India’s ‘chit fund’ system may help meet the health needs of people

Reviewed by Emily Henderson, B.Sc.Jan 31 2023

India's traditional 'chit fund' system of banking by small self-help groups may meet the health needs of the country's 1.4 billion people better than private health insurance companies, which only cover around half of medical bills, researchers say.

Chit funds originated in India but spread through traders and migrants to South-East Asia. The system allows subscribers to withdraw a large sum early to meet major expenses such as a wedding or funeral and repay it through the monthly installments.

Employers who pay their employees' group health insurance premiums can instead invest in chit fund schemes. Employees who maintain good health can be paid a bonus, and the money that accumulates in their accounts can be withdrawn when they leave the establishment."

Jacob Puliyel, author of a paper published in the Indian Journal of Medical Ethics and visiting professor at the International Institute of Health Management Research, New Delhi

With chit funds, a group of individuals can make a monthly subscription installment that is equal to the monthly installment for health insurance cover and the accumulated money can be deposited in a joint savings account and made available to anyone who falls ill to defray expenses up to the coverage limit, says Puliyel.

Out of pocket

Private health insurance is rapidly becoming the primary source of health financing in India through public-private partnerships. The proportion of people covered had grown from around three per cent of the population in 2005 to 22 per cent by 2014, according to a 2020 Cambridge University publication.

Citing figures from the National Health Systems Resource Centre, the publication says that public-funded health services in India are grossly inadequate, with 48.2 per cent of total health expenditure being paid 'out-of-pocket' by patients. Private health care is generally unregulated, leading to concerns over quality and access to care, according to the Cambridge study.

"There is a crying need in this country to prevent large numbers of patients from falling victims to 'catastrophic health expenses' that can ruin entire families," says Vetury Sitaramam, a medical doctor who currently does collaborative research in poverty economics and poverty biology.

Sitaramam says that the situation can be ascribed to "governance failure" and is part of an overall situation of abysmally poor health services. "The chit fund approach (theoretically), has every chance of succeeding given its long history of meeting emergency financial needs of ordinary people in this country."

Puliyel believes that competition from chit funds devoted to health care will drive down the costs of private health insurance while promoting improvements in health services.

"Health insurance on the chit fund model, as suggested by Puliyel, will work in certain social contexts because of factors like mutual trust and accountability and also the inbuilt checks and balances," says Mira Shiva, a founder of the international People's Health Movement that is committed to the concept of 'health for all'. Shiva, a member of the National Council for Clinical Establishments, under the Directorate General of Health Services, said profit maximisation by private insurance needed to be subjected to medical audit and charges levied on patients monitored.

"During the COVID-19 pandemic there were numerous complaints of predatory exploitation of patients that cannot be ignored, especially in a country where medical indebtedness is a harsh reality," Shiva said.

Puliyel's paper, said Shiva, was written in the context of a mushrooming of over-exploitative private health insurance that defy any rationalisation of medical costs — it does go some way towards the concept of social health insurance which is always better than private health insurance.

"The bottom line, though, is that without adequately trained and skilled health personnel — doctors, nurses, lab technicians and others — insurance, irrespective of the payment system, will never be able to provide rational medical care," Shiva added.