OPINION
Ammar H. Khan
The risky math underlying Sehat Sahulat Program
tion of risk can be catastrophic for an entity, wherein the business line would be subsidized by a separate insurance vertical. As per news reports, Punjab paid a premium of Rs. 2,849 per household, whereas KPK paid a premium of Rs. 2,625 per household. Compared to the private sector, which has a claim-premium ratio in the range of 90 percent, the risk seems to be grossly underpriced. As the scheme gains traction and adoption increases, there exists a high probability of claims outpacing premiums creating a deficit for the state insurer. A recurring deficit would have to be subsidized by other insurance verticals, which would put the whole entity at risk. A measured and cautious growth model accompanied by development of monitoring and pricing capacity across coverage areas would be extremely important in long-term sustenance of the don’t like being the harbinger of bad news, but such is the life of a program. Extrapolating from the Pakistan Social & Living Measurerisk manager. Identifying, evaluating, and mitigating risks before ments survey 2018-19, cumulative household expenditure on health they materialize such that there is little to no interruption to is Rs. 265 billion, 29 percent of which is attributed to outpatient, normal business is essentially what risk management is all about. and other hospital related expenditures. Similarly, households in The launch of sehat sahulat program, a precursor to universal KPK spent about Rs. 107 billion on healthcare, 26 percent of which healthcare is a welcome development which will allow access to can be attributed to outpatient, and other ancillary expenditures. affordable healthcare possible, while ensuring every citizen (hopefully A universal healthcare program should theoretically reduce this in all provinces) has access to free healthcare services regardless of the expenditure and enhance consumer welfare. nature of the healthcare center. A universal healthcare insurance scheme benefits from the The developmental and social impact of the program is phenomelaw of large numbers, wherein a largely young population would nal, but in order to ensure sustenance of the program, and to ensure that have relatively low healthcare requirements, resulting in a lower it just suddenly does not collapse one day, it is essential to ensure that risk-based pricing relative to other jurisdictions. A risk-based the math underlying the program is also sound. Insurance penetration in pricing would also be inversely related to the capacity and feedback the country is considerably low but private insurers still exist providing mechanism that exists. Standardized pricing for standardized healthcare coverage. A review of underwriting experience of major health services further reduces the variability, as the insurer essentially insurance providers demonstrates that the claims to premium ratio in the becomes the largest buyer of healthcare services. However, such healthcare segment is around 90 percent. a structure is also exposed to adverse incentives, which can range These private insurers are mostly focused on urban centers where from fraudulent claims, to over-invoicing of services. Inability to they have developed capacity and communication channels with hosquickly ramp up capacity can lead to creation of ghost hospitals, or pitals for pricing of various services, gradually reducing inefficiencies even ghost patients, which can significantly hurt financial sustewhich may emerge due to fraud, over-invoicing, and overpriced services nance of the program. (relative to a market benchmark). Despite the presence of safeguards Opening up the program to private insurers would enable and administration capacity, as well as exposure to a niche urban market, price discovery while also enhancing capacity across the board. A claims often make up more than 90 percent of total premium received. A state insurer absorbing all the risk exposes the program, and the feedback loop mechanism and presence of multiple health insurers in the largest insurer in the country to solvency risk. More importantly, private sector ensures premium pricing is risk based. Any underestimaescalation in risk-based pricing to cover increasing claims would also increase burden on the national exchequer, as instead of budgetary allocations towards development of healthcare facilities, the allocation would be towards insurance premium. An adverse incentive in this case would be emergence The writer is an of private sector hospitals with tiered pricing structures, with the state insurer possibly paying more than a independent patient over-the-counter, in absence of strong institutional bargaining mechanism. macroeconomist and The scheme will strengthen the social net available to the people, enable access to quality healthcare energy analyst. infrastructure, reduce out-of-pocket healthcare expenditure, and eventually enhance overall disposable income. However, an accelerated rollout without corresponding development of capacity, institutional bargaining mechanism, and risk-based pricing would threaten the long-term sustenance of the program. Populist rhetoric must not outweigh potential risks associated with the program which can become an existential threat if not managed well.
Theoretically it should work, but the math behind the program is worrying
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COMMENT
