Reviving Nepal’s Health Insurance Scheme

The decision by leading government hospitals such as Tribhuvan University Teaching Hospital and Shahid Gangalal National Heart Centre to suspend services under the national health insurance scheme has exposed the deep crisis facing one of Nepal’s most ambitious social welfare programmes. Hospitals cannot continue providing services indefinitely when the government fails to reimburse them for months. This is not simply an administrative lapse; it is a failure of the state’s responsibility to guarantee citizens’ access to healthcare. Yet, amid this crisis, there appears to be an opportunity to give the health insurance scheme a new lease of life. Reports that the government is considering channeling taxes collected from tobacco, alcohol and sugary products directly into the health insurance fund offer a potentially transformative solution. If implemented seriously and transparently, this measure could help rescue a programme that millions of citizens increasingly depend upon. Nepal introduced the Social Health Security Programme in 2015 with the goal of ensuring universal access to quality healthcare. The programme, institutionalised through legislation in 2017, was envisioned as a major pillar of social protection. Today, however, it is struggling to survive. Although nearly 50,000 people reportedly receive services daily through the scheme, the Health Insurance Board owes hospitals around Rs 10.5 billion in unpaid claims. Government officials themselves admit that weak management, financial shortages and widespread misuse have pushed the programme to the brink.

The numbers reveal the scale of the problem. While the government provides around Rs 10 billion annually in subsidies and another Rs 4 billion is collected through premiums, total expenditure has soared to nearly Rs 26 billion. The absence of reinsurance mechanisms, unnecessary diagnostic tests, fraudulent billing practices and abuse of free medicine provisions have further drained resources. Reducing the outpatient treatment ceiling from Rs 100,000 to Rs 25,000 may temporarily limit misuse, but cutting benefits cannot be the long-term answer. Such measures risk weakening public confidence in the insurance system itself. This is why linking health insurance funding with “sin taxes” deserves serious consideration. Across the world, taxes on tobacco, alcohol and sugary beverages have served a dual purpose: discouraging harmful consumption while financing public health programmes. Nepal has strong reasons to adopt a similar model. Tobacco use alone causes more than 39,000 deaths annually and treatment costs are estimated at Rs 45 billion each year, yet tobacco tax revenue stands at only around Rs 27 billion. The burden created by alcohol-related illnesses and diseases linked to sugary drinks and junk food is equally alarming. Increasing taxes on harmful products would therefore generate multiple benefits. It would raise revenue for the struggling insurance programme, reduce the consumption of health-damaging substances and ease long-term pressure on the healthcare system. Moreover, Nepal’s current tobacco tax rate of 41 percent remains far below the 75 percent level recommended by the World Health Organization. Compared with other South Asian countries, Nepal’s taxation remains relatively low. Moving from the current percentage-based system toward a quantity-based or mixed taxation model could also help reduce under-invoicing and tax evasion.

Still, taxation alone cannot revive the programme unless accompanied by broader structural reforms. Nepal has previously witnessed cases where revenues collected for special purposes were diverted elsewhere. Therefore, strict legal and administrative safeguards are necessary to ensure that funds collected for health insurance are used exclusively for that purpose. Likewise, the system requires stronger oversight, digital monitoring and transparent accountability mechanisms to prevent misuse. Further reforms are equally important. Poor households should receive greater subsidies while wealthier citizens contribute higher premiums through a tiered system. The government must also explore reinsurance mechanisms to distribute financial risk more effectively and consider establishing a dedicated health insurance institution with greater autonomy and professional management. Alternative financing sources and stronger partnerships with both public and private healthcare providers could also improve sustainability. Health insurance is not a commercial service or a privilege reserved for a few. It is an essential component of citizens’ right to healthcare and a core responsibility of the state. Allowing the programme to weaken further would undermine public trust not only in the health system but also in the state’s broader commitment to social justice. The encouraging sign is that both ruling and opposition parties appear supportive of linking increased “sin taxes” with health insurance financing. That consensus should now be translated into immediate legal and policy action. Nepal still has the opportunity to rebuild public confidence and give the health insurance scheme a renewed future. With timely reforms, financial discipline and political commitment, the programme can evolve from a failing system into a reliable pillar of social protection for millions of citizens.