Insurance better than leaky COVID-19 loans

Surely, the reported move by banks to offer unsecured loans of up to Rs 5 lakh for individuals for Covid treatment is a humanitarian gesture. A superior option is insurance: extend an insurance cover that does not exclude Covid as a pre-existing condition, so that a person does not have to take a loan to pay for her Covid treatment. The government could part-fund the premium, for people below an appropriate income threshold, to cover population segments not covered by Ayushman Bharat. It should also provide a back-stop to the insurer if the combined ratio (of claims plus settlement) crosses 100%. Insurance would reduce the often-ruinous ‘out-of-pocket’ medical expenses for the insured.

The proposed scheme to offer unsecured personal loans at concessional interest rates is an invitation to fraud. Loan approvals must be based on commercial calculus and the banker’s assessment of loan viability, but public sector banks have to follow the government’s directive, to provide cheap loans, for instance. Generous sanction of personal loans by ‘friendly’ bankers and any loan defaults will accentuate the problem of bad loans for banks. The government would need to augment banks’ capital, eroded by provisioning against bad loans, increasing the taxpayer burden to recapitalise banks. It is better to use public money to spread health insurance than to recapitalise banks for money lost on imprudent loans for Covid care.

Already, an individual Covid Standard Health Policy is in place. It covers pre- and post-hospitalisation, home care treatment expenses, as well as concurrent treatment of any comorbidity. The standard cover should be tweaked and insurers incentivised to market the scheme. Proper actuarial calculations are a must, to hold costs down.

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