Reining in healthcare costs

In the ongoing dispute between the four public-sector general insurers and elite private hospital chains, the former have alleged that these hospitals charge more from people having insurance cover than from people who pay out of their pockets. The insurers have suspended the cashless treatment facility at these elite hospitals. News reports indicate that the two parties have now decided to sort out issues through negotiation. This controversy, however, points towards a larger issue that most nations are wrestling with: escalating healthcare costs and how to rein them in. Here India has a lot to learn from developed nations that have already been down this road.

Is private healthcare the answer? In socialist India we suffered deprivation because the only supplier of goods and services was a public-sector entity. Then liberalisation happened. Today in many sectors the Indian customer enjoys world-class products and services. Therefore, there is a propensity to conclude that privatisation is the answer in every realm. In healthcare, the experience abroad has been the opposite.

The US has a privatised healthcare system while most European countries have government-run healthcare systems. On parameters such as life expectancy and infant mortality, European nations fare better than the US despite spending less. The US spends around $7,000 per capita on healthcare which is about $2,000 more than what the rich European nations spend (on purchasing power parity basis). Yet Americans enjoy an average life expectancy of 69 which is three to four years less than that in rich European countries. USA's infant mortality rate of 6.9 per 1,000 is higher than that of any rich European country, and is far higher than the EU-15's average of four per 1,000 births*.

Thus, in the realm of healthcare at least, it appears that India would do better to emulate the "socialised medicine" system of European countries. Instead of believing that private-sector healthcare is the answer and allowing the public healthcare system to degenerate, we should apply our minds to how the public healthcare system can be made to work better. Otherwise we will be condemned to the fate of the US, which despite being a rich nation, struggles to fund its burgeoning healthcare bills.

Buyer-seller power balance. Many European nations provide universal healthcare to their citizens despite spending less than the US (which doesn't promise healthcare to all its citizens). How do the Europeans manage this? The answer, according to T R Reid, a former Washington Post correspondent who has studied healthcare systems globally and written a book on the subject, lies in the fact that they have one government-sponsored healthcare system. The government is the sole purchaser of healthcare services. Hence, it wields an inordinate amount of bargaining power and is in a position to beat down costs. In the US, numerous insurance companies foot the bill. There since the demand side is fragmented and weak, it is not in a position to rein in costs.

This point is relevant to India. Today the four public sector insurers have managed to bring the elite hospitals to the bargaining table because the latter fear the loss of their business. But as the years go by, public-sector insurers' share of the medical insurance market will get eroded. Who will then rein in the healthcare providers and their bloated bills?

*(Data from Peterson Institute's web site).