Introduction
The Constitution of Nepal establishes Basic Health Services (BHS) as a fundamental, free right to be delivered through local primary public facilities. Yet, despite this constitutional commitment, the nation remains far from achieving Universal Health Coverage (UHC). The core objective of establishing the National Health Insurance Board (NHIB) was to guarantee that every citizen can access necessary healthcare services, regardless of income, geographical location, or socio-cultural background.
In practice, however, Nepal's Social Health Insurance Program (SHIP) is constrained by a fragmented, voluntary structure that leads to weak risk pooling and forces citizens to bear an exceptionally high out-of-pocket (OOP) financial burden.
This article analyzes the structural vulnerabilities of the current system and demonstrates how a reformed national health insurance framework can drive Nepal's aspirations toward UHC. To ensure the long-term sustainability of the program, this paper diagnoses systemic challenges, reviews successful global health financing models, and proposes definitive policy shifts. Specifically, it advocates for a mandatory, unified health insurance system powered by progressive tiered premiums, robust strategic purchasing, and earmarked consumption taxes-offering an evidence-based roadmap tailored to Nepal's unique socioeconomic and institutional landscape.
Challenges in the Nepalese Context
Nepal's healthcare framework is characterized by significant structural vulnerabilities:
• Low Per Capita Income & Heavy OOP Spending: Nepal's public health expenditure remains under 2% of its GDP, leaving citizens highly vulnerable to catastrophic OOP payments during medical emergencies. The current Social Health Insurance (SHIP) premiums require families to pay a fixed fee, which is often unaffordable for the rural poor without targeted government subsidies.
• System Bottlenecks & Low Coverage: Despite expanding across the country, ownership and enrollment remain staggeringly low. The manual and random process of processing claims and the lack of sufficient funds at the Health Insurance Board have led to delayed reimbursements to hospitals, causing several healthcare centers to drop out of the program.
• Scattered Vertical Programs: Rather than channeling resources into a single national risk pool, public funds are divided into distinct, vertical welfare packages for chronic illness and mother and childhood services. These independent programs operate with their own administrative overhead, budgets, and eligibility criteria. This separation prevents the Health Insurance Board (HIB) from scaling up its population pool, resulting in a weak, unstable fund that cannot spread financial risks across healthy and sick demographics.
• A core structural defect in Nepal's policy: A core structural defect in Nepal's policy is the operational overlap and blurred distinction between Basic Health Services (BHS) and Health Insurance benefits. The Constitution of Nepal guarantees BHS as a fundamental right, declaring that primary healthcare, emergency care, and essential medicines must be delivered completely free of charge through public facilities. In practice, there is a total lack of coordination between the local government units managing BHS and the Health Insurance Board. Patients visiting primary care centers often find that essential medications—which should be freely accessible under BHS—are unavailable.
• Double Dipping and Systemic Clashes: When public clinics run out of stock, patients are forced to purchase drugs out-of-pocket or attempt to claim them through the HIB scheme. This shifts the financial burden of a constitutionally free public service onto the insurance fund or the citizen's own pocket, creating confusion at the point of care and depleting insurance resources on primary health treatments.
• Low Enrollment, Stagnant Coverage, and Adverse Selection: The current policy mandates a flat premium of NRs. 3,500 per family of up to five members to secure a benefit package worth NRs. 100,000. Current practice has an adverse selection bias because the flat-rate model has severely undermined the viability of the program. Enrollment is largely voluntary for the informal sector: healthy households opt out, while families with chronic, high-cost illnesses selectively enroll. Moreover, due to erratic drug supplies, complex bureaucratic hurdles, and delayed reimbursement cycles to empanelled hospitals, renewal rates are low. The Health Insurance Program faces stagnant coverage, leaving a significant portion of the population exposed to catastrophic out-of-pocket costs.
Examples of Global Practice
Japan: Income-Based Premium Scaling and Universal Harmonization
Japan operates a universal multi-payer system through its Statutory Health Insurance System (SHIS).
• Proportional Contributions: Premiums are not flat. They are calculated strictly as a percentage of an individual's income, ensuring that wealthy citizens contribute substantially more to the national pool than lower-income earners.
• Strict Price Regulation: Japan uses a uniform national fee schedule updated every two years to strictly govern the cost of all medical procedures and pharmaceuticals across both public and private sectors. This prevents price gouging and ensures financial predictability.
• Progressive Premium Subsidies (The South Korean Model): South Korea's highly successful model utilizes a “low premium for low-income class and high premium for higher-income class” approach. Nepal's current flat-rate system places an unfair burden on low-income informal sector workers.
Thailand: The Universal Coverage Scheme (UCS) and Tax-Financed Equity
Thailand transformed its healthcare landscape by implementing its landmark Universal Coverage Scheme (UCS) in 2002.
• General Tax Financing: Recognizing that collecting premiums from a massive informal economy is highly inefficient, Thailand funded the UCS for its informal sector entirely through general tax revenues.
• Public-Private Mix Integration: Countries like Thailand and India integrate private hospitals by setting standardized, capitated reimbursement rates. In Nepal, this can reduce the burden on public hospitals and help clear administrative backlogs at the Health Insurance Board (HIB).
• Gatekeeping and Free Primary Care: The Thai model integrated its public health infrastructure as mandatory primary gatekeepers. This design successfully protected millions of low-income citizens from medical bankruptcies while systematically reducing national out-of-pocket spending.
Ghana: National Health Insurance Scheme (NHIS) and Earmarked Consumption Taxes
Ghana's National Health Insurance Scheme (NHIS) offers an instructive precedent for low- and middle-income nations struggling with low per capita revenue.
• The National Health Insurance Levy (NHIL): Ghana bypassed the challenges of direct premium collection in rural areas by funding the majority of its health insurance fund through a dedicated 2.5% health levy on selected goods and services, charged alongside VAT.
• Subsidizing the Informal Sector: This consumption-based earmark allows Ghana to cross-subsidize and completely exempt vulnerable categories, such as the ultra-poor, pregnant women, and the elderly, from paying any upfront insurance premiums.
Possible Strategic Policy Shifts for Nepal
A. Income-Graded Progressive Premium Subsidies (The Japan/Ghana Adaptation)
To fix adverse selection and make the system equitable, Nepal can replace its flat NRs. 3,500 contribution with a tiered system based on economic capacity.
Tier 1: Fully Subsidized Poor and Vulnerable (0% Premium)
• Mechanism: Households categorized as “poor” or “ultra-poor” by the relevant government poverty-alleviation authority must be fully registered into the HIB database with zero premium obligations.
• Funding: The federal government must automatically pay these premiums directly into the Health Insurance Fund on their behalf.
Tier 2: Income-Adjusted Informal Sector (Sliding Scale)
• Mechanism: For citizens in the informal sector who are not classified as ultra-poor but have low incomes, local governments should deploy a proxy-means testing framework to calculate premiums on a sliding scale (e.g., NRs. 3,000 to NRs. 5,000).
• Funding: Local municipality budgets should co-finance the deficit to keep the entry barrier low.
Tier 3: Mandatory Formal Sector (Percentage of Payroll)
• Mechanism: Government employees, corporate sector staff, and registered business owners should face mandatory enrollment, with premiums calculated as a fixed percentage of their gross salary (e.g., 1.0% to 2%), split evenly between employer and employee.
• Funding: This mechanism will be automatically deducted at the source via the Provident Fund, Social Security, and Inland Revenue Department, injecting a continuous flow of revenue from higher earners into the risk pool to subsidize lower-income tiers.
B. Expanding Fiscal Space via Dedicated Health Taxes
To combat low per capita public spending, the Ministry of Health can diversify revenue collection.
• Implementation of dedicated “sin taxes” (taxing tobacco, alcohol, sugary beverages, and sugary products) can be legally earmarked directly for the Health Insurance Fund.
• Implementation of solidarity taxes (on domestic and international air tickets, lotteries, etc.) can likewise be legally earmarked for the Health Insurance Fund.
These funds can be directly utilized to clear hospital reimbursement bottlenecks and cover the premiums of informal-sector workers.
C. A National Health Insurance Solidarity Levy
• Action: Mirroring Ghana's funding framework, Nepal can introduce a minor 0.5% Health Solidarity Levy on high-value telecommunication recharges, digital transactions, and luxury imports.
• Impact: Because consumption of these services scales with income, this levy functions as a progressive revenue generator. It expands fiscal capacity without adding financial stress to the rural poor, helping to stabilize the national health fund.
C. B Consolidation of Fragmented Budgets
• Action: Dissolve separate budget lines for the various fragmented vertical health funds, absorbing their total financial resources directly into the Health Insurance Board.
• Impact: Rather than running parallel bureaucracies, the HIB will manage chronic care and specialized procedures under a unified, high-tier benefit package. This setup clarifies administrative boundaries, prevents double dipping, and optimizes public resource management.
D. Strategic Contracting and Capitation of Private Providers
The private sector provides about 40% of health services in both urban and rural areas of Nepal. There are global precedents where countries have benefitted from the private sector in achieving public health goals, and the private sector is here to remain. Rather than steering citizens toward public hospitals only, the Health Insurance Board can adopt a strategic purchasing model to ensure citizens receive health services from the closest health center, supported by strict pricing and anti-fraud regulations.
• Strategic Purchasing and Gatekeeping: The government can contract accredited private hospitals, health clinics, and pharmacies—including in remote or underserved areas-using a capitation payment model. Many European and Asian models use primary care as a strict gatekeeper. In Nepal, ensuring that patients use their nearest local health center (or “first service point”) as the primary point of contact, and securing referrals for specialized care, will prevent the overloading of tertiary facilities and control costs. The Thai model integrated its public health infrastructure as mandatory primary gatekeepers, successfully protecting millions of low-income citizens from medical bankruptcies while systematically reducing national out-of-pocket spending.
• This approach addresses unmet demand for health services among the population, relieves the burden on public infrastructure where it exists, and introduces competition-indirectly forcing public hospitals to improve service quality and efficiency, as in Japan.
Policy Implementation Framework
To resolve the friction between Basic Health Services (BHS) and the HIB program, a clear dividing line must be established at the institutional level:
Step 1: Institutional De-linking. Local government clinics must be solely responsible for delivering the core BHS package and basic medicines for free. The HIB should stop reimbursing primary care facilities for services that are already legally mandated to be free under BHS.
Step 2: Strict Referral Pathway Gatekeeping. The HIB must enforce a policy where insurance coverage triggers only when a patient is referred upward from a BHS primary clinic to secondary or tertiary hospitals. This operational divide keeps primary care free and close to home, while preserving the national insurance fund for advanced specialized services, prescription changes for chronic conditions, and complex hospitalizations.
Restructuring of the National Health Insurance Board
To ensure its effective functioning, the National Health Insurance Board (HIB) should transition from an administrative bill-paying agency (passive purchasing) to a semi-independent regulatory authority. To achieve operational independence and clear the administrative bottlenecks that lead to immense hospital payment backlogs, the HIB should undergo three structural modifications:
Autonomous Corporate Governance: Following the model of Thailand's National Health Security Office (NHSO), the HIB should be decoupled from the direct bureaucratic oversight of the Ministry of Health and Population (MoHP). It must function as an autonomous statutory body with independent financial and hiring authority, allowing it to recruit professional actuaries, data scientists, and clinical auditors.
Provincial and Local-Level Decentralization: HIB currently suffers from a lack of local administrative delegation. Establishing empowered Provincial HIB Directorates allows the board to monitor empanelled local public and private hospitals closely, expedite regional claim settlements, and customize enrollment strategies.
Separation of Roles (Purchaser vs. Provider): The MoHP should focus solely on its role as the health regulator and provider of public health infrastructure. The restructured HIB must act exclusively as the single national purchaser of services, creating a healthy contractual dynamic that enforces performance-based accountability among healthcare facilities.
Institutionalizing Quality Assurance (QA)
To build public trust and ensure citizens receive high-value care rather than substandard medical treatment, the HIB must tie payments directly to service quality:
Mandatory Institutional Accreditation: Mirroring Taiwan's National Health Insurance (NHI) model, the HIB should refuse to contract any hospital (public or private) that fails to meet baseline national quality benchmarks. Continued empanelment must be contingent on passing annual, independent quality audits.
Transition to Diagnosis-Related Groups (DRGs): Nepal should gradually begin abandoning the fee-for-service reimbursement model, which financially incentivizes hospitals to keep patients in beds longer and run unnecessary tests. Implementing standard DRG case rates—adopted by many countries around the world—where a hospital is paid a fixed package amount based on the patient's diagnosis, forces facilities to maximize clinical efficiency and maintain strict safety standards.
Patient-Centered Feedback Loops: Establish a real-time digital scorecard system linked to platforms like the national Nagarik App. Patients must be able to electronically rate their hospital experience and report instances where they were illegally forced to buy medications out-of-pocket despite being insured.
Fraud Prevention and Mitigation Framework
Healthcare fraud and systemic leakages are estimated to drain up to 15% of national insurance revenues globally if left unchecked. To secure the financial viability of Nepal's fund, the HIB can deploy specific, globally proven counter-fraud systems:
Preventing Citizen-Side Fraud (Identity Theft & Doctor-Shopping)
• Biometric and Identity Verification (The Indonesian JKN Model): To eliminate the common practice of citizens lending their insurance cards to uninsured relatives, the HIB must expand its mandatory digital card framework. Integrating cardholder profiles with the National Identity Card (Rastriya Parichaya Patra) biometric database ensures that a patient's fingerprint or live facial scan matches the insurance registry upon hospital admission.
• Strict Electronic Referral Locking: To prevent “doctor-shopping” (where citizens visit multiple tertiary hospitals in a single week for the same minor ailment), the HIB's IT system must block secondary claims unless an active, digital referral has been transmitted upward by the patient's assigned primary healthcare gatekeeper.
Preventing Provider-Side Fraud (Upcoding, Phantom Claims, & Induced Demand)
• Real-Time AI Claim Scrubbing (The South Korean HIRA Model): South Korea utilizes the Health Insurance Review and Assessment Service (HIRA), an independent IT powerhouse that automatically analyzes every medical claim via artificial intelligence before a single won is disbursed. Nepal must integrate its electronic hospital management systems with an automated HIB claim-scrubbing algorithm. The system will instantly flag and pause payments for anomalies such as:
• Upcoding: Billing for a complex surgical procedure when only a minor intervention was performed.
• Unbundling: Charging for individual lab elements separately to artificially inflate the bill.
• Phantom Claims: Submitting treatment invoices for patients who were never admitted.
• Independent Third-Party Auditing: As initiated in recent federal budget frameworks, the HIB can systematically employ independent, third-party clinical auditors to perform random, blind chart reviews at hospitals. Discrepancies between digital claims and physical nursing charts must result in instant contract suspension and heavy financial penalties.
• Earmarked Anti-Fraud Legal Units: Legally empower a specialized investigative unit within the HIB to prosecute fraudulent providers, recover stolen public funds, and enforce strict whistleblower protection laws for hospital staff who report internal billing malpractices.
Necessary Legal Adjustments
To implement these policy changes, the Federal Parliament of Nepal must amend key healthcare laws (these are some suggestions and not exhaustive):
• Amendments to the National Health Insurance Act, 2074 (2017):
◦ Modify the premium contribution provisions to repeal the flat-rate fee and legally establish the income-graded, three-tiered premium contribution framework.
◦ Amend provisions regarding voluntary enrollment to make participation mandatory for all formal sector employers and employees.
• Amendments to the Public Health Service Act, 2075 (2018):
◦ Explicitly separate the definition of Basic Health Services (BHS) from health insurance coverage.
◦ Legally mandate that primary BHS clinics cannot bill the HIB for treatments designated under the free national care package.
• Financial Act Modifications:
◦ Insert distinct clauses in the annual Financial Act to legally earmark the sin tax surcharges and the Health Solidarity Levy, directing them straight to the HIB account rather than the consolidated federal treasury.
The 12-to-24-Month Implementation Timeline
Phase 1: Legal and Policy Amendments (Months 1–6)
• Draft and pass amendments to the National Health Insurance Act and Public Health Service Act.
• Standardize the HIB benefits package to eliminate overlaps with basic care.
• Complete integration between the Ministry of Health and Population (MoHP) and the Ministry of Finance to establish the infrastructure for earmarked health taxes.
Phase 2: Operational Restructuring and Fund Merger (Months 7–12)
• Formally dissolve the fragmented vertical programs, integrate the Social Security Fund (SSF), Employees Provident Fund (EPF), and others, and transfer these funds into a unified national health insurance fund within the HIB.
• Link the national poor household registry database with the HIB IT framework to automate Tier 1 premium exemptions.
• Deploy automated payroll deduction mechanisms for formal sector workers (Tier 3) via the Inland Revenue Department.
Phase 3: Pilot Testing and Gatekeeping Implementation (Months 13–18)
• Launch the tiered premium framework across select pilot districts representing urban, rural, and mountain regions.
• Implement a mandatory referral policy: HIB insurance coverage will only trigger at secondary or tertiary hospitals if the patient has an electronic referral from a local BHS primary clinic.
• Deploy localized, digital billing platforms at empanelled private and public hospitals to ensure clear reimbursement cycles.
Phase 4: National Scaling and Full Launch (Months 19–24)
• Scale the income-graded premium framework across all districts of Nepal.
• Make health insurance mandatory at the local level and link it to the national citizenship or identity card system, which is already underway.
• Perform a comprehensive review of the consolidated fund's performance, utilizing the steady revenue from the sin tax and solidarity levies to clear remaining provider backlogs.
The Cost of Inaction: Macroeconomic and Social Risks
Nepal cannot achieve sustainable financing, universal health coverage (UHC), or universal financial protection for its population under the current voluntary, fragmented model. Transitioning to a mandatory, unified health insurance framework represents a critical strategic shift. This reform will protect vulnerable households from catastrophic out-of-pocket health expenditures and establish a resilient national health system.
Every delay in restructuring this system compounds the federal state's financial burden, threatening the long-term fiscal sustainability of the national health program. More critically, prolonged policy stagnation will worsen public dissatisfaction. Citizens face barriers to accessing essential, high-quality care without facing severe financial hardship-a baseline entitlement explicitly guaranteed as a fundamental right under Article 35 of Nepal's Constitution.
-(Dr. Shambhu Acharya is a Former Director at the WHO Headquarters in Geneva, Switzerland, and is currently a Global Health Advocate.)
