yojana. In effect since 2014, it offered a coverage of Rs 3.3 lakh ($4,514) across over 1400 medical procedures. The scheme already covers most of the state’s poor. Understandably, Rajasthan was reluctant to sign on for the Centre’s scheme. And while Ayushman Bharat is yet to be launched in the state, Rajasthan finally signed the Memorandum of Understanding (MoU) for the scheme thanks to the favourable terms on the table.

“The MoU gives complete freedom to the state to decide execution and merging the schemes. It just mentions that 5.97 million beneficiaries must be covered. We already have 9.2 million people covered. There would obviously be overlap in beneficiaries of the two schemes,” said Ashish Modi, Joint CEO, Rajasthan State Health Assurance Agency.

Most other states have also agreed to either launch Ayushman Bharat as a fresh scheme or make it work with their existing schemes the way Rajasthan intends to. Since the scheme was launched, Tamil Nadu has announced that it would merge the existing Chief Minister’s Comprehensive Health Insurance Scheme (CMCHIS), which covers 13.4 million families for Rs 1 lakh ($1,368) annually, with Ayushman Bharat. Similarly, West Bengal negotiated a merger on the condition that the merged scheme continues to be called Swasthya Sathi. This, despite the number of beneficiaries under the scheme increasing twelve-fold. From 4.7 million to 60 million.

As of now, only two states have rejected the scheme outright—Odisha and Delhi. Telangana, meanwhile, has chosen to abstain for the time being. Despite these holdouts though, the effect of Ayushman Bharat could still be massive. 500 million vulnerable people will stand to benefit from it, according to a press statement issued by the Ministry of Health and Family Welfare. Once it is implemented, says a consultant with the Ayushman Bharat scheme, about 40% of these 500 million will get health insurance for the very first time. For the remaining 60%, the scheme will push their coverage from as little as Rs 20,000 ($273) to Rs 5 lakh ($6,840), while also covering more medical treatments.

In theory, this is fantastic news. However, there remain obstacles. Significant obstacles. Two very important stakeholders in the scheme are far from convinced. Hospitals and insurers. In the one month since the scheme was started, insurers have felt neglected. In some states, they have been unwilling to help implement the scheme.

Many hospitals, meanwhile, say empanelling is completely unfeasible. For example, the rates for procedures prescribed by Ayushman Bharat are lower than those listed under other central and state government health schemes, which are already lower than rack rates at private hospitals by as much as 60%. Little wonder then that only 14,000 hospitals—nearly half of which are government-funded—have chosen to empanel. And this despite the country already lacking the hospital capacity needed to cover Ayushman Bharat’s 500 million beneficiaries.

Now, negotiations are on to bring insurers and hospitals onside.

Ayushman Bharat so far

223,000 beneficiaries identified, over 1 lakh claims pre-authorised, and over Rs 160 crore ($21.9 million) of claims processed

Lessons from Meghalaya

Few things better exemplify the hurdles Ayushman Bharat faces in bringing insurers on board quite like what went down in the North-eastern state of Meghalaya. In fact, what happened there has come to be known, rather ominously, as the ‘Meghalaya incident’.

Meghalaya was one of a handful of states—Nagaland, Jammu & Kashmir, Mizoram and Puducherry being the others—keen on hiring an insurer to implement the scheme. However, while the other four states succeeded in their search, Meghalaya wasn’t as lucky.

It floated a tender looking for insurers. Eight firms applied. Five qualified. None could work within the allocated budget of Rs 65 crore ($8.9 million). The lowest premium quoted—Rs 1,999 ($27) per family per year—was almost double what the state could afford. As a result, the state could not launch the scheme last month. Instead, it has floated another tender in the hopes of finding an insurer willing to meet their needs.

Meghalaya was a warning. And many other states have heeded it, deciding to bypass insurers altogether. Instead, they have turned to third-party administrators (TPAs). TPAs are organisations that help coordinate the claims settlement process for health insurers. Even large states such as Uttar Pradesh and Bihar, which do not have any experience handling a health insurance scheme, have hired TPAs to administer the policy without the need for insurers.

The CEO of a Delhi-headquartered TPA says that a combination of three different factors has tilted the scale in favour of TPAs when it comes to implementing Ayushman Bharat. To begin with, they are cheaper since insurers usually pay 4.5-5.5% of a premium to TPAs anyway  to administer a policy, thereby increasing their own prices. Secondly, the TPA sector is in a rut. As a result, TPAs are willing to work with the terms on offer since a mass scheme like Ayushman Bharat is a matter of survival for them. Finally, Andhra Pradesh, which runs one of the largest and oldest state health insurance schemes, has convinced other states that building trusts and using TPAs is more efficient.

Other states such as Chhattisgarh, for example, have opted for a different model—building a trust with the available funds to cover a portion of claims, with insurers doing the rest. The Ken compared trust and insurance models when the scheme was announced.

Niharika Barik Singh, Chhattisgarh’s Principal Secretary (Health), calls it the hybrid model. The cover for the first Rs 50,000 ($684) is outsourced to an insurer, and the remaining Rs 50,000 to Rs 5 lakh ($6,840) relies on the state’s trust. Since the number of cases we have for under Rs 50,000 constitutes 80-85% [of claims], it makes sense to let insurers underwrite the risk and administer them, says Singh. This substantially lower cover makes it possible for insurers to come on board, with Religare Health agreeing to do it at a premium of Rs 1,100 ($15) per family in Chhattisgarh. The trust covers only the remaining 15-20%  of claims.

Singh explains that the state’s decision to go hybrid was because of its experience following this model under its own health scheme and the earlier health insurance scheme funded by the central government since 2008—Rashtriya Swasthya Bima Yojna (RSBY). However, Singh wants to build capacity to become entirely trust-based in the years to come. Right now, the state needs to provide insurance cover to 6.2 million people, nearly the same size of population covered under the state scheme and RSBY. Even then, she expects that it will be tough to migrate to Ayushman Bharat as it covers more medical procedures, has higher cover, and also does not limit family size unlike previous schemes.

While Chhattisgarh and other states may harbour ambitions of handling the scheme in-house, experts say this is easier said than done. The Delhi-based health insurance consultant quoted earlier feels that insurers bring with them an element of speed when it comes to implementing a mass scheme. Trusts, he feels, take longer to build capacity. At reasonable premiums, the former also build faith among hospitals to empanel since they know they will be paid, and paid in time at that. Without insurers, hospitals, the ones who actually provide the care, are reluctant to empanel.

Caregivers and takers

But for this programme to work, hospitals are needed. Desperately. So, at the Federation of Indian Chambers of Commerce and Industry’s (FICCI) annual conference on healthcare in August this year, hospitals and Ayushman Bharat CEO Indu Bhushan discussed the cost of healthcare.

Unsurprisingly, CEOs of hospitals had a litany of concerns. They complained about delays in payment in government health schemes like the Central Government Health Scheme (CGHS). But more worrying to them were the rates for treatment quoted under Ayushman Bharat. These were lower than even state health schemes. A senior executive of one of the listed hospital chains puts the rates in perspective. The rates for Ayushman Bharat are 10% lower than what Arogya Karnataka, the Karnataka government’s state health scheme offers. Arogya Karnataka is 10-15% lower than CGHS rates, and CGHS rates are 40-60% lower than our rack rates, he said.

In response to the uniform rates announced under the Ayushman Bharat, Vineet Gupta, director of California-based Varian Medical Systems, shared results of FICCI’s study on costing of select medical procedures. It concluded that the cost varies based on the cost of land, manpower and utilities. Costs that vary widely across the country. As a result, rates that may be manageable in Tier 2 and 3 cities are not feasible in their Tier 1 counterparts.

As a result, says the consultant quoted earlier, about half of the 14,000 hospitals empanelled under the scheme are government-funded hospitals that are already either free or low-cost to the patient.

In order to get more hospitals to empanel themselves, some states have revised the Centre-approved rates. Chhattisgarh, for instance, maintained the earlier state scheme rates for 804 medical procedures, while using Ayushman Bharat’s rates for the remaining procedures included in the Centre’s scheme (a total of 1,350 procedures). One month since the launch of the scheme, the state has empanelled 200 private hospitals. Singh hopes that this number will go past the 500 mark, but she refuses to put a timeline on this. Like Chhattisgarh, Maharashtra, Gujarat and Karnataka have also revised the rates in line with state scheme levels to get hospitals to empanel themselves.


Ayushman Bharat’s best solution for the lack of health infrastructure is portability. Anyone covered is eligible to get treated in a hospital in a big city once they are enrolled.

In states that have not revised rates, hospitals have refused to budge. For instance, Max Hospital in Gurugram. The hospital, which has a large super-specialty tertiary care faction, has not empanelled with the Haryana government as the state has maintained the Ayushman Bharat rates. A senior executive with a Gurugram-based hospital says that the government will not find many takers in the city unless they revise the medical procedure rates upward by 20-30%. For example, under Ayushman Bharat, a C-section delivery is priced at Rs 9,000 ($123). This is completely unworkable, he says, as it is just 10% of the C-section rack rate in a Tier 1 city hospital.

The scheme could work as is, believes Shuchin Bajaj, Founder Director of Cygnus Medicare chain of hospitals. But, he says, only if the volumes are high enough. However, after empanelling six Cygnus hospitals with the Haryana government’s Ayushman Bharat scheme, he remains disappointed. “The prices for a model like ours is not a problem, our consultants are on a fixed salary. We have unwritten rule to not stop patient for any reason. We do not deny treatment. In Ayushman Bharat, we will be getting something instead of getting nothing,” he said. His problem is that in Haryana, only 150 out of 430 packages funded by the government under Ayushman Bharat are open to private hospitals. These are only tertiary care procedures, especially cardiac procedures. The rest are assigned to government hospitals only. “The person still has to queue and it is still free, which was happening anyway. We were hoping the volumes will increase but they are not increasing,” he added.

Further, Bajaj is still unsure whether the payments will come through in a month as promised. After all, in other government schemes like the Employee’s State Insurance scheme which is managed by the Ministry of Labour, payments can take up to two years. As a result of this uncertainty, hospitals such as Glocal Healthcare Systems, Vaatsalya Hospitals, and Paras Hospitals which run on a lean model are all observing the execution of the scheme before empaneling.

A problem of plenty

Here’s the kicker though—even if states could placate hospitals and insurers, there aren’t enough hospital beds in the country to treat the masses covered under Ayushman Bharat.

Ritesh Dogra, managing partner with Medium Healthcare Consulting, who has been interacting with the Ayushman Bharat team in Delhi, has reached a conclusion. In a study that relied on government data from four states—Delhi, Telangana, Andhra Pradesh and West Bengal—and extrapolated these results to the national level, the number of private hospitals in India was estimated to be around 31,000. The total number of functional beds in these hospitals, he estimates, is 6,00,000. This is woefully inadequate when it comes to meeting the increasing demand brought on by Ayushman Bharat.

Through talks with the Ayushman Bharat team, Dogra has learned that in the short run, the government expects 0.5% to 1% of the schemes 500 million beneficiaries to get admitted to hospital and raise a claim every year. That’s 2.5 million people needing access to a hospital just under the Ayushman Bharat scheme. Even with government hospitals thrown in, the capacity of hospitals in every state is clearly not enough for this fresh demand.

What’s worse, believes the consultant quoted earlier, is that the majority of this new demand will come from states that haven’t had any health insurance scheme in the past such as UP, Bihar, Madhya Pradesh, Jharkhand and Haryana. These states have poor infrastructure as evidenced by their poor health outcomes. For instance, only two-thirds of women in Uttar Pradesh gave birth in a clinic or hospital.

And despite this impending wave of patients, the Centre has no solution on how to overcome the shortfall in hospitals. “They are trying a lot of sporadic and isolated experiments. Like they are also talking to AIIMS, RML and such government hospitals to empanel, and outsourcing management of over 700 district hospitals with viability funding. But these places are already offering services for free. The question is what good did Ayushman Bharat do with such measures?” said someone working with the Ayushman Bharat team, who did not want to be named. One month into the scheme, this shortfall is but a crack in Ayushman Bharat’s grand facade. In time, it will reveal itself to be a gaping chasm. The question is, what then?

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