Health Insurance Scheme Goes Broke

On January 18, Dr Raghuraj Kafle, Executive Director of the Health Insurance Board (HIB), tendered his resignation after just ten months in office. His departure followed a dispute with the Ministry of Health and Population over how to address a widening financing gap.

Two weeks later, the HIB decided to reduce insurance service benefits with effect from February13. Citing the need  to curb expenditure, the Board capped outpatient (OPD) services at a maximum of Rs 25,000 per year. As a result, an insured family will now be entitled to OPD expenses of up to Rs 25,000 annually.

The Board has clarified that benefits beyond this limit will be available only for hospital admissions, laboratory tests and emergency treatment. As OPD services account for the largest share of treatment costs, the Board said the decision was taken to reduce overall expenditure. According to HIB officials, the Board sought Rs 7 billion from the Ministry of Finance in mid-October 2025 after its liabilities to service providers exceeded Rs 11 billion.

However, it received only Rs 1 billion and was informed that no additional funds would be released beyond the original annual grant.

As arrears mounted, hospitals stopped providing services under the scheme, while others warned that they could no longer continue without timely payments. The resignation and the arrears crisis expose a structural weakness: claims continue to arrive, but funds  are disbursed late, in smaller amounts, or not at all. Former Board chair Dr Senendra Raj Upreti says this reflects the tendency to treat health insurance as a peripheral project rather than a core function of the state. “Although the law mandates health insurance coverage for every Nepali citizen, the government’s commitment remains largely on paper,” he said. “To achieve genuine Universal Health Coverage (UHC), health insurance must be embedded in the state’s core administrative system.”

The Mechanics of Failure

The program is built on risk pooling. Households pay an entry premium of about Rs 3,500 for access to outpatient and inpatient care, and a medicines list of 1,289 items. The state is meant to subsidize premiums for the poorest and most vulnerable. Hospitals treat insured patients, submit claims, and expect reimbursement.

Tribhuvan University Teaching Hospital (TUTH) and Shahid Gangalal National Heart Center are among the institutions that have stopped providing insured services, citing prolonged non-payment. TUTH Information Officer Dr Gopal Sedhain says claims spanning multiple fiscal years remain unpaid. This has forced  the hospital to cover insurance costs from its own resources. “We have been  unable to pay medicine and medical supply vendors for five months,” he said. “We cannot continue providing services at a loss, so we decided to suspend them.”

TUTH says it is still owed Rs 389.6 million. In a letter dated December 31, 2025,  it demanded immediate settlement and asked that agreements reflect the hospital’s own rate schedule. It also flagged high claim rejections. Of the Rs 40-50 million it submits monthly, claims worth Rs 15-20 million are rejected, Dr Sedhain said.

Other institutions, including Patan Hospital, Bir Hospital and Shahid Gangalal, say reimbursements by the Board have stalled as suppliers and staff costs rise.

Dr Upreti argues that financial stress is compounded by weak clinical governance and poor accountability in parts of the provider network. “A major systemic weakness is the lack of integrity among some healthcare providers, combined with the government’s limited ability to hold them accountable,” he said. Dr Upreti says profit incentives often drive overuse of high-margin services such as radiology and laboratory tests regardless of clinical need. He suggests enforcing Standard Treatment Protocols (STPs) to do away with the problem. “Claims that fall outside protocols without clinical justification should be rejected,” he said. “Accountability must apply at both institutional and individual levels.”

The Financing Gap

The program has expanded even as confidence in it has weakened. By the end of fiscal year 2023/24, 454 health institutions were affiliated as service  providers. According to the Board, the scheme now operates through more than 500 hospitals across all 77 districts.

Koshi Province has the highest number of registered service providers (108). Karnali and Sudurpashchim Provinces have the fewest, with 33 institutions each. At the district level, Kathmandu leads with 26 providers, followed by Jhapa and Morang with 24 each.  On paper, that scale promises access to health services for people all over the country. In practice, every new provider also becomes another source of claims, adding pressure to a fund already struggling to pay on time.

Around 6.8 million people have joined health insurance schemes over the past decade. However, service utilization has outpaced revenue. According to the Board, daily service use has climbed from roughly 50,000 patients to about 75,000, while hospitals now submit claims of around Rs 2 to 2.5 billion each month. The funding base has not kept pace. In the previous fiscal year, the Board collected Rs 3.73 billion in premiums. This year, the government has provided a Rs 10 billion grant, taking total resources to about Rs 14 billion. However, the Board’s data shows annual reimbursements can reach as high.

Another former Chairperson of the Board, Dr Gunaraj Lohani, says the deficit reflects a structural imbalance driven by weak participation from the formal sector. “The program’s financial sustainability is under  serious threat due to weak participation from the formal sector,” he said. “On average, a household pays about Rs 3,500 in premiums but consumes nearly Rs 9,000  in services.”  He argues that the solution is not another emergency grant. Instead, he calls for mandatory enrollment of the formal sector and premium revision based on income, rather than a flat rate.

Dr Upreti reaches a similar conclusion from a different angle. He says the Board functions largely as a subsidized model because it has failed to bring salaried professionals into the risk pool. This has left a concentrated basket of high risk, subsidized users.

He says the fund needs a diversified pool and a scale of participation that reduces adverse selection for its sustainability. He estimates that at least 60% of the population must be enrolled across formal and informal sectors for the scheme to stabilize.

The Subsidy Trap

Many participants do not pay premiums because they fall under exemption categories, including senior citizens above 70 and other protected groups. The design reflects social priorities, but it depends on predictable government transfers. When transfers arrive late, hospitals are forced to delay supplier payments, limit services, or exit the scheme altogether.

This has become both a policy dispute and a cash crisis. The ministry argues that subsidies cannot exceed a ceiling because reimbursements are recurrent expenditure. Board officials counter that health insurance is social security: once insured, they argue, the state is obligated to cover defined benefits.

Dr Upreti says the deeper problem  is political framing. “The government must stop treating health insurance as an unproductive expense. It is a critical investment in national productivity,” he said. Yet, even after a decade, he says the infrastructure and organizational capacity remain underdeveloped, leaving the program dependent on ad hoc fiscal releases and fragile administration.

Former Executive Director Dr Kafle says the crisis was predictable. “Utilization has risen, but the revenue structure has not,” Dr Kafle said, urging the government to choose among three options: provide  sufficient subsidies, raise premium fees, especially for those who can pay more, or reduce the benefits package. Each option is politically costly. But delaying the decision has produced  a fourth outcome: hospitals rationing services, and liabilities continue to compound.

The Missing Mandate

The Health Insurance Act, 2017 mandates enrolment for every citizen but enforcement is weak. The result is adverse selection: people often enroll after falling ill, renew when they anticipate expensive tests, and drop out when they do not.

Dr Upreti says UHC will remain aspirational unless the state creates enforceable mechanisms. “Enrollment should be mandatorily linked to essential civic services, such as obtaining a National ID, voter registration, or other government identification,” he said. “Without enforceable mechanisms, UHC will remain an aspiration rather than an outcome.” Subsidy targeting is also weak. Dr Upreti describes the current poverty identification system as inefficient and outdated. Poverty mapping has been completed in only 26 districts and does  not reflect changing household incomes.

“Rather than relying on static lists, the system should prioritize formal-sector enrollment where contributions are easier to collect and can stabilize the risk pool,” he added. Dr Lohani frames the issue as an implementation failure. “The primary challenge facing Nepal’s health insurance system is the gap between policy and implementation,” he said. “Social health insurance is a safety net, not a consumer product. It is not a ‘take it or leave it’ service.”  He also warns of quiet resistance from some private hospitals and pharmaceutical firms that may benefit if the program underperforms, even though its aim is to standardize costs and expand access to quality care.

Technology, Transparency and Fraud

Both former chairpersons say administrative reform must include stronger enforcement and technology. Dr Lohani argues that full implementation of insurance software can automatically flag clinical mismatches, such as an unnecessary CT scan for routine cases.

Moving enrolment and renewals online, he says, would eliminate the 10% commission  paid to enrolment assistants, saving an estimated Rs 2 billion. A digitized claims system could save another Rs 5-6 billion by reducing fraudulent billing, Dr Lohani added. “Any hospital proven guilty of fraud should be removed from the insurance network so that only honest providers remain.” Dr Upreti said. He says the ministry alternates between treating the Board as a subordinate department and as an autonomous entity, limiting its ability to act as a strict regulator. “Without stronger autonomy, the program risks becoming a “sick care” fund, with people enrolling only when ill and both providers and patients seeking high-end tests just before policies expire.”

Governance and Direction

Leadership churn has weakened continuity. Since the program’s launch, executive directors and chairs have changed repeatedly, often departing before completing terms. Dr Lohani resigned in 2024, alleging that the ministry failed to provide a workable environment. Similarly, Dr Upreti resigned as chair in 2023, citing weak government interest and an unhealthy working environment. Frequent turnover has diluted institutional memory and slowed reforms that require sustained political backing. Past reviews  have warned of rising fiscal requirements if the program continues unchanged, given that premiums cover only a minority share of expenditure and the remainder depends on subsidy. Those warnings have now materialized as arrears and service  suspensions.

Where the Crisis Is Headed

The crisis is now affecting service delivery, and delay is becoming more expensive. If large hospitals withdraw, insured patients will have fewer options. Should that happen, their confidence will fall, renewals will slow, and the premium base will shrink.

Dr Lohani warns that rural health infrastructure is especially exposed because many municipal hospitals rely on insurance claims as their primary revenue source. If the program does not stabilize, some rural facilities may be forced to close, he added. The government needs to make a strategic choice now. It can treat health insurance as a universal social security instrument—enforce participation, revise premiums based on ability to pay, invest in systems that deter fraud, and finance predictable subsidies. Or it can continue with an underfunded scheme that promises wide coverage but delivers unevenly, leaving hospitals to ration care and arrears to accumulate.

Dr Upreti says integrating the private sector into national insurance is possible, but only with balanced partnerships and credible regulation. Without that reset, the program will continue to oscillate between expansion plans and payment stoppages, and UHC will remain a slogan rather than a lived reality.

(This report was originally published in February 2026 issue of New Business Age Magazine.)