China and India, often cited as two rising economic powerhouses, are less than fully equipped in terms of healthcare, a key attribute of national economic development, according to Nobel prize-winning economist Amartya Sen. The emergence of the United States, Europe, Japan and Korea as developed economic powerhouses validates Sen’s argument. China and India, representing one out of three people on the planet, must step up efforts to remedy the gaps in healthcare to realise their economic potential.

India and China have adopted insurance as a tool to provide healthcare access and mitigate catastrophic expenditures. India has 20% penetration of insurance while China has managed over 95% penetration. Each nation has adopted an independent route towards achieving universal health coverage. Despite good intentions, both nations are struggling with the complexities of deploying insurance. China struggles with issues of limited health insurance benefits and high out-of-pocket expenditure. India on the other hand struggles with variability across a myriad of insurance schemes and limited engagement of the private sector.

The United Nations reiterated its global commitment towards ensuring universal access to healthcare at the Sustainable Development Summit 2015. World leaders adopted a set of 17 Sustainable Development Goals to end poverty, fight inequality and injustice, and tackle climate change by 2030. Like the Millennium Development Goals, SDGs rigorously focus on global priorities such as maternal health, preventable deaths in newborns, and communicable diseases like AIDS, tuberculosis, malaria – and renewing focus on non-communicable diseases. One ambitious goal is to achieve universal health coverage, including financial risk protection and access to quality essential healthcare services for all.

The Indian situation

For India, achieving universal health coverage is also a national priority. Penetration remains low,  with 5% coverage by private insurance. Two significant sources of health-insurance coverage in India are sponsorship by employers or the government at the federal or state level.

Formal employment in India is available to 20% of the Indian workforce. Two significant employer-sponsored health-care insurance schemes in India, according to the World Bank, are the Employees' State Insurance Corporation launched in 1948, providing access to more than 5.5 crore beneficiaries, and the Central Government Health Scheme launched in 1954, providing access to over 30 lakh beneficiaries.

A pivotal moment in federally sponsored health insurance in India was the launch of Rashtriya Swasthya Bima Yojana, or RSBY, to families living below the poverty line. RSBY provides access to hospitalisation for more than 10 crore beneficiaries through a personalised smart card across a wide network of private sector providers. India has many other state-sponsored healthcare insurance schemes that target the population living below poverty line. Government-sponsored insurance in India stands out for proactive engagement of the private sector.

With India’s abysmally low penetration of insurance, the healthcare sector continues to thrive on unregulated out-of-pocket spending by customers seeking medical care. For a patient in India, there is an inherent bias to seek care in private facilities because of perceived higher quality and benefits. These private facilities, having complete control over pricing their services, have little incentive to implement cost-effective strategies. One expected benefit as health insurance penetration rises in India is the ability of insurance payers to better negotiate prices for procedures and services with providers.

Financial protection

Unlike India, China’s main obstacle to achieving universal coverage is not insurance penetration, but rather the extent of financial protection within the existing insurance schemes. In 2011, 95% of China’s population was covered under one of its three main national health insurance schemes: New Rural Cooperative Medical Scheme, Urban Employees Basic Medical Insurance and Urban Residents Basic Medical Insurance. China’s three national schemes were each established within the past two decades in response to restructuring after Deng Xiaoping’s market reforms.

Yet, as reported by The World Bank, in 2013, individual out-of-pocket payments across all three schemes accounted for 34% of total health expenditures. Unable to afford the excessive out-of-pocket burden, 35% of urban households and 43% of rural households could not access health care – the limited access and financial protection benefits lead to financial strain.

Different approaches

In comparing the health insurance landscape across India and China, there are notable features. In India, federal and state-sponsored insurance schemes were seen as instrumental to enhancing private sector participation in healthcare delivery in locations beyond large cities. State-sponsored health insurance schemes in India purchase from and contract with the private sector for delivery of insured services. As the private sector provides for more than 80% of India’s healthcare needs, such public-private synergies present an effective solution. Hence, leveraging the strength of the Indian healthcare private sector, most government-sponsored insurance schemes actively recruit private hospitals as part of their network.

In China, on the other hand, health insurance has been modeled as a tool to improve efficiency and control rising costs of government facilities, introducing accountability.

In India, the health insurance is scattered among players from across the government and private sector. India’s health insurance has huge variations in coverage. Most health insurance schemes in India cover hospitalisation with few provisions for outpatient, primary or preventive care. Coverage on hospitalisation can include waiting periods, exclusions and other details that limit financial support for the insured.

China, primarily dominated by three health insurance schemes, experiences less product variability. The three schemes offer little to no reimbursement for outpatient services. For inpatient services, patients generally pay a deductible and then are broadly reimbursed for remaining expenses – 41% for the rural program, 65% for the urban employees program, and 45% for the urban residents program. Such reimbursement rates force patients to shoulder around half the cost themselves, creating incentives for patients to delay seeking care.

Improving efficiency

As India works towards securing extended coverage for its citizens and China moves towards optimising coverage benefits, the systems should model key interventions to ensure desired success for both nations. India’s motivation to promote state-sponsored health insurance is driven by attempts to optimise shrinking public expenditures. As state-sponsored health insurance schemes become mainstream for India, there is an urgent need to focus on strengthening delivery within both the public and private sector.

India and China each must focus on establishing appropriate governance and coordination mechanisms across the delivery value-chain. As India struggles to extend coverage and China struggles with surging out-of-pocket expenditures, a health systems perspective and a view on end-to-end care mechanisms offer the only affordable way forward.

Insurance is a key lever in health systems design. But for health insurance as an instrument to be truly effective, delivery systems need to be responsive. Health insurance does offer a promising answer for easing expenditures. Stronger commitment towards comprehensive care is required – commitment among providers towards preventive and primary care, commitment from payers and insurance providers towards an inclusive care design as extended benefits.

Appropriate timing for the introduction of health insurance as a financing tool within an economy is essential. Health insurance has a much better chance of being both inclusive and effective in an economy with well-developed, managed and governed healthcare infrastructure. Both India and China should align their health insurance priorities with essential needs of their delivery systems. Both India and China should view their insurance interventions as a catalytic tool allowing them to build effective healthcare delivery systems.

This article was originally published on YaleGlobal.