The risky math underlying Sehat Sahulat Program

Theoretically it should work, but the math behind the program is worrying

I don’t like being the harbinger of bad news, but such is the life of a risk manager.  Identifying, evaluating, and mitigating risks before they materialize such that there is little to no interruption to normal business is essentially what risk management is all about.  The launch of sehat sahulat program, a precursor to universal healthcare is a welcome development which will allow access to affordable healthcare possible, while ensuring every citizen (hopefully in all provinces) has access to free healthcare services regardless of the nature of the healthcare center.

The developmental and social impact of the program is phenomenal, but in order to ensure sustenance of the program, and to ensure that it just suddenly does not collapse one day, it is essential to ensure that the math underlying the program is also sound.  Insurance penetration in the country is considerably low but private insurers still exist providing healthcare coverage.  A review of underwriting experience of major health insurance providers demonstrates that the claims to premium ratio in the healthcare segment is around 90 percent.  

These private insurers are mostly focused on urban centers where they have developed capacity and communication channels with hospitals for pricing of various services, gradually reducing inefficiencies which may emerge due to fraud, over-invoicing, and overpriced services (relative to a market benchmark).  Despite the presence of safeguards and administration capacity, as well as exposure to a niche urban market, claims often make up more than 90 percent of total premium received.  A feedback loop mechanism and presence of multiple health insurers in the private sector ensures premium pricing is risk based.  Any underestimation of risk can be catastrophic for an entity, wherein the business line would be subsidized by a separate insurance vertical.  

As per news reports, Punjab paid a premium of Rs. 2,849 per household, whereas KPK paid a premium of Rs. 2,625 per household.  Compared to the private sector, which has a claim-premium ratio in the range of 90 percent, the risk seems to be grossly underpriced.  As the scheme gains traction and adoption increases, there exists a high probability of claims outpacing premiums creating a deficit for the state insurer.  A recurring deficit would have to be subsidized by other insurance verticals, which would put the whole entity at risk.  

A measured and cautious growth model accompanied by development of monitoring and pricing capacity across coverage areas would be extremely important in long-term sustenance of the program. Extrapolating from the Pakistan Social & Living Measurements survey 2018-19, cumulative household expenditure on health is Rs. 265 billion, 29 percent of which is attributed to outpatient, and other hospital related expenditures.  Similarly, households in KPK spent about Rs. 107 billion on healthcare, 26 percent of which can be attributed to outpatient, and other ancillary expenditures. A universal healthcare program should theoretically reduce this expenditure and enhance consumer welfare.

A universal healthcare insurance scheme benefits from the law of large numbers, wherein a largely young population would have relatively low healthcare requirements, resulting in a lower risk-based pricing relative to other jurisdictions.  A risk-based pricing would also be inversely related to the capacity and feedback mechanism that exists.  Standardized pricing for standardized services further reduces the variability, as the insurer essentially becomes the largest buyer of healthcare services.  However, such a structure is also exposed to adverse incentives, which can range from fraudulent claims, to over-invoicing of services.  Inability to quickly ramp up capacity can lead to creation of ghost hospitals, or even ghost patients, which can significantly hurt financial sustenance of the program.  

Opening up the program to private insurers would enable price discovery while also enhancing capacity across the board.  A state insurer absorbing all the risk exposes the program, and the largest insurer in the country to solvency risk.  More importantly, escalation in risk-based pricing to cover increasing claims would also increase burden on the national exchequer, as instead of budgetary allocations towards development of healthcare facilities, the allocation would be towards insurance premium.  An adverse incentive in this case would be emergence of private sector hospitals with tiered pricing structures, with the state insurer possibly paying more than a patient over-the-counter, in absence of strong institutional bargaining mechanism.

The scheme will strengthen the social net available to the people, enable access to quality healthcare infrastructure, reduce out-of-pocket healthcare expenditure, and eventually enhance overall disposable income.  However, an accelerated rollout without corresponding development of capacity, institutional bargaining mechanism, and risk-based pricing would threaten the long-term sustenance of the program.  Populist rhetoric must not outweigh potential risks associated with the program which can become an existential threat if not managed well.  

Ammar H. Khan
Ammar H. Khan
The writer is the chief risk officer for Karandaaz Pakistan, an organisation that seeks to promote financial inclusion in Pakistan. He has previously worked at several financial institutions in Pakistan, both in commercial banking and capital markets


  1. Wait… you mean we will have yet another loss making state owned enterprise? (Another sixer from the Kaptaan)

    Surely they (ie Usman Buzdar’s administration) must have done detailed actuarial calculations before launching this. This is after all not the brain child of a child or peer(in)/fakeer(ni) or even a Grade 22 DMG officer. Very serious people have this due consideration before implementation.

    Why would your illustrious publication know better than people who run PIA (great people to fly with), Pakistan Steel Mills, etc. please do consider the above

    • As far as your concern of Ghost patient and ghost hospital is considered it seems impossible to happen as State life has a designated staff member in every hospital on panel of state life. And he or she tries their best to cross check every piece of paper along with presence of patient. And thery are tasked to make the treatment cost to be minimum.

      • Things appear so rosy when evaluated by people like you, or any Khan but nothing is so rosy as the rosy promises and sham projects launched by this Skipper Khan. I had audited State Life and believe me its a never ending cave of corruption. When will you people understand that Public Sector “can’t deliver.” Instead of working on Healthcare infrastructure, Khan once again passed the buck to the Financial sector, under the orders of…you know whom!

    • Lets assume you are a poor guy. Where will you go for treatment? Which hospital? hmmmm Gangaram, may be. After all, you are so wise. They will give you an appointment for….April 1st. Because its the April fools’ day. On 1st April, doctors will be on leave, after all, they love fools like you. Well then, they will make an estimate of expenses which will be over-stated and the Sehat Card team will make an objective estimate. hmmm….What next? You will pay the difference in cash because there is a vacuum. Story goes on…wake up and stop praising this child of Armed forces.

  2. fair enough. but can you please elaborate the modalities for efficient private risk based financing?

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