The health insurance market in India will expand significantly in the near future as the National Health Protection Scheme, or Modicare as it was dubbed by the media, is to be rolled out.

The aim of the Modicare is to cover 40% of the population. A part of this coverage will overlap existing schemes of both center and states. Till January, according to a National Institute of Public Finance and Policy (NIPFP) working paper, there were as many as 48 government-funded health insurance schemes.

These schemes, put together, covered around 20.6% of the population, which is the lion’s share of the 27% of the population covered by health insurance.

There is a strong possibility that after the introduction of Modicare more than half the population could be covered by health insurance as states have the leeway to continue providing health insurance cover to people who may not be within its ambit.

What will the massive expansion of health insurance over a short period do to claims ratio?

At the moment, government health insurance schemes, especially for public sector companies, seem to be loss-making proposition as claims exceed the premium.

On the other hand, in the case of private individuals buying their own insurance, the claims are noticeably low, leading to questions about overcharging.

The high claims ratio for government funded health insurance also suggest that the insurers are getting important things wrong. Perhaps their bids are too low. Or else, there is little control over what hospitals are doing.

The Modi government seems to prefer a price control model to control the claims ratio. Here, price of different kinds of procedures are fixed in advance. It remains to be seen if it works. But what’s for sure is that the claims ratio at the end of the first year of Modicare will be a good indicator of how the scheme is likely to fare.