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Through Sickness and Health

Medical costs are on their way to becoming the number one personal finance crisis for more and more Indians

Anyone who keeps up at all with news knows that the US government shut down last month and somehow, some kind of health insurance reform measure called Obamacare had a role to play in it. In the developed world, the US is said to have the highest healthcare cost, the worst quality of healthcare and apparently, a health insurance system that is pretty hostile to its customers. This is well-known not just to readers of business newspapers. Every Breaking Bad fan understands that when an American high school chemistry teacher gets cancer, then in order to pay for chemotherapy he has to start making synthetic narcotics and eventually become a drug lord.

In India, people don't have to do this. We have always had near-free healthcare provided by the central and state governments. In the 66 years since independence, this system has grown to universally provide high quality medical services at every level, from primary health centres in villages all the way up to the multitudes of specialty hospitals around the country. As an American would add, NOT. Healthcare costs and health insurance have rapidly become a major financial concern of almost everyone but the richest Indians. Government-provided healthcare basically works only for current and retired government employees. Private medical care of even dubious quality is now so expensive that a major illness in the family can easily bankrupt many people, including those who have average levels medical insurance.

The rate at which these costs are going up, it's clear that healthcare costs and health insurance problems are well on their way to becoming as big a financial issue as it is in America. No one seems to be maintaining a real inflation index but anecdotal evidence suggests that many hospital-based treatments now cost at least five times what they did a decade ago. Medical care is well on its way to becoming the number one financial issue for Indians. As is its quality, but that's not my area of expertise. If you chat up a random set of people in any hospital today (as I did recently), you'll find that the biggest source of stress is not the disease itself but that they are severely underinsured.

This is certainly a failure of financial planning. It's clear that savers themselves and personal finance advisors need to pay far more attention to health insurance than they are used to doing. However, there's an attendant regulatory issue, which is the increasingly toxic interaction between hospitals that overcharge and insurance companies that try to wriggle out of coverage or underpay.

I came across something very interesting in an article written by the legendary American technology columnist Robert X. Cringely. Heres what he says: There was a time when actuaries at insurance companies studied morbidity and mortality statistics in order to set insurance rates. ... because for the most part the actuaries weren't able to drill down far enough to reach past broad groups of policyholders to individuals. In that system, insurance company profitability increased linearly with scale so health insurance companies wanted as many policyholders as possible, making a profit on most of them. Then in the 1990s something happened: the cost of computing came down to the point where it was cost-effective to calculate likely health outcomes on an individual basis. This moved the health insurance business from being based on setting rates to denying coverage. ...the health insurance business model switched from covering as many people as possible to covering as few people as possible - selling insurance only to healthy people.

Such practices are already well-entrenched in India. There are two solutions to this. One is the Obamacare one, which assumes that healthcare and health insurance will remain private, profit-oriented businesses and then focuses on regulations, cost and eliminating coverage denial. The other is the one followed by practically every country where healthcare works well. This is to assume that medicine is an exception to the efficiency of markets. It's a sector where customers are in no position to make an informed and rational choice and so only socialist solutions work, which is what the theory is in India too. Otherwise, more and more Indians will face the financial disaster of medical treatment and only a few of them will be able to pay for it by making crystal meth.