Health Savings Accounts for India - Another string in the bow?

The study is authored by Aarushi Gupta, senior research associate at Dvara Research. Bindu Ananth, co-founder and chair of Dvara Trust. Bindu Ananth and Hasna Ashraf are fellow, Lancet Citizen’s Commission on Reimagining India’s Health Systems.

Out-of-pocket-expenditure (OOPE) in India continues to account for more than half of its current health expenditure with significant state-level variations. OOPEs attain catastrophic levels when they exceed a certain percentage of a household’s monthly income or capacity to pay, typically due to unexpected and high-cost expenses. Catastrophic health spending varies enormously across and within countries and is consistently high among the poor, less educated, uninsured, rural households, female-headed households, households with members suffering from chronic illness, and households with older people. 

Health Savings Account (HAS) could be used for low impact-high frequency needs (medication for chronic conditions).(HT File)

There is, of course, significant attention being paid to this issue and the vision of universal health care entails taking OOPE to negligible levels if not eliminating it. While increasing the depth (intensive margin) of particular financing tools such as contributory health insurance is important, it is also worthwhile for policymakers to consider expanding the range of tools (extensive margin) available for households to meet these expenditures in ways that reduce financial distress. While insurance is relevant for high impact-low frequency events (hospitalisation), Health Savings Account (HAS) could be used for low impact-high frequency needs (medication for chronic conditions). It is in this context that we look at the global experience with health/medical savings accounts and their relevance for India.

HSAs are personal savings accounts earmarked for OOPEs typically not covered under insurance plans. HSAs have been implemented in Singapore, China, the United States (US), and South Africa. HSAs allow households to plan for these expenses in advance and not have to find liquidity at short notice. Pre-payment via an HSA could then provide a tool for consumption smoothing, while also potentially reducing the incidence of delayed and forgone care-seeking resulting from lack of funds and/or illiquidity. 

In a forthcoming paper, we look at the experience of other countries in implementing HSAs and also, the context in which it was introduced. While in China and Singapore, they were meant to complement publicly funded health systems, in the US and South Africa, they were a complement to private insurance markets in large measure. While there are contribution caps in all cases, contributions, interest, and withdrawal are tax-exempt for the account holder. In the USA, the HSA has typically complemented high-deductible health insurance products and like other jurisdictions, has been aimed at mitigating moral hazard (excessive usage) in consumption of health procedures. Notably, there is limited evidence on the impact of HSAs on consumption smoothing because most countries approached it with an objective of provider cost containment and take up has been largely among middle and high-income groups. 

Reflecting on the applicability to the Indian context, we first note that the objective of cost containment for insurers is not first-order here given that insurance is still under-penetrated, and we ought to be concerned more about foregone care than excessive usage. The sensible goal in our case seems to be to shift a percentage of the existing OOPE from point-of-consumption to pre-paid with a view to reducing distress as other strategies at the country level, including greater pooled expenditures, play out over the next few years. If structured well, this may also create shifts in health-seeking behaviour towards primary/preventive. 

If this is a reasonable goal, the issue becomes how these might be financed? For younger groups who currently don’t perceive value in insurance participation, an HSA combined with a high-deductible plan may increase take-up. If it relies purely on user contributions, then it is very likely that the large low-income population in India doesn’t see the benefits. For example, the average balance under the Jan Dhan Accounts that are largely focused on the rural and urban low-income users just crossed ₹3000, six years after launch. We might re-imagine existing employer contribution schemes such as ESI to allocate some of the contributions to the HSA rather than pay for only hospitalisation insurance. The caveat here is that a majority of the Indian workforce is informal and would be out of reach if we looked at this as an employer-driven program alone. We propose learning from the National Pension Scheme (NPS) architecture and creating HSA as a long-term, voluntary savings plan with low administrative costs and open to everybody. The implementing the government may also further choose to make contributions to such accounts for a targeted cohort of households, identified using criteria either related to their income status, occupation status (as seen in the case of NPS-Swavalamban), or even incidence of chronic diseases (as seen in the case of transport support provided under National Tuberculosis Elimination Programme). It may be emphasised here that the government has a potentially bigger role in terms of organising this market rather than financing; specifically linking HSA with the infrastructure being created under the Ayushman Bharat Digital Mission. All channels must be tapped into for distributing HSAs: Banks, non-banks, post-offices. This has the potential to achieve maximum scale.   

India has been at the forefront of innovations in financial inclusion; 90% of Indian households have a bank account now and access to digital payments is rapidly growing. Indian households also have a strong savings motive and behaviour. Perhaps HSAs can build on these strengths and reduce the distress associated with OOPE in health. It is an idea worth considering. 

 

(The study is authored by Aarushi Gupta, senior research associate at Dvara Research. Bindu Ananth, co-founder and chair of Dvara Trust. Bindu Ananth and Hasna Ashraf are fellow, Lancet Citizen’s Commission on Reimagining India’s Health Systems. )