The first question with health policy, as with all policy issues, begins with the examination of the role of government. Without addressing this question we will fail to arrive at a sensible policy position, as has been the case in socialist societies like India.

Responsibility is the obverse of freedom, and in a free society everybody must take responsibility for their health. The moment this principle is violated and we expect someone else to become responsible for our health, our incentives to look after our health get distorted and the society as a whole has to pay dearly.

Every able-bodied person can visualize the natural course of life and plan for his or her health outcomes through appropriate preventative care and health insurance. By ensuring that medical costs are met from savings or through insurance, people remain motivated to look after their health. Insurance companies are also motivated to support preventative health activities. Further, family bonds are strengthened since people depend more on close relatives.

It goes without saying that the society or government does not have to do anything to look after the health of the rich or middle classes. Ambani doesn’t need our taxes to look after his health.  But arguably there is a role for government in the case of the extreme poor, as part of social insurance. This is also related to the equality of opportunity function of government, which is a second order function after its first order functions have been well performed.

The poor do not have resources or savings to insure themselves. If they become seriously ill then they can do practically nothing to support themselves or their families. Therefore, the government should step in to assist. But the government should step in to help the general citizen during traumatic emergencies when it is not immediately possible to assess a person’s ability to pay. This function is once again part of social insurance. (Those able to pay can be billed later.)

Of course, none of this implies in any way that the government needs to directly provide any health service. It is one thing to facilitate health, but quite another to get involved in running hospitals and dispensaries.

Government support for basic health and surgery for the poor

As we have seen, there is some role for government to facilitate the health of the poorest of the poor – who can’t afford basic care or elective surgery. But all the while the government must be very mindful of the risks of moral hazard involved.

The most effective way to do this is for government to pay the insurance premium for basic health insurance and elective surgery for the very poor, i.e. those eligible for negative income tax funding. A co-contribution or higher deductible should be taken from those who are relatively less poor but still below the poverty line. Being a large purchaser, the government can procure such insurance at highly competitive prices from the market.

But there is a moral hazard involved. The society is not obliged to provide cover for poor people’s bad habits. To ensure that the insured poor take adequate care of their own health, the government should limit coverage for illnesses that typically arise from excessive smoking and alcohol.

Universal trauma care, with cost recovered from those who can pay

If someone turns up at the doorstep of a hospital in a gravely sick or injured condition that does not permit self-identification or identification of the person’s insurance plans, the government should cover the immediate treatment of the person for traumatic or emergency care, with later recovery of costs where the person is able to pay.

This would exclude all chronic or other conditions for which self-identification or advance payment is feasible. Universal trauma care would therefore apply only to the rarest of cases.

Delivery of trauma care

The government should not directly deliver trauma hospitalization either, but procure it through private enterprise based on models that keep competition high and costs and moral hazard down.

Many options for competitive tendering can be considered. One of these is tendering for long duration (say 30-year) contracts within specific geographical regions. The country can be carved into reasonably sized regions which are put out for tender. Eligible private health consortiums wishing to provide the prescribed trauma services (at prescribed standards to everyone in the region) will be asked to bid a single, flat per-person annual price that would cover everyone at every hospital in that region.

This approach would take into account the local cost of living, and any local difficulties in appointing doctors. The successful bidders can be awarded long-duration contracts for these regions and paid in advance, on a monthly basis, based on the region’s estimated population. This will create certainty in payments and allow appropriate investment.

The health regulator should thereafter monitor service quality and timeliness. Penalties should be imposed for non-compliance with service standards.

This approach will:

  • significantly increase the competition in supply of emergency hospitalisation services; and
  • cap costs since providers will receive a fixed amount regardless of quantity. Fee-for-service payments create incentives to treat excessively, to undertake more tests, to prescribe more. A flat total cost creates incentives to manage outcomes as efficiently as possible, while delivering service standards.


Except for those eligible for the NIT-type system, citizens – upon their recovery from trauma – should be billed the government-approved standard cost for their treatment. These citizens could further bill their insurance companies or pay directly if they have chosen to self-insure. The government should bear the cost of administering the scheme and any cost of being unable to recover from those who die, without being identified, during the treatment.

Foreign citizens who do not pay costs immediately after they have recovered from the trauma should have a noting made in their passport that permits them to leave India only after they provide proof of payment.

Privatisation of government primary health centres and hospitals

We have seen above that there is absolutely no need to have any government hospital or dispensary or public health centre. These should be sold systematically on a  regulatory pattern that allows most of these to be converted into private health facilities for the next forty years or so. Any private health consortiums successful in purchasing these assets should also be required to take responsibility (under incentive-based conditions) for up to five years for the employees of these centres and hospitals.

Given this reform involves a matter that concerns the lives of hundreds of millions of people, the transition needs to be well-thought out and systematic.

Other universal health programes

In addition, there is a role for government in delivering (through the private health system) programs to vaccinate children against infectious diseases to help reduce infant mortality.

There is also a role for government to support civil society efforts to educate people about sanitation, nutrition, obesity, diabetes, TB, malaria, leprosy, hypertension, drug abuse, occupational hazards, cancers and other (often preventable) health issues.

But apart from these high level roles (all of them implemented through the private sector), a government should focus on providing its primary and first order functions.


Please enter your comment!
Please enter your name here