Modicare

n recently announced budget the finance minister of India Mr. Arun Jaitley launched an ambitious government healthcare program. He dubbed it as Modicare like Obamacare in America, which the present President of USA Mr. Donald Trump is trying to dismantle. This new program, which is touted as the biggest healthcare program in the world, will raise the insurance coverage per family from present annual 30,000 rupees to 5 lakh rupees and will cover 50 crore people, which represents almost 41% of total Indian population.

Notwithstanding the myriad of benefits cited by the ruling government and news outlets, we need to be aware of wide economic, social and cultural impact of such government schemes.

Firstly, the economics of this program will require vast amount of resources, which the government doesn’t have right now. This will necessitate the government to impose new taxes on already burdened tax payers of India. Due to the high tax regime thousands of ultra-rich people are already leaving India annually. Any additional burden of taxes will only speed-up this emigration process. These ultra-rich people are some of those people in India who are providing valuable saving and investment resources which helps build the capital and production structure of the Indian economy. Their saving and investment activities are what make India richer as the time goes by. Once these people are gone, what is left behind are mostly poor people who do not earn enough, save and invest. Lack of capital will further impoverish Indians.  When government will not be able to fund Modicare using taxes, they will resort to market borrowing which will one day bankrupt the country. And when these two sources will fail, government will resort to their time tested method of inflation i.e., printing currency. They will ask the RBI to monetize the deficit by printing currency notes, increasing the money supply in the economy, and buying government bonds. This inflationary policy will ultimately ruin the Indian economy and people.

This program will create a giant healthcare bureaucracy which will be almost impossible to finance without going bankrupt. As Thomas Sowell said, It is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication somehow think that we can afford to pay for doctors, hospitals, medication and a government bureaucracy to administer it. Once in place it will be very difficult to dismantle this giant bureaucracy. The Indian government is already huge and making it even bigger makes no economic sense at all.

Second, the social and cultural impact of this policy will make even more people dependent on government largess. Modicare will alter peoples’ habits and make them lazy and careless about their health. When people will come to know that no matter what the government will pay their health bills, they will stop living a healthy lifestyle. This scheme will basically subsidize unhealthy lifestyle and punish healthy ones. This perverse incentive of Modicare will turn India into a sick society.

Not only this, this policy will result into shortage of medical personnel like doctors and medical facilities like clinics and hospitals in India.  In the present relatively private healthcare system doctors get their fees in cash directly from patients. This keeps their clinics going. We have to understand one fact that no doctor can run his clinic/hospital free of cost without making any profit. Once government starts paying their fees, they will start regulating how much fees doctors can charge and when they will get their payment. Price caps and delays in getting fee money from the bureaucrats will make it increasingly difficult to make profit and covering day to day cost of running clinics and this will make people reluctant to enter medical profession. We are seeing these things already happening in places like America, Canada or Britain where they have similar national health care system in place. Scarcity of doctors and medical facilities will further erode health standards of Indians.

Modi government has initiated this healthcare program in desperation to woo rural poor voters of India, and it might happen that if a new government comes to power in 2019 then this program might get scrapped. But one can never be sure. Government programs run mostly in one direction. Once they are started it is very difficult to roll them back. Successive governments will want to utilize this healthcare scheme for vote purposes, and that will make it very difficult to dismantle it.

All in all, Modicare will be a disaster like what Obamacare has turned out to be for the Americans. In USA the insurance premiums sky rocketed after the implementation of affordable healthcare act (Obamacare). Similar things will happen in India. Economic laws work same everywhere. Instead of making Indians healthy and covering their illness finances, this program will make them even sicker and financially bankrupt.