Enrollment no-A700

UNDER GUIDENCE OF: ------------------------Designation ABS, Lucknow





“Experience is the best teacher.” This saying is very well applicable in everyone’s life. Therefore as a student of management it must apply to me also. Then the question arises that from where we can get this experience. Obviously we must undergo practical Training. To serve this purpose I had undergone dissertation and as an outcome I have prepared this project report. This project report on “competitive study of health insurance schemes offered by general insurance companies in India” as per syllabus prescribed by Amity University for MBA students. The experience of preparing this dissertation will be useful in my future and findings of this particular project will be helpful in understanding the various schemes of health insurance provided by different banks in India.

VIBHA NIGAM MBA (G),SEM IV Enrollment no.


ACKNOWLEDGEMENT In preparing this dissertation report a considerable amount of thinking and informational inputs from various sources were involved. I express my deep sense of gratitude to --------------------,my faculity guide for his excellent spirit, effective guidance, encouragement and constant criticism, which gave me the confidence to complete the term paper effectively. In spite of having a very busy schedule, he made sure in every way that I acquire the best possible exposure and knowledge during my preparation of research report under his guidance. He gave all the time and attention, which I needed to complete my research and compile my term paper in as much orderly way as possible. I am also thankful to all those people, who are directly or indirectly associated with the timely completion my term paper, without which I otherwise would not have able to complete my dissertation report. VIBHA NIGAM MBA (G),SEM IV Enrollment no.


Table of contents
















1.1. Background 1.2. Scope of the study 1.3. Research objectives 1.4. Limitations


1.1. Background
Over the last 50 years India has achieved a lot in terms of health improvement. But still India is way behind many fast developing countries such as China, Vietnam and Sri Lanka in health indicators (Satia et al 1999). In case of government funded health care system, the quality and access of services has always remained major concern. A very rapidly growing private health market has developed in India. This private sector bridges most of the gaps between what government offers and what people need. However, with proliferation of various health care technologies and general price rise, the cost of care has also become very expensive and unaffordable to large segment of population. The government and people have started exploring various health financing options to manage problems arising out of growing set of complexities of private sector growth, increasing cost of care and changing epidemiological pattern of diseases. The new economic policy and liberalization process followed by the Government of India since 1991 paved the way for privatization of insurance sector in the country. Health insurance, which remained highly underdeveloped and a less significant segment of the product portfolios of the nationalized insurance companies in India, is now poised for a fundamental change in its approach and management. The Insurance Regulatory and Development Authority (IRDA) Bill, recently passed in the Indian Parliament, is important beginning of changes having significant implications for the health sector. The privatization of insurance and constitution IRDA envisage to improve the performance of the state insurance sector in the country by increasing benefits from competition in terms of lowered costs and increased level of consumer satisfaction. However, the implications of the entry of private insurance companies in health sector are not very clear. The recent policy changes will have been far reaching and would have major implications for the growth and development of the health sector. There are several


contentious issues pertaining to development in this sector and these need critical examination. These also highlight the critical need for policy formulation and assessment. Unless privatization and development of health insurance is managed well it may have negative impact of health care especially to a large segment of population in the country. If it is well managed then it can improve access to care and health status in the country very rapidly. Health insurance as it is different from other segments of insurance business is more complex because of serious conflicts arising out of adverse selection, moral hazard, and information gap problems. For example, experiences from other countries suggest that the entry of private firms into the health insurance sector, if not properly regulated, does have adverse consequences for the costs of care, equity, consumer satisfaction, fraud and ethical standards. The IRDA would have a significant role in the regulation of this sector and responsibility to minimise the unintended consequences of this change. Health sector policy formulation, assessment and implementation is an extremely complex task especially in a changing epidemiological, institutional, technological, and political scenario. Further, given the institutional complexity of our health sector programmes and the pluralistic character of health care providers, health sector reform strategies in the context of health insurance that have evolved elsewhere may have very little suitability to our country situation. Proper understanding of the Indian health situation and application of the principles of insurance keeping in view the social realities and national objective are important.


1.2. Significance of the study
This dissertation presents review of health insurance situation in India - the opportunities it provides, the challenges it faces and the concerns it raises. A discussion of the implications of privatization of insurance on health sector from various perspectives and how it will shape the character of our health care system is also attempted. The paper following areas: Economic policy context Health financing in India Health insurance scenario in India Health insurance for the poor Consumer perspective on health insurance Models of health insurance in other countries Competitive analysis of health insurance sector in India

1.3. Research objectives
 To understand the position of health insurance in India  To understand the different schemes of health insurance provided by different companies.

 To find out the future of Insurance sector in India


1.4. Limitations
1. 2. The study is confined to limited period. Accuracy of the study is purely based on the secondary data.


The analysis and conclusion made by me as per my limited understanding and there may be something variation in the actual situation.




2.11. HISTORY OF INSURANCE IN INDIA In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular. 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies. In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the


earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers. The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business. An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices. In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then. In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company


Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973. This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector.The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein , among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners. Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders’ interests. In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a


national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002. Today there are 14 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 14 life insurance companies operating in the country. The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the country’s GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country. 2.12. MILESTONES IN INDIAN LIFE INSURANCE BUSINESS

1912: The Indian Life Assurance Companies Act came into force for regulating the life insurance business. 1928: The Indian Insurance Companies Act was enacted for enabling the government to collect statistical information on both life and non-life insurance businesses.

1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding the interests of the insuring public. 1956: 245 Indian and foreign insurers and provident societies were taken over by the central government and they got nationalized. LIC was formed by an Act of Parliament, viz. LIC Act, 1956. It started off with a capital of Rs. 5 crore and that too from the Government of India.

The history of general insurance business in India can be traced back to Triton Insurance Company Ltd. (the first general insurance company) which was formed in the year 1850 in Kolkata by the British. 2.13. IMPORTANT MILESTONES IN THE INDIAN INSURANCE BUSINESS


1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to transact all general insurance business. 1957: General Insurance Council, an arm of the Insurance Association of India, framed a code of conduct for guaranteeing fair conduct and sound business patterns.

1968: The Insurance Act improved for regulating investments and set minimal solvency levels and the Tariff Advisory Committee was set up. 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India. It was with effect from 1st January 1973.

107 insurers integrated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC was incorporated as a company.

2.14. Economic policy context and imperatives of liberalization of insurance sector:
There are several imperatives for opening of the insurance and health insurance sector in India for private investment. Here we review some of these imperatives. Economic policy reforms started during late eighties and speeded up in nineties are the context in which liberalization of insurance sector happened in India. It was very obvious that the liberalization of the real (productive) and financial sector of the economy has to go hand in hand. It is imperative that these sectors are consistent with policies of each other and unless both function efficiently and are in equilibrium, it would be difficult to ensure appropriate economic growth. Given these facts liberalization of both sectors has to proceed simultaneously.Indian economic system has been developed on paradigm of mixed economy in which public and private enterprises co-exist. The past strategies of development based on socialistic thinking were focusing on the premise of restrictions, regulations and control and less on incentives and market driven forces. This affected the development process in the country in serious way. After the economic liberalization the paradigm changed from central planning, command and control to market driven development. Deregulation, decontrol, privatization, delicensing, globalization became


the key strategies to implement the new framework and encourage competition. The social sectors did not remain unaffected by this change. The control of government expenditure, which became a key tool to manage fiscal deficits in early 1990s, affected the social sector spending in major way. The unintended consequences of controlling the fiscal deficits have been reduction in capital expenditure and non-salary component of many social sector programmes.This has led to severe resource constraints in the health sector in respect of non-salary expenditure and this has affected the capacity and credibility of the government health care system to deliver good quality care over the years. Given the increasing salaries, lack of effective monitoring and lack of incentives to provide good quality services the provides in the government sector became indifferent to the clients. Clients also did not demand good quality and better access, as government services were free of cost. Under this situation more and more clients turned to the private sector health providers and thus the private sector healthcare has expanded. Given the socialistic political thinking and populist policy it has been generally difficult for any government to introduce cost recovery in public health sector. Given that government is unable to provide more resources for health care, and institute cost recovery, one of the ways to reduce the under-funding and augment the resources in the health sector was to encourage the development health insurance. Another imperative for liberalization of the insurance sector was the need for long-term financial resources on sustainable basis for the development of infrastructure sector such as roads, transports etc. It was realized that during the course of economic liberalization, the funds to development the infrastructure also became a major constraint. Country certainly needed infrastructure development. For this the finances are major constraint. In these investments the benefits are more social than private. The major concern was how these finances can be made available at low costs. In past the development of social sector were financed using government channeled funds through various semigovernment financial institutions. Under the liberalized economy this may not be possible. One hope is that if the insurance sector develops rapidly under privatization


then it can provide long-term finance to the infrastructure sector. The financial sector, which consists of banks, financial institutions, insurance companies, provident funds schemes, mutual funds were all under government control. There was less competition across these units. As a result these institutions remained significantly less developed in their approach and management. Insurance sector has been most affected by the government controls. Government had significant control on the policies these insurance companies could offer and utilization of the resources mobilized by insurance companies. One can see that most of the insurance products (e.g., life insurance products) were promoted as mechanisms to improve the savings and tax shelters rather as risk coverage instruments. Other segments of the insurance products grew because of the statutory obligations (e.g., Motor Vehicle, Marine and Fire) under various acts. The management and organization of insurance sector companies remained less developed and they neglected new product development and marketing. Thus one of the hopes in opening of the insurance sector was that the private and foreign companies would rapidly develop the sector and improve coverage of the population with insurance using new products and better management. Last imperative for opening of the insurance sector was signing the WTO India. After this there was little choice but to open the entire financial sector - including insurance sector to private and foreign investors. (Dholakia 1999).

LIFE INSURERS Public Sector Life Insurance Corporation of India Private Sector Allianz Bajaj Life Insurance Company Limited Websites


Birla Sun-Life Insurance Company Limited HDFC Standard Life Insurance Co. Limited ICICI Prudential Life Insurance Co. Limited ING Vysya Life Insurance Company Limited Max New York Life Insurance Co. Limited MetLife Insurance Company Limited Om Kotak Mahindra Life Insurance Co. Ltd. SBI Life Insurance Company Limited TATA AIG Life Insurance Company Limited AMP Sanmar Assurance Company Limited Dabur CGU Life Insurance Co. Pvt. Limited GENERAL INSURERS Public Sector National Insurance Company Limited New India Assurance Company Limited Oriental Insurance Company Limited United India Insurance Company Limited Private Sector Bajaj Allianz General Insurance Co. Limited ICICI Lombard General Insurance Co. Ltd. IFFCO-Tokio General Insurance Co. Ltd. Reliance General Insurance Co. Limited Royal Sundaram Alliance Insurance Co. Ltd. TATA AIG General Insurance Co. Limited Cholamandalam General Insurance Co. Ltd. Export Credit Guarantee Corporation HDFC Chubb General Insurance Co. Ltd. REINSURER


General Insurance Corporation of India

Insured, are you? The functions of Insurance will give you an idea on how to go ahead with the approach of insurance and what type of insurance to choose. In a layman's words, insurance means, ‘a guard against pecuniary loss arising on the happening of an unforeseen event’. In developing economies, the insurance sector still holds a lot of potential which can be tapped. Majority of the people in the developing countries remains unaware of the functions and benefits of insurance and it is for this reason that the insurance sector is still to grow. Tangible or intangible – an individual can insure anything! Be it a house, car, factory, or the voice of a singer, leg of a footballer, and the hand of an author.....etc. It is possible to insure all these as they have the possibility of becoming non functional by any disaster or an accident.


1. 1.Primary Functions 2. 2.Secondary Functions 3. 3.Other Functions Primary functions of insurance

Providing protection – The elementary purpose of insurance is to allow security against future risk, accidents and uncertainty. Insurance cannot arrest the risk from taking place, but can for sure allow for the losses arising with the risk. Insurance is in reality a protective cover against economic loss, by apportioning the risk with others.


Collective risk bearing – Insurance is an instrument to share the financial loss. It is a medium through which few losses are divided among larger number of people. All the insured add the premiums towards a fund and out of which the persons facing a specific risk is paid.

Evaluating risk – Insurance fixes the likely volume of risk by assessing diverse factors that give rise to risk. Risk is the basis for ascertaining the premium rate as well.

Provide Certainty – Insurance is a device, which assists in changing uncertainty to certainty.

Secondary functions of insurance

Preventing losses – Insurance warns individuals and businessmen to embrace appropriate device to prevent unfortunate aftermaths of risk by observing safety instructions; installation of automatic sparkler or alarm systems, etc.

Covering larger risks with small capital – Insurance assuages the businessmen from security investments. This is done by paying small amount of premium against larger risks and dubiety.

Helps in the development of larger industries – Insurance provides an opportunity to develop to those larger industries which have more risks in their setting up.

Other functions of insurance

Is a savings and investment tool – Insurance is the best savings and investment option, restricting unnecessary expenses by the insured. Also to take the benefit of income tax exemptions, people take up insurance as a good investment option.

Medium of earning foreign exchange – Being an international business, any country can earn foreign exchange by way of issue of marine insurance policies and a different other ways.

Risk Free trade – Insurance boosts exports insurance, making foreign trade risk free with the help of different types of policies under marine insurance cover.


Insurance provides indemnity, or reimbursement, in the event of an unanticipated loss or disaster. There are different types of insurance policies under the sun cover almost anything that one might think of. There are loads of companies who are providing such customized insurance policies.


Threat of New Entrants: The insurance industry has been budding with new entrants every other day. Therefore the companies should carve out niche areas such that the threat of new entrants might not be a hindrance. There is also a chance that the big players might squeeze the small new entrants.

Power of Suppliers: Those who are supplying the capital are not that big a threat. For instance, if someone as a very talented insurance underwriter is presently working for a small insurance company, there exists a chance that any big player willing to enter the insurance industry might entice that person off.

Power of Buyers: No individual is a big threat to the insurance industry and big corporate houses have a lot more negotiating capability with the insurance companies. Big corporate clients like airlines and pharmaceutical companies pay millions of dollars every year in premiums.

Availability of Substitutes: There exist a lot of substitutes in the insurance industry. Majorly, the large insurance companies provide similar kinds of services – be it auto, home, commercial, health or life insurance.

How to choose an insurance company? There are many factors to probe into when an investor chose an insurance company.


The consumers as well as the investors should only focus on the insurer's financial strength and capability to meet ongoing responsibilities to its policyholders.

The fundamentals of the insurance company should be strong and should not indicate a poor investment opportunity as this might also deter growth.

Life Insurance Corporation of India The Life Insurance Corporation of India (LIC) is undoubtedly India's largest life insurance company. Fully owned by government, LIC is also the largest investor of the country. LIC has an estimated asset of Rs. 8 Trillion. It also funds almost 24.6% of the expenses of Government of India. Established in 1956 and headquartered in Mumbai, Life Insurance Corporation of India has 8 zonal offices, 100 divisional offices, 2,048 branch offices and a vast network of 10,02,149 agents spread across the country.

Tata AIG Insurance SolutionsTata AIG Insurance Solutions, one of the leading insurance providers in India, started its operation on April 1, 2001. A joint venture between Tata Group (74% stake) and American International Group, Inc. (AIG) (26% stake), Tata AIG Insurance Solutions has two different units for life insurance and general insurance. The life insurance unit is known as Tata AIG Life Insurance Company Limited, whereas the general insurance unit is known as Tata AIG General Insurance Company Limited. AVIVA Life Insurance AVIVA Life Insurance, one of the popular insurance companies in India, is a joint 25

venture between the renowned business group, Dabur and the largest insurance group in the UK, Aviva plc. AVIVA Life Insurance has an extensive network of 208 branches and about 40 Bancassurance partnerships, spread across 3,000 cities and towns across the country. There are more than 30,000 Financial Planning Advisers (FPAs) working for AVIAV Life Insurance. It offers various plans like Child, Retirement, Health, Savings, Protection and Rural. MetLife Insurance MetLife India Insurance Company Limited is another popular player in Indian insurance sector. A joint venture between the Jammu and Kashmir Bank, M. Pallonji and Co. Private Limited and other private investors and MetLife International Holdings, Inc., MetLife Insurance offers a wide range of financial solutions to its customers including Met Suraksha, Met Suraksha TROP, Met Mortgage Protector and Met Suraksha Plus etc. It has its branches situated over 600 locations across the country. More than 50,000 Financial Advisors work for MetLife. ING Vysya Life Insurance ING Vysya Life Insurance entered into the Indian insurance industry in September 2001. A joint venture between ING Group, Ambuja Cements, Exide Industries and Enam Group, ING Vysya Life Insurance uses its two channels, viz. the Alternate Channel and the Tied Agency Force to distribute its products. The first channel has branches in 234 cities across the country and has got 366 sales teams. On the other hand, the later one has more than 60,000 advisors. Currently, ING Vysya Life Insurance has tie ups with more than 200 cooperative banks.

Birla Sun Life Financial Services Birla Sun Life Financial Services is a joint venture between Aditya Birla Group and Sun


Life Financial Inc, Canada. It has got an extensive network of more than 600 branches. More than 1,75,000 empanelled advisors work for Birla Sun Life, which currently covers over 2 million lives. MAX New York Life Max New York Life Insurance Company Ltd. is one of the top insurance companies in India. A joint venture between Max India Limited and New York Life International (a part of the Fortune 100 company - New York Life), Max New York Life Insurance Company Ltd. started its operation in April 2001. It currently has around 715 offices located in 389 cities across the country. It also has around 75,832 agent advisors. Max New York Life offers 39 products, which cover both, life and health insurance. Bajaj Allianz Bajaj Allianz is a joint venture between Bajaj Finserv Limited and Allianz SE, where Bajaj Finserv Limited holds 74% of the stake, whereas Allianz SE holds the rest 26% stake. Bajaj Allianz has been rated iAAA by ICRA for its ability to pay claims. The company also achieved a growth of 11% with a premium income of Rs. 2866 crore as on March 31, 2009. Bharti AXA Life Insurance Bharti AXA Life Insurance, one of the top insurance companies in India, is a joint venture between Bharti group and world leader AXA. Bharti holds 74% stakes, whereas AXA holds the rest of 26%. Bharti AXA has its branches located in 12 states across the country. It offers a range of individual, group and health plans for its customers. Currently more than 8000 employees work for Bharti AXA Life Insurance.





The health care system in India is characterised by multiple systems of medicine, mixed ownership patterns and different kinds of delivery structures. Public sector ownership is divided between central and state governments, municipal and Panchayat local governments. Public health facilities include teaching hospitals, secondary level hospitals, first-level referral hospitals (CHCs or rural hospitals), dispensaries; primary health centres (PHCs), sub-centres, and health posts. Also included are public facilities for selected occupational groups like organized work force (ESI), defence, government employees (CGHS), railways, post and telegraph and mines among others. The private sector (for profit and not for profit) is the dominant sector with 50 per cent of people seeking indoor care and around 60 to 70 per cent of those seeking ambulatory care (or outpatient care) from private health facilities. While India has made significant gains in terms of health indicators - demographic, infrastructural and epidemiological (See Tables 1 and 2), it continues to grapple with newer challenges. Not only have communicable diseases persisted over time but some of them like malaria have also developed insecticide-resistant vectors while others like tuberculosis are becoming increasingly drug resistant. HIV / AIDS has of late assumed extremely virulent proportions. The 1990s have also seen an increase in mortality on account of non-communicable diseases arising as a result of lifestyle changes. The country is now in the midst of a dual disease burden of communicable and noncommunicable diseases. This is coupled with spiralling health costs, high financial burden on the poor and erosion in their incomes. Around 24% of all people hospitalized in India in a single year fall below the poverty line due to hospitalization (World Bank, 2002). An analysis of financing of hospitalization shows that large proportion of people; especially those in the bottom four-income quintiles borrow money or sell assets to pay for hospitalization (World Bank, 2002)

This situation exists in a scenario where health care is financed through general tax revenue, community financing, out of pocket payment and social and private health insurance schemes. India spends about 4.9% of GDP on health (WHR, 2002). The per capita total expenditure on health in India is US$ 23, of which the per capita Government expenditure on health is US$ 4. Hence, it is seen that the total health expenditure is around 5% of GDP, with breakdown of public expenditure (0.9%); private expenditure 29

(4.0%). The private expenditure can be further classified as out-of-pocket (OOP) expenditure (3.6%) and employees/community financing (0.4%). It is thus evident that public health investment has been comparatively low. In fact as a percentage of GDP it has declined from 1.3% in 1990 to 0.9% as at present. Furthermore, the central budgetary allocation for health (as a percentage of the total Central budget) has been stagnant at 1.3% while in the states it has declined from 7.0% to 5.5%. Table 1. Socioeconomic indicators Land area Burden of disease (%) Population Urban : Rural Literacy rate (%) Sanitation (%) Safe drinking water supply (%) Poverty (%) Below poverty line – 26 Rural – 27.09; Urban – 23.62 Poverty line (Rs.) Rural – 327.56; Urban – 454.11 2% of world area 21% of global disease burden 16% of world population 28:72 65.38 Rural – 9.0; Urban – 49.3 Rural – 98; Urban – 90.2

Health sector and its financing: present scene and issues for the future During the last 50 years India has developed a large government health infrastructure with more than 150 medical colleges, 450 district hospitals, 3000 Community Health Centers, 20,000 Primary Health Care centers and 130,000 Sub-Health Centers. On top of this there are large number of private and NGO health facilities and practitioners scatters though out the country.


Over the past 50 ears India has made considerable progress in improving its health status. Death rate has reduced from 40 to 9 per thousand, infant mortality rate reduced from 161 to 71 per thousand live births and life expectancy increased from 31 to 63 years. However, many challenges remain and these are: life expectancy 4 years below world average, high incidence of communicable diseases, increasing incidence of noncommunicable diseases, neglect of women's health, considerable regional variation and threat from environment degradation. It is estimated that at any given point of time 40 to 50 million people are on medication for major sickness in India. About 200 million workdays are lost annually due to sickness. Survey data indicate that about 60% people use private health providers for outpatient treatment while 60 % use government providers for in-door treatment. The average expenditure for care is 2-5 times more in private sector than in public sector. India spends about 6% of GDP on health expenditure. Private health care expenditure is 75% or 4.25% of GDP and most of the rest (1.75%) is government funding. At present, the insurance coverage is negligible. Most of the public funding is for preventive, promotive and primary care programmes while private expenditure is largely for curative care. Over the period the private health care expenditure has grown at the rate of 12.84% per annum and for each one percent increase in per capital income the private health care expenditure has increased by 1.47%. Number of private doctors and private clinical facilities are also expanding exponentially. Indian health financing scene raises number of challenges, which are: increasing health care costs, high financial burden on poor eroding their incomes, increasing burden of new diseases and health risks and neglect of preventive and primary care and public health functions due to under funding of the government health care. Given the above scenario exploring health-financing options becomes critical. Health Insurance is considered one of the financing mechanisms to over come some of the problems of our system.

2.22. Consumer and social perspective on health insurance

With the liberalization of insurance and entry of private companies in this business it is very important that specific interventions are developed which focus on increasing the consumer awareness about insurance products. One of the major challenges after privatization of insurance would be how to develop such mechanisms, which help making consumers aware about the various intricacies of insurance plans. As of now information, knowledge and awareness of existing insurance plans is very limited. This is also shown by the study of Gumber and Kulkarni (2000) among the members of SEWA, ESIS and mediclaim schemes. With Consumer Protection Act coming in force it has become easy for aggrieved consumers to complain and seek redressal for their problems. Consumer organizations such as CERC of Ahmedabad have been helping consumers to get due justice in disputes with the insurance companies. Their experience would be varying valuable in guiding development of health insurance plans that are transparent and just. Many a times the insurance claims are rejected due to some small technical reasons. This leads to disputes. Most of the time the conditions and various points included in insurance policy contracts is not negotiable and these are binding on consumers. There is no analysis on what is fair practice and what is unfair practice. Given that insurance companies are large and almost monopoly setting the consumers is treated as secondary and they do not have opportunity to negotiate the terms and conditions of a contract. Many times insurance companies do not strictly follow the conditions in all cases and this create confusion and disputes. (Shah M 1999) The most important area of dispute and unfair treatment is the knowledge and implications of pre-exiting conditions. A number of cases of litigation are disagreement on these pre-existing conditions. These problems also arise because of lack of specification of number of areas and properly spelling out the conditions. This is also because some chronic conditions such as high blood pressure and diabetes can increase the risk of may other disease of organs such as heart, kidney, vascular and eyes diseases. The patients with these pre-existing conditions are denied claims for treatment of complications. This is not fair and leads to disputes.


Health insurance is typically annual and has to be renewed yearly. Policy, which is not renewed in time lapses and a new policy has to be taken out. Medical conditions detected during the interim period are treated as pre-existing condition for the new policy, which is not fair. This is seen as major issue as it changes the conditionalities about what constitutes pre- exiting conditions. Courts, however, have ruled that even if there is delay in renewing the policies it should be considered as renewed policy. In case two doctors give different reports one favouring consumer and other insurance company, the insurance company generally follows the later opinion. There are several such consumerrelated issues, which need to be addressed in health insurance. One of the planks on which the insurance has been deregulated is the gain in efficiency and passing on these benefits to the consumers. It is very unrealistic to assume that insurance companies will be able to gain efficiency, which helps them to reduce the price of schemes. At least one should not be expecting this thing happening in the short-run. But providing full information to the consumer and dealing with claims in a just and expeditious manner is the minimum expected outcome of the deregulation process. Consumer organizations have to play very active role in future development of the health insurance sector in India. There are several social issues such as exclusions of sexually transmitted diseases, AIDS, delivery and maternal conditions etc. These are not socially and ethically acceptable. "Insurance companies much take care of all the risks related to health. The companies may charge additional premium for certain conditions. Secondly the present mediclaim policy premiums are high and do not differentiate between people living in urban and rural areas where the costs of medical care are different. Thus the present policy is less attractive to poor and rural people. The tax subsidy provided to the mediclaim is also going largely to the rich who are the taxpayers. The newer health insurance policies have to improve upon the shortcoming of the existing policies.


2.23. Impact of Health insurance on structure and quality of private provision
The experiences in liberalizing the private health insurance suggest that it has undesirable effects on the costs of health care. The costs of care generally go up. Given the present system of fee for service and current scenario of health infrastructure in private sector, the development of insurance will need improvements in quality and change in structure. The new investments to improve quality will result into high cost and therefore increase in prices of insurance products. There would be developments in the direction of exploring options of managed care, which would help in reducing the costs. The developments would be needed in the direction of strong information base and accreditation system for providers. The structure of the health sector will have to change from multiple-single doctor hospitals and clinics to larger hospitals and polyclinics, which provide services of multiple specialities and can operate at larger scale. This will allow them to provide high quality professional care at competitive prices. As one of the responses to these issues Third Party Administrators (TPA) are rapidly emerging in India. Here we can learn from the models, which have emerged elsewhere. But their applicability to Indian situation needs to be examined carefully. These aspects of the health sector will need detailed study. We lack adequate information base to operate insurance schemes at large scale. The insurance mechanism prevalent in many developed countries has their history. Health reforms experiences in many countries are replete with the suggestion that the systems cannot be replicated easily. Self-regulation is an important in any market driven system. The regulation from outside does not work. Implementation of regulation in this sector is difficult. We significantly lack mechanisms and institutions, which would ensure self- regulation and continuing education of provides and various stakeholders. The accreditation systems are hard to implement without mechanisms to self-regulate. For example it took 35 years in US to 34

put the accreditation system effectively in place. For example, it has been difficult for many States in India to put nursing homes legislation in place. Given the deterioration on standards in medical education, lack of regulation by medical council and rising expectations of the community it is difficulty to ensure quality standards in Indian health care system. Given this situation health insurance systems will have to deal with this complex issue of quality of care in years to come.

2.24. Role of regulators
The government has established Insurance Regulatory and Development Authority (IRDA) which is the statutory body for regulation of the whole insurance industry. They would be granting licenses to private companies and will regulate the insurance business. As the health insurance is in its very early phase, the role of IRDA will be very crucial. They have to ensure that the sector develops rapidly and the benefit of the insurance goes to the consumers. But it has to guard against the ill effects of private insurance. The main danger in the health insurance business we see is that the private companies will cover the risk of middle class who can afford to pay high premiums. Unregulated reimbursement of medical costs by the insurance companies will push up the prices of private care. So large section of India's population who are not insured will be at a relative disadvantage as they will, in future, have to pay much more for the private care. Thus checking increase in the costs of medical care will be very important role of the IRDA.

Secondly, IRDA will need to evolve mechanisms by which it puts some kind of statue in place that private insurance companies do not skim the market by focusing on rich and upper- class clients and in the process neglect a major section of India's population. They must ensure that companies develop products for such poorer segments of the community and possibly build an element of cross-subsidy for them. Government companies can take the lead in this matter and catalyze new products for the poor and lower middle class as they have done in the past.


Thirdly the regulators should also encourage NGOs, Co-operatives and other collectives to inter into the health insurance business and develop products for the poor as well as for the middle class employed in the services sector such as education, transportation, retailing etc and the self employed. This could be run as no-profit-no loss basis similar to the scheme pioneered by Indian Medical Association for its members. Special licenses will have to be given to NGO for this purpose without insisting on the minimum capital norms, which are for commercial insurance companies. 2.25. VARIOUS HEALTH INSURANCE PRODUCTS AVAILABLE IN INDIA The existing health insurance schemes available in India can be broadly categorized as: Voluntary health insurance schemes or private-for-profit schemes Mandatory health insurance schemes or government run schemes (namely ESIS, CGHS) Insurance offered by NGOs/Community based health insurance Employer based schemes 1. Voluntary health insurance schemes or private-for-profit schemes: In private insurance, buyers are willing to pay premium to an insurance company that pools similar risks and insures them for health related expenses. The main distinction is that the premiums are set at a level, which are based on assessment of risk status of the consumer (or of the group of employees) and the level of benefits provided, rather than as a proportion of consumer’s income. In the public sector, the General Insurance Corporation (GIC) and its four subsidiary companies (National Insurance Corporation, New India Assurance Company, Oriental Insurance Company and United Insurance Company) provide voluntary insurance schemes. The most popular health insurance cover offered by GIC is Mediclaim policy


Mediclaim policy: - It was introduced in 1986. It reimburses the hospitalization expenses owing to illness or injury suffered by the insured, whether the hospitalization is domiciliary or otherwise. It does not cover outpatient treatments. Government has exempted the premium paid by individuals from their taxable income. Because of high premiums it has remained limited to middle class, urban tax payer segment of population. Some of the various other voluntary health insurance schemes available in the market are :- Asha deep plan II , Jeevan Asha plan II, Jan Arogya policy, Raja Rajeswari policy, Overseas Mediclaim policy, Cancer Insurance policy, Bhavishya Arogya policy, Dreaded disease policy, Health Guard, Critical illness policy, Group Health insurance policy, Shakti Shield etc. At present Health insurance is provided mainly in the form of riders. There are very few pure health insurance policies under voluntary health insurance schemes.

2. Mandatory health insurance schemes or government run schemes (namely ESIS, CGHS) Employer State Insurance Scheme (ESI):- Enacted in 1948, the employers’ state insurance (ESI) Act was the first major legislation on social security in India. The scheme applies to power using factories employing 10 persons or more and non-power & other specified establishments employing 20 persons or more. It covers employees and the dependents against loss of wages due to sickness, maternity, disability and death due to employment injury. It also covers funeral expenses and rehabilitation allowance. Medical care comprises outpatient care, hospitalization, medicines and specialist care. These services are provided through network of ESIS facilities, public care centers, nongovernmental organizations (NGOs) and empanelled private practitioners. The ESIS is financed by three way contributions from employers, employees and the state government.


Even though the scheme is formulated well there are problem areas in managing this scheme. Some of the problems are : Large numbers of posts of medical staff remain vacant due to high turnover and low remuneration compared to corporate hospitals.  Rising costs and technological advancement in super specialty treatment. Management information is not satisfactory.  The patients are not satisfied with the services they get Low utilization of the hospitals. In rural areas, the access to services is also a problem.All these problems indicate an urgent need for reforms in the ESIS Scheme. Central Government Health Insurance Scheme (CGHS):- Established in 1954, the CGHS covers employees and retirees of the central government and certain autonomous and semi autonomous and semi-government organizations. It also covers Members of Parliament, Governors, accredited journalists and members of general public in some specified areas. Benefits under the scheme include medical care, home visits/care, free medicines and diagnostic services. These services are provided through public facilities with some specialized treatment (with reimbursement ceilings) being permissible at private facilities. Most of the expenditure is met by the central government as only 12% is the share of contribution. The CGHS has been criticized from the point of view of quality and accessibility. Subscribers have complained of high out of pocket expenses due to slow reimbursement and incomplete coverage for private health care (as only 80% of the cost is reimbursed if referral is made to private facility, when such facilities are not available with the CGHS). Universal Health Insurance Scheme (UHIS):- For providing financial risk protection


to the poor, the government announced UHIS in 2003. Under this scheme, for a premium of Rs. 165 per year per person, Rs.248 for a family of five and Rs.330 for a family of seven , health care for sum assured of Rs. 30000/- was provided. This scheme has been made eligible for below poverty line families only. To make the scheme more saleable, the insurance companies provided for a floater clause that made any member of family eligible as against mediclaim policy which is for an individual member. In spite of all these, the scheme was not successful. The reasons for failing to attract rural poor are many :The public sector companies who where required to implement this scheme find it to be potentially loss making and do not invest in propagating it. To meet the target, it is learnt that several field officers pay the premium under fictious names. Identification of eligible families is a difficult task Poor find it difficult to pay the entire premium at one time for future benefit, foregoing current consumption needs. Paper work required to settle the claims is cumbersome Deficit in availability of service providers Set back due to health insurance companies refusing to renew the previous year’s policies. In 2004, the government also provided an insurance product to the Self Help Group (SHG) for a premium of Rs.120 and sum assured of Rs.10000/-. However, the intake is negligible. The reasons for poor intake are similar to those cited above. 3. Insurance offered by NGOs/Community based health insurance Community based schemes are typically targeted at poorer population living in communities. Such schemes are generally run by charitable trusts or non-governmental organizations (NGOs). In these schemes the members prepay a set amount each year for specified services. The premia are usually flat rate (not income related) and therefore not progressive. The benefits offered are mainly in terms of preventive care, though ambulatory and inpatient care is also covered. Such schemes tend to be financed through patient collection, government grants and donations. Increasingly in India, CBHI schemes are negotiating with for profit insurers for the purchase of custom designed


group insurance policies. CBHI schemes suffer from poor design and management. Often there is a problem of adverse selection as premiums are not based on assessment of individual risk status. These schemes fail to include the poorest of the poor. They have low membership and require extensive financial support. Other issues relate to sustainability and replication of such schemes. Some of the popular Community Based Health Insurance schemes are: - Self-Employed Women’s Association (SEWA), Tribuvandas Foundation (TF), The Mullur Milk Cooperative, Sewagram, Action for Community Organization, Rehabilitation and Development (ACCORD), Voluntary Health Services (VHS) etc. 4. Employer based schemes Employers in both public and private sector offers employer based insurance schemes through their own employer. These facilities are by way of lump sum payments, reimbursement of employees’ health expenditure for out patient care and hospitalization, fixed medical allowance or covering them under the group health insurance schemes. The Railways, Defense and Security forces, Plantation sector and Mining sector run their own health services for employees and their families.

2.26.GENERAL INSURANCE VS. LIFE INSURANCE Several life insurance companies have of late plunged into the health segment, which till recently was dominated by general insurance companies. Among others, ICICI Prudential has launched Hospital Care and Crisis Cover and Bajaj Allianz, the Care First plan. Life Insurance Corporation, too, plans to roll out products soon. But, are these products any different from those offered by the general insurance companies, popular as


mediclaim policies? Advantages of Health insurance offered by Life insurer: Because of the long term nature of the plans, the policy holder can plan in advance his future medical/care expenses. But it is not so under General insurance. Since, the general insurance policies are subject to renewal every year, if the policy holder has been making several claims and is considered a risk, the general insurance company may deny renewal or renew it for a much higher premium. Advantages of Health insurance offered by General insurer: Though a lump sum amount is paid by life insurers and is of long term nature, this comes with a cost. They charge bigger premiums compare with the General insurers. In addition, most general insurance companies offer medical charges up to 30 days before a person is hospitalized and pay the claims if a person has been undergoing treatment at home - also called domiciliary hospitalization. The life insurers seem to lack this facility at this point in time.

Ageing health policy questions are now frequently raised in India. India has not yet found a clear,fair and adequate system for financing the growing demand for long-term care as the population ages. The migration of population for jobs and livelihood from rural areas to urban areas and between cities has led to the breaking down of the age old traditional “joint” or “extended” family system in India. This system provides a good supporting structure for the care of older persons by keeping families together, pooling financial resources and making family members available in case of need. This weakening in the traditional support systems for older people is expected to lead to a rapid increase in the demand for formal care provided by institutions such as nursing and residential homes and also services provided in the community. At present, there are no social schemes or federal or central government mechanisms for funding of health care for the aging population. The reliance is currently on private


sector, voluntary organizations and indigenous programs that deliver 80% of health care (the remainder is in the form of Government hospitals and Municipal corporations). The medical infrastructure to handle substantial number of older adults is lacking. There is no provision for organized long term care for chronically sick, except for the upper middle class and the rich who can afford to provide good care at home with some professional help. Hence, there is a need for innovative, cost effective health insurance products for senior citizens which cater effectively to their needs. LONG TERM CARE This paper focuses primarily on long-term care as the subject of long-term care (LTC) is receiving increasing attention both in the research community and by Government because of the belief that an ageing population will greatly swell the demand for long term care services and create huge public expense. One of the issues which need to be determined is by how much demand will increase; another is to address the ambiguity over whether long-term care is a response to a medical condition, a social need or both. The corollary is to decide how the burden is to be shared between the individual, the family and the state. Before going on to discussing what different nations are doing, it is essential we first appreciate the nature and significance of long-term health care. Long-term care is administered to people who have reached a stage in life in which they are dependent on others for social, personal and medical needs. It is usually associated with the very old, but, in fact, could begin at any age depending on the reasons for their disability – perhaps a road accident, a mental or a congenital condition. An important social objective for long-term care is to ensure that people are given the opportunity to choose where their care is delivered. Given that older people prefer to remain at home the availability and affordability of help to support this is crucial. Various countries have different insurance systems to cover LTC. India is acquainted


with short- term health schemes provided by non-life insurers and the government. The need of the hour in India, keeping in view the increasing tendency to opt for nuclear family system and increased longevity, is a comprehensive long term health care facility for all. If we look at most developed economies (a microcosm of which is discussed here below), we see that most of these nations have a working and workable LTC system for the benefit of its citizens, primarily the senior citizens. Experiences from other countries need to be studied, so that we can develop a model based on good innovations from various countries while keeping the realities of Indian health system.

1) GERMANY Mandatory long-term care (LTC) insurance was introduced throughout Germany at the beginning of 1995. Up to that date, long-term care had not been a public concern like pensions and health care. According to German law, children are obliged to support their parents in old age, to the degree that their own resources are sufficient. Only if family income and wealth has proved to be insufficient can the elderly may apply for income support.

Financing The German insurance is a Pay as you go (PAYG) system where risks are pooled and benefits are independent of earlier contributions. ‘Pay as You Go’ in which current contributors pay for current recipients of care.


One peculiarity of the LTC insurance component is that it has defined contributions and defined benefits at the same time. This means that total benefits and total contributions must match on average, and so far this requirement seems to have been met. All employees as well as individuals with some other kind of income have to be insured. In addition, voluntary insurance is offered to some groups. Employers and employees pay the same percentage of the wage. Retired people also contribute to the insurance. Civil servants since they are not part of the social health insurance programme are obliged to take up private insurance, and get part of the contribution paid by their employer. For people dependent on income support, the local authority concerned may choose between paying the contributions on behalf of the individuals concerned and taking the risk of having to pay for their care. Because it is a PAYG system, the LTC insurance has not been able to build up more than a small financial balance. According to the law, the balance must be sufficient to continue to make payments for 1.5 months; at the moment it is sufficient to cover three. Benefits It takes five years to qualify for benefits. Apart from that, the only qualifying requirement is the need for care, so benefits are paid independent of age. Three kinds of benefits are offered: professional domiciliary care, institutional care, and benefits in cash. Different kinds of benefits may also be combined. Benefits are not dependent on the income of the individual. People applying for benefits are examined by a doctor and then divided into three groups. The critical factors are the person’s ability to perform activities of daily living (ADL), together with the time that these activities are estimated to consume. Mental impairments are not taken into account. 2) JAPAN Since Japan became industrialized quite late, it also developed social security systems


slightly later than most other developed countries. Family patterns changed as traditional caring arrangements based on three-generation households and obligations on children to look after elderly parents showed signs of breaking down. In 1997, following a long discussion, a mandatory long-term care insurance was passed in the Japanese parliament. Financing The LTC insurance is financed by 50 % from taxes and by 50 % from insurance premiums. The tax revenues are collected by 50 % from national taxes, and local and regional taxes contribute with 25 % each. Premiums are collected from people aged 40 years and over. Family members are automatically covered. For the elderly, premiums are deducted from pensions. These premiums are also incomeRelated The LTC insurance is administered by municipalities. Benefits Eligibility for benefits from the LTC insurance is solely based on need. Thus, the financial position and family structure of the insured are not taken into account. The LTC insurance covers institutional as well as home-based care, and clients in all categories except the least needy may choose between them. There are three kinds of institutions: former social service nursing homes, formerly health- insurance financed homes for elderly and medical nursing care facilities. Home care services included are nursing care, rehabilitation, medical advice and various community services. Unlike the German system there are no cash benefits provided in the scheme. When the private LTC insurance was introduced, several large for-profit corporations made huge investments in home services in the anticipation of increased demand due to the increased freedom to choose providers. However, recipients have proved to be more conservative than expected, and stayed with their former providers. This has incurred


some losses on private corporations offering home care. 3) UNITED STATES The United States had a quite ambitious social welfare programme for elderly already around the turn of the twentieth century. At this time, more than one quarter of federal expenditure was dedicated to pensions for Civil War veterans and their families. Long-term care makes up a small but increasing part of public spending in the United States. Financing In the United States, funds for health and long-term care for elderly is provided from public as well as private sources. Public funding is based on Medicaid and Medicare programmes, whilst the private element consists of private insurance as well as out ofpocket payments Medicaid is a tax-based programme designed for low-income earners. It covers hospital care as well as home care. Even if the Medicaid programme was not originally designed to concentrate on help for the elderly, it has evolved into an important pillar for longterm care financing Medicare is a national social insurance programme. Contributions are paid either as ‘Medicare tax’ while working, or by continuing to pay premiums after retirement. Medicare compensates nursing home costs if the insured has been treated in a hospital for at least three days. Medicare only reimburses costs for doctors’ and nurses’ services. Home care is only provided if the client needs skilled nursing care and is homebound. However, for clients meeting the requirements, personal care services may be provided as well. Medicare home services are provided for free In recent years, a private market for long-term care insurance has emerged in the United


States. Private insurance companies – there are more than 100 of them – offer complementary insurance for costs related to long-term care. The insurance products are designed for cases where benefits from Medicare have been exhausted, and where the insured is not entitled to Medicaid benefits. Insurance is voluntary, and has normally been taken out individually. Before signing up, the policyholder goes through a medical examination. The insurance company also requests information regarding the customer’s consumption of medical services, his or her lifestyle and physical or mental disabilities, if any. Contributions are based on these data, and sometimes they become prohibitively high. Estimates show that as much as 20 % of the elderly population would be refused long term care insurance. Benefits Benefits offered by private long-term insurance policies vary. Some only include nursing home care, whereas others only cover home care. Typically, only care given by nurses or doctors is covered. Normally, policies offer a fixed per diem compensation if care is needed. Benefits are paid for a limited time; e.g. five years or remaining life years The financing of LTC is a very topical issue in the United States. Weaknesses in the existing system have received particular attention, and there is widespread concern that LTC may become more problematic under the burden of ageing.

4) United Kingdom The main principle of the British LTC system as it evolved during the post-war era was that local authorities provided care in residential homes, whereas the NHS took care of particularly frail people.


Financing In the UK there are two main sources of LTC funding (apart from consumers themselves), namely local authorities and the NHS. Local authorities are responsible for the bulk of public spending on LTC, and their share has increased in the last few years. Local authorities have two main sources of funding - government grants and council taxes. Government grants are decided annually by the central government and then distributed to the individual authorities according to a resource allocation formula. Since 1991, there is also a market for private LTC insurance that is growing slowly The first private insurance policies for LTC costs were introduced in 1991 and there is now a wide variety of policies offered on the market. There are two main types of insurance on offer. The first one is pre-funded plans that are purchased by healthy people to protect them against future costs of LTC. The other type is ‘immediate needs’ plans that are purchased by people that are already disabled to insure the risk of uncertain survival duration. The payment of pre- funded benefits is normally conditioned on failure of a certain number of ADL:s and not on personal circumstances – such as whether the client lives at home or in an institution. Maximum benefits are normally limited. Benefits State financing covers residential as well as domiciliary care. Local authorities are obliged to provide assessment of need by a case manager. The case manager suggests a package of services appropriate for the client in question. The majority of care is provided in the person’s own home. Home care is defined as services which assist the client to function as independently as possible and/or continue to live in their own home. Services may involve routine household tasks within or outside the home, personal care of the client or respite care in support of the client’s regular careers.


Institutional care is provided in several different kinds of homes. The predominant ones are nursing homes and residential homes. Residential homes provide board and personal care only, whereas nursing homes also provide daily nursing care and thus are more targeted at people with severe disability. In the last decade, there has been a steady increase in the number of dual homes, providing both residential and nursing care. The system for financing and provision in the United Kingdom has been criticized on several grounds. For example, it has been accused of offering poor co-ordination between different financing bodies and thus providing incentives for cost shifting.

Furthermore, there has been broad agreement that the system is unfair since it penalizes savers and fails to offer comprehensive coverage despite the fact that public financing is universal through the tax system.

From figure 1 it can be seen that the expenditure on health as a % of GDP is only 5% in India which is much lower than that of developed countries but is comparable with China. Considering that India is one of the rapidly growing economies, the share of Health in GDP is quite low. This may be attributed to lack of awareness in general population of


health schemes and not understanding the significance of health protection. Industry sources estimate that health care spending in India will increase by around 12% annually over today’s value of US$23 billion (roughly 5.2% of GDP).

From figures 2 & 3 it can be seen that general government expenditure on health as % of total expenditure on health and as a % of total government expenditure is much lower than even China. This shows that in India, Private health Expenditure dominates Government expenditure. The government funds allocated to health care sector have always been low in relation to the population of the country.

We see that Government of India has earmarked a meager 3% of total expenses on Health This may be understandable considering that we have very less social-security schemes in place. This is another sad observation considering that India’s is second most populated country in the world with the maximum of people below the poverty line. More focus on


infrastructure development during the recent times may be the reason. Alternatively, indirect support coming from private schemes can be a reason too. A more active penetration into the rural areas can improve the percentage over time

Social security expenditure is also much lower compared to other countries except UK This Chart can be interpreted in conjunction with Figure 2 above.This may be due the bottlenecks we discussed above on Government Schemes.


This can be justified keeping in view the nascent stage of insurance industry in India which is steadily yet confidently picking up. However, rural awareness and utilization of these schemes are still disappointing. Over 80% of health financing is private financing, much of which is out of pocket payments and not by any pre-payment schemes. With insurance industry opening up and non-life sector being detariffed, we can hope to see an influx of many competitive products in the near future. Given the health financing and demand scenario, health insurance has a wider scope in present day situation in India. However, it requires careful and significant efforts to tap Indian health insurance market with proper understanding and training 2.29.IMPLICATIONS OF PRIVATIZATION ON HEALTH INSURANCE The privatization of insurance sector and constitution of IRDA envisage improving the performance of state insurance sector in the country by increasing benefits from competition in terms of lowered costs and increased level of consumer satisfaction. However, the implications of the entry of private insurance companies in health sector are not very clear. There are several contentious issues pertaining to development in this sector and these need critical examination. Role of private insurance varies depending on the economic, social and institutional settings in a country or a region. Critics of private insurance argue that privatization will divert scarce resources away form the pool, escalate health costs, allow cream skimming and adverse selection.


According to this view, private health insurance largely neglects the social aspect of health protection. In the contrast, supporters of private health insurance claim that private insurance can bridge financing gaps by offering consumers value for money and help them avoid waiting lines, low quality care and under the table payments-problems often observed when households can use public health facilities for free or participate in mandatory social insurance schemes. Both the arguments are correct in the sense, private health insurance can be valuable tool to compliment or supplement existing health financing options only if they are carefully managed and adapted to local needs and preferences. India, with relatively developed economy and a strong middle class population, offers most promising environment for private health insurance development. Currently, private health insurance plays only a marginal role in health care systems but it is gradually gaining importance. Private health insurance is certainly not the only alternative or the ultimate solution to address alarming health care challenges in India. However, it is an option that warrantsand already receives-growing consideration by policy makers in the country. Thus the question is not if this tool will be used in the future but whether it will be applied to the best of its potential to serve the needs of the country’s health care system.






RESEARCH METHODOLOGY To be able to estimate the reliability of a report, the methods which it is based upon have


to be considered. Hence, this third chapter, methodology, will give the reader an insight into my research process, selection and data collection.

My work began with a literature study, followed by preparation for my data collection. My data collection included the detail about various health insurance companies and their schemes, which I analyzed. I drew conclusions from the analysis which gave me an answer to our purpose. The different steps are separately presented below under corresponding headlines.

3.2. LITRATURE STUDY: The first part of the work with our dissertation was to carry out a literature study. I began with a preliminary treatment of the literature. 3.3. HOW TO FIND RIGHT LITRATURE: To be able to see which direction we wanted our empiric study to take we began by considering the subject of the Indian Insurance Sector. To get the essential information for the frame of reference I carried out a literature study,concentrating on relevant books and articles. The literature was of scientific character and mainly concerned the topics like insurance sector in India, role of health insurance,benefits of health insurance,history and current scenario of health sector in India. In addition to the books, I used articles from various well known journals.

A preliminary literature treatment After acquiring literature needed, it can be beneficial to prioritize them and make


organized notes of the content before starting the work of the frame of references.I used Patel & Davidson’s (1994) ideas of organizing the literature before carrying out the actual text. Prioritizing the literature was followed by a thorough review of the highly prioritized books. I made this by making a document each for all the literature with the highest rating. In the documents I specified the main context,their angle of approach and for which areas in our frame of reference it could be of interest. By doing this, we facilitated the organization and production of the frame of reference. When writing, one often realizes what information is lacking, what possibilities the results actually give and what thoughts can be connected to them. Therefore, Johansson & Svedner (1998) suggest that a draft should be made as soon as possible since it stimulates the work and thinking of the researcher. Keep a critical mind I have tried to keep a critical approach to the theories and to get different angels on all areas of interest in the process of change while reviewing the literature. Knowledge critique is a way of adapting logical thoughts according to Eriksson & Wiedersheim-Paul (1999). I ma aware that caution should be taken when using consultant literature since it intends to be uncritical and written in a selling way. .

The data collected for this project is basically secondary data which is collected from Journal, Magzines, Internet and Books.As it is really a very difficult task to take views of higher authorities of any company in such a less time and analyse their reponses.



4.1. Health Insurance in India Opportunities, Challenges and Concerns Health Insurance Health insurance in a narrow sense would be ‘an individual or group purchasing health


care coverage in advance by paying a fee called premium.’ In its broader sense, it would be any arrangement that helps to defer, delay, reduce or altogether avoid payment for health care incurred by individuals and households. Given the appropriateness of this definition in the Indian context, this is the definition, we would adopt. The health insurance market in India is very limited covering about 10% of the total population. The existing schemes can be categorized as:  Voluntary health insurance schemes or private-for-profit schemes;  Employer-based schemes;  Insurance offered by NGOs / community based health insurance, and  Mandatory health insurance schemes or government run schemes (namely ESIS, CGHS). 4.2. Voluntary health insurance schemes or private-for-profit schemes In private insurance, buyers are willing to pay premium to an insurance company that pools people with similar risks and insures them for health expenses. The key distinction is that the premiums are set at a level, which provides a profit to third party and provider institutions. Premiums are based on an assessment of the risk status of the consumer (or of the group of employees) and the level of benefits provided, rather than as a proportion of the consumer’s income. In the public sector, the General Insurance Corporation (GIC) and its four subsidiary companies (National Insurance Corporation, New India Assurance Company, Oriental Insurance Company and United Insurance Company) and the Life Insurance Corporation (LIC) of India provide voluntary insurance schemes. The Life Insurance Corporation offers Ashadeep Plan II and Jeevan Asha Plan II. The General Insurance Corporation offers Personal Accident policy, Jan Arogya policy, Raj Rajeshwari policy, Mediclaim policy, Overseas Mediclaim policy, Cancer Insurance policy, Bhavishya Arogya policy and Dreaded Disease policy (Srivastava 1999 as quoted in Bhat R & Malvankar D, 2000)


Of the various schemes offered, Mediclaim is the main product of the GIC. The Medical Insurance Scheme or Mediclaim was introduced in November 1986 and it covers individuals and groups with persons aged 5 – 80 yrs. Children (3 months – 5 yrs) are covered with their parents. This scheme provides for reimbursement of medical expenses (now offers cashless scheme) by an individual towards hospitalization and domiciliary hospitalization as per the sum insured. There are exclusions and pre-existing disease clauses. Premiums are calculated based on age and the sum insured, which in turn varies from Rs 15 000 to Rs 5 00 000. In 1995/96 about half a million Mediclaim policies were issued with about 1.8 million beneficiaries (Krause Patrick 2000). The coverage for the year 2000-01 was around 7.2 million. Another scheme, namely the Jan Arogya Bima policy specifically targets the poor population groups. It also covers reimbursement of hospitalization costs up to Rs 5 000 annually for an individual premium of Rs 100 a year. The same exclusion mechanisms apply for this scheme as those under the Mediclaim policy. A family discount of 30% is granted, but there is no group discount or agent commission. However, like the Mediclaim, this policy too has had only limited success. The Jan Arogya Bima Scheme had only covered 400 000 individuals by 1997. The year 1999 marked the beginning of a new era for health insurance in the Indian context. With the passing of the Insurance Regulatory Development Authority Bill (IRDA) the insurance sector was opened to private and foreign participation, thereby paving the way for the entry of private health insurance companies. The Bill also facilitated the establishment of an authority to protect the interests of the insurance holders by regulating, promoting and ensuring orderly growth of the insurance industry. The bill allows foreign promoters to hold paid up capital of up to 26 percent in an Indian company and requires them to have a capital of Rs 100 crore along with a business plan to begin its operations.Currently, a few companies such as Bajaj Alliance, ICICI, Royal Sundaram, and Cholamandalam among others are offering health insurance schemes. The nature of schemes offered by these companies is described briefly.


 Bajaj Allianz: Bajaj Alliance offers three health insurance schemes namely, Health Guard, Critical Illness Policy and Hospital Cash Daily Allowance Policy. - The Health Guard scheme is available to those aged 5 to 75 years (not allowing entry for those over 55 years of age), with the sum assured ranging from Rs 100 0000 to 500 000. It offers cashless benefit and medical reimbursement for hospitalization expenses (pre-and post-hospitalization) at various hospitals across India (subject to exclusions and conditions). In case the member opts for hospitals besides the empanelled ones, the expenses incurred by him are reimbursed within 14 working days from submission of all the documents. While pre-existing diseases are excluded at the time of taking the policy, they are covered from the 5th year onwards if the policy is continuously renewed for four years and the same has been declared while taking the policy for the first time. Other discounts and benefits like tax exemption, health check-up at end of four claims free year, etc. can be availed of by the insured. - The Critical Illness policy pays benefits in case the insured is diagnosed as suffering from any of the listed critical events and survives for minimum of 30 days from the date of diagnosis. The illnesses covered include: first heart attack; Coronary artery disease requiring surgery: stroke; cancer; kidney failure; major organ transplantation; multiple sclerosis; surgery on aorta; primary pulmonary arterial hypertension, and paralysis. While exclusion clauses apply, premium rates are competitive and high-sum insurance can be opted for by the insured. - The Hospital Cash Daily Allowance Policy provides cash benefit for each and every completed day of hospitalization, due to sickness or accident. The amount payable per day is dependant on the selected scheme. Dependant spouse and children (aged 3 months – 21years) can also be covered under the Policy. The benefits payable to the dependants are linked to that of insured. The Policy pays for a maximum single hospitalization period of 30 days and an overall hospitalization period of 30/60 completed days per policy period per person regardless of the number of confinements to hospital/nursing home per policy period.


 ICICI Lombard: ICICI Lombard offers Group Health Insurance Policy. This policy is available to those aged 5 – 80 years, (with children being covered with their parents) and is given to corporate bodies, institutions, and associations. The sum insured is minimum Rs 15 000/- and a maximum of Rs 500 000/-. The premium chargeable depends upon the age of the person and the sum insured selected. A slab wise group discount is admissible if the group size exceeds 100. The policy covers reimbursement of hospitalization expenses incurred for diseases contracted or injuries sustained in India. Medical expenses up to 30 days for Pre-hospitalization and up to 60 days for post-hospitalization are also admissible. Exclusion clauses apply. Moreover, favourable claims experience is recognized by discount and conversely, unfavourable claims experience attracts loading on renewal premium. On payment of additional premium, the policy can be extended to cover maternity benefits, pre-existing diseases, and reimbursement of cost of health check-up after four consecutive claims-free years.

 Max New York Life Insurance: The leading private life insurance company Max New York Life Insurance Company Ltd. has launched 'lifeline' - a health insurance product on Wednesday, 5th March 2008, across India. Now, the company can boast of offering complete health and life insurance products across ll regions in India. This newly launched health insurance product of Max New York Life Insurance Company offers three groups of heath insurance solutions. The Director Marketing Product Management and Corporate Affairs of Max New York Life Insurance said that these three distinct heath insurance products are meant to cover eventualities like hospitalization, surgery and critical illness of the insured. He points out that these plans have been structured with features like coverage for a wide range of ailments, no claim discount on revised premium for a healthy life, a fixed premium for a five-year term, free second opinion from the best health care institutions of India on detection of illness. Further, it also has


provision for a free telephonic medical helpline across India. The hospitalization - is covered by "Medicash plan", which is meant to provide a fixed amount of cash benefit on a day-to-day basis during the entire period of hospitalization of the insured. The Medicash plan would also cover expenses for admission in ICU, lump sum benefits against an unlimited number of surgeries and recuperation benefits. The second plan of the newly launched health insurance of Max New York Life Insurance, is the "Wellness Plan", which is a more attractive one and covers 'critical illness' like cancer, alzheimers, heart ailments, liver disease, deafness, permanent disability, etc. The Wellness plan covers thirty eight critical illnesses, which is the highest number of illness covered under one insurance plan in India by any insurance company. The third health insurance policy of Max New York Life Insurance is a term plus health protection plan known as "Safety Net". This provides coverage to the insured person for any losses incurred by him/her in eventualities like critical illness, accident, disability and death. With 21 lakh life insurance policies and with an assured sum of Rs 62,000 crores in its kitty Max Life Insurance wishes to achieve business at least five percent higher than it did in the last financial year. The company also announced that it would go for an expansion drive and would also increase the number of branch offices in Tamil Nadu within the fiscal year 2008-2009. Max New York Life Insurance Company is one of the fastest growing life insurance companies in India and is the first life insurance company of India to be awarded with ISO 9001:2000 certification. This Rs 907.4 crores insurance company is one of the most respected companies in India. After making strong inroads into the Indian life insurance market with a strong product portfolio the company is expected to do well with its new product line in the Indian health insurance sector as well.


 Royal Sundaram Group: The Shakthi Health Shield policy offered by the Royal Sundaram group can be availed by members of the women’s group, their spouses and dependent children. No age limits apply. The premium for adults aged up to 45 years is Rs 125 per year, for those aged more than 45 years is Rs 175 per year. Children are covered at Rs 65 per year. Under this policy, hospital benefits up to Rs 7 000 per annum can be availed, with a limit per claim of Rs 5 000. Other benefits include maternity benefit of Rs 3 000 subject to waiting period of nine months after first enrolment and for first two children only. Exclusion clauses apply (Ranson K & Jowett M, 2003)  Cholamandalam General Insurance: The benefits offered (in association with the Paramount Health Care, a re-insurer) in case of an illness or accident resulting in hospitalization, are cash-free hospitalization in more than 1 400 hospitals across India, reimbursement of the expenses during pre- hospitalization (60 days prior to hospitalization) and post- hospitalization (90 days after discharge) stages of treatment. Over 130 minor surgeries that require less than 24 hours hospitalization under day care procedure are also covered. Extra health covers like general health and eye examination, local ambulance service, hospital daily allowance, and 24 hours assistance can be availed of.Exclusion clauses apply.  Employer-based schemes:Employers in both the public and private sector offers employer-based insurance schemes through their own employer-managed facilities by way of lump sum payments, reimbursement of employee’s health expenditure for outpatient care and hospitalization, fixed medical allowance, monthly or annual irrespective of actual expenses, or covering them under the group health insurance policy. The railways, defence and security forces, plantations sector and mining sector provide medical services and / or benefits to its own employees. The population coverage under these schemes is minimal, about 30-50 million people.


4.3. Insurance offered by NGOs / community-based health insurance Community-based funds refer to schemes where members prepay a set amount each year for specified services. The premia are usually flat rate (not income-related) and therefore not progressive. Making profit is not the purpose of these funds, but rather improving access to services. Often there is a problem with adverse selection because of a large number of high-risk members, since premiums are not based on assessment of individual risk status. Exemptions may be adopted as a means of assisting the poor, but this will also have adverse effect on the ability of the insurance fund to meet the cost of benefits. Community-based schemes are typically targeted at poorer populations living in communities, in which they are involved in defining contribution level and collecting mechanisms, defining the content of the benefit package, and / or allocating the schemes, financial resources (International Labour Office Universities Programme 2002 as quoted in Ranson K & Acharya A, 2003). Such schemes are generally run by trust hospitals or nongovernmental organizations (NGOs). The benefits offered are mainly in terms of preventive care, though ambulatory and in-patient care is also covered. Such schemes tend to be financed through patient collection, government grants and donations. Increasingly in India, CBHI schemes are negotiating with the for- profit insurers for the purchase of custom designed group insurance policies. However, the coverage of such schemes is low, covering about 30-50 million (Bhat, 1999). A review by Bennett, Cresse et al. (as quoted in Ranson K & Acharya A, 2003) indicates that many community-based insurance schemes suffer from poor design and management, fail to include the poorestof-the- poor, have low membership and require extensive financial support. Other issues relate to sustainability and replication of such schemes.

Some examples of community-based health insurance schemes are discussed herein.


 Self-Employed Women’s Association (SEWA), Gujarat: This scheme established in 1992, provides health, life and assets insurance to women working in the informal sector and their families. The enrolment in the year 2002 was 93 000. This scheme operates in collaboration with the National Insurance Company (NIC). Under SEWA’s most popular policy, a premium of Rs 85 per individual is paid by the woman for life, health and assets insurance. At an additional payment of Rs 55, her husband too can be covered. Rs 20 per member is then paid to the National Insurance Company (NIC) which provides coverage to a maximum of Rs 2 000 per person per year for hospitalization. After being hospitalized at a hospital of one’s choice (public or private), the insurance claim is submitted to SEWA. The responsibility for enrolment of members, for processing and approving of claims rests with SEWA. NIC in turn receives premiums from SEWA annually and pays them a lumpsum on a monthly basis for all claims reimbursed. (Ranson K & Acharya A, 2003).  Another CBHI scheme located in Gujarat, is that run by the Tribhuvandas Foundation (TF), Anand. This was established in 2001,with the membership being restricted to members of the AMUL Dairy Cooperatives. Since then, over 1 00 000 households have been enrolled under this scheme, with the TF functioning as a third party insurer.  The Mallur Milk Cooperative in Karnataka established a CBHI scheme in 1973. It covers 7 000 people in three villages and outpatient and inpatient health care are directly provided.  A similar scheme was established in 1972 at Sewagram, Wardha in Maharashtra. This scheme covers about 14 390 people in 12 villages and members are provided with outpatient and inpatient care directly by Sewagram.  The Action for Community Organization, Rehabilitation and Development (ACCORD), Nilgiris, Tamil Nadu was established in 1991. Around 13 000 65

Adivasis (tribals) are covered under a group policy purchased from New India Assurance.  Another scheme located in Tamil Nadu is Kadamalai Kalanjia Vattara Sangam (KKVS), Madurai. This was established in 2000 and covers members of women’s self-help groups and their families. Its enrolment in 2002 was around 5 710, with the KKVS functioning as a third party insurer.  The Voluntary Health Services (VHS), Chennai, Tamil Nadu was established in 1963. It offers sliding premium with free care to the poorest. The benefits include discounted rates on both outpatient and inpatient care, with the VHS functioning as both insurer and health care provider. In 1995, its membership was 124 715. However, this scheme suffers from low levels of cost recovery due to problems of adverse selection.  Raigarh Ambikapur Health Association (RAHA), Chhatisgarh was established in 1972, and functions as a third party administrator. Its membership in the year 1993 was 72 000.

4.4. Social Insurance or mandatory health insurance schemes or government run schemes (namely the ESIS, CGHS) Social insurance is an earmarked fund set up by government with explicit benefits in return for payment. It is usually compulsory for certain groups in the population and the premiums are determined by income (and hence ability to pay) rather than related to health risk. The benefit packages are standardized and contributions are earmarked for spending on health services The government-run schemes include the Central Government Health Scheme (CGHS) and the Employees State Insurance Scheme (ESIS).  Central Government Health Scheme (CGHS) Since 1954, all employees of the Central Government (present and retired); some 66

autonomous and semi-government organizations, MPs, judges, freedom fighters and journalists are covered under the Central Government Health Scheme (CGHS). This scheme was designed to replace the cumbersome and expensive system of reimbursements (GOI, 1994). It aims at providing comprehensive medical care to the Central Government employees and the benefits offered include all outpatient facilities, and preventive and promotive care in dispensaries. Inpatient facilities in government hospitals and approved private hospitals are also covered. This scheme is mainly funded through Central Government funds, with premiums ranging from Rs 15 to Rs 150 per month based on salary scales. The coverage of this scheme has grown substantially with provision for the non-allopathic systems of medicine as well as for allopathy. Beneficiaries at this moment are around 432 000, spread across 22 cities. The CGHS has been criticized from the point of view of quality and accessibility. Subscribers have complained of high out-of-pocket expenses due to slow reimbursement and incomplete coverage for private health care (as only 80% of cost is reimbursed if referral is made to private facility when such facilities are not available with the CGHS).  Employee and State Insurance Scheme (ESIS) The enactment of the Employees State Insurance Act in 1948 led to formulation of the Employees State Insurance Scheme. This scheme provides protection to employees against loss of wages due to inability to work due to sickness, maternity, disability and death due to employment injury. It offers medical and cash benefits, preventive and promotive care and health education. Medical care is also provided to employees and their family members without fee for service. Originally, the ESIS scheme covered all power-using non-seasonal factories employing 10 or more people. Later, it was extended to cover employees working in all non-power using factories with 20 or more persons. While persons working in mines and plantations, or an organization offering health benefits as good as or better than ESIS, are specifically excluded. Service establishments like shops, hotels, restaurants, cinema houses, road transport and news papers printing are now covered. The monthly wage limit for enrolment in the ESIS is Rs. 6 500, with a prepayment contribution in the form of a payroll tax of 1.75% by employees, 4.75% of


employees' wages to be paid by the employers, and 12.5% of the total expenses are borne by the state governments. The number of beneficiaries is over 33 million spread over 620 ESI centres across states. Under the ESIS, there were 125 hospitals, 42 annexes and 1 450 dispensaries with over 23 000 beds facilities. The scheme is managed and financed by the Employees State Insurance Corporation (a public undertaking) through the state governments, with total expenditure of Rs 3 300 million or Rs 400/- per capita insured person. The ESIS programme has attracted considerable criticism. A report based on patient surveys conducted in Gujarat (Shariff, 1994 as quoted in Ellis R et a, 2000) found that over half of those covered did not seek care from ESIS facilities. Unsatisfactory nature of ESIS services, low quality drugs, long waiting periods, impudent behaviour of personnel, lack of interest or low interest on part of employees and low awareness of ESI procedures, were some of the reasons cited.  Other Government Initiatives Apart from the government-run schemes, social security benefits for the disadvantaged groups can be availed of, under the provisions of the Maternity Benefit (Amendment) Act 1995, Workmen’s Compensation (Amendment) Act 1984, Plantation Labour Act 1951, Mine Mines Labour Welfare Fund Act 1946, Beedi Workers Welfare Fund Act 1976 and Building and other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996. The Government of India has also undertaken initiatives to address issues relating to access to public health systems especially for the vulnerable sections of the society. The National Health Policy 2002 acknowledges this and aims to evolve a policy structure, which reduces such inequities and allows the disadvantaged sections of the population a fairer access to public health services. Ensuring more equitable access to health services across the social and geographical expanse of the country is the main objective of the policy. It also seeks to increase the aggregate public health investment through increased contribution from the Central as well as state governments and encourages the setting up


of private insurance instruments for increasing the scope of coverage of the secondary and tertiary sector under private health insurance packages. The government envisages an increase in health expenditure as a % of GDP from existing 0.9% to 2.0 % by 2010 and an increase in the share of central grants from the existing 15% to constitute at least 25% of total public health spending by 2010. The State government spending for health in turn would increase from 5.5% to 7% of the budget by 2005, to be further increased to 8% by 2010. The National Population Policy (NPP) 2000, envisages the establishment of a family welfare-linked health insurance plan. As per this plan, couples living below the poverty line who undergo sterilization with not more than two living children would be eligible for insurance. Under this scheme, the couple along with their children would be covered for hospitalization not exceeding Rs 5 000 and a personal accident insurance cover for the spouse undergoing sterilization. The Institute of Health Systems (IHS), Hyderabad has been entrusted the responsibility of operationalizing the mandate of the NPP 2000. The initial scheme proposed by the HIS was discussed at a workshop in June 2003. The consensus at the meeting was that the scheme, needed further improvement prior to its implementation even as a pilot project. In keeping with the recommendations of the Tenth Five Year Plan and the National Health Policy (NHP) 2002, the Department of Family Welfare is also proposing to commission studies in eight states covering eight districts, to generate district-specific data, which is essential for conceptualization of a reasonable and financially viable insurance scheme. The current plan – the Tenth Five Year Plan (2002-07) - also focuses on exploring alternative systems of health care financing including health insurance so that essential, need-based and affordable health care is available to all. The urgent need to evolve, implement and evaluate an appropriate scheme for health financing for different income groups is acknowledged. In the past, the government has tried to ensure that the poor get access to private health facilities through subsidy in the form of duty exemptions and


other such benefits. Social health insurance for families living below the poverty line has been suggested as a mechanism for reducing the adverse economic consequences of hospitalization and treatment for chronic ailments requiring expensive and continuous care. In the budget for the year 2002-2003, an insurance scheme called Janraskha was introduced, with the aim of providing protection to the needy population. With a premium of Re 1/- per day, it ensured indoor treatment up to Rs 3 000 per year at selected and designated hospitals and outpatient treatment up to Rs 2 000 per year at designated clinics, including civil hospitals, medical colleges, private trust hospitals and other NGO-run institutions. A few states have started implementing this scheme under pilot phase. In the budget for the period 2003-2004, another initiative of community-based health insurance has been announced. This scheme aims to enable easy access of less advantaged citizens to good health services, and to offer health protection to them. This policy covers people between the age of three months to 65 years. Under this scheme, a premium equivalent to Re 1 per day (or Rs 365 per year) for an individual, Rs 1.50 per day for a family of five (or Rs 548 per year), and Rs 2 per day for a family of seven (or Rs 730 per year), would entitle them to get reimbursement of medical expenses up to Rs 30 000 towards hospitalization, a cover for death due to accident for Rs 25000 and compensation due to loss of earning at the rate of Rs 50 per day up to a maximum of 15 days. The government would contribute Rs 100 per year towards the annual premium, so as to ensure the affordability of the scheme to families living below the poverty line. The implementation of this scheme rests with the four public sector insurance companies. The government also offers assistance by way of Illness Assistance Funds, which have been set up by the Ministry of Health and Family Welfare at the national level and in a few states. State Illness Assistance Funds exist in Andhra Pradesh, Bihar, Goa, Gujarat, Himachal Pradesh, Jammu and Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Mizoram, Rajasthan, Sikkim, Tamil Nadu, Tripura, West Bengal, NCT of Delhi and UT of Pondicherry. A National Illness Assistance Fund (NIAF) was set up in 1997, with the scheme being reviewed in January 1998. Through this, three Central


Government hospitals and three national-level institutes have been sanctioned Rs 10 00 000 each at a time from the NIAF to provide immediate financial assistance to the extent of Rs 25 000 per case to poor patients living below the poverty line and who are undergoing treatment in these hospitals / institutions. Thereafter the scheme has been extended to few other institutes across the country and provides Rs 25 000 – Rs 50 000 per case. 4.5. Health insurance initiatives by State Governments In the recent past, various state governments have begun health insurance initiatives. For instance, the Andhra Pradesh government is implementing the Aarogya Raksha Scheme since 2000, with a view to increase the utilization of permanent methods of family planning by covering the health risks of the acceptors. All people living below the poverty line and those who accept permanent methods of family planning are eligible to be covered under this scheme. The Government of Andhra Pradesh pays a premium of Rs 75 per acceptor. The benefits to be availed of, include hospitalization costs up to Rs. 4000 per year for the acceptor and for his / her two children for a total period of five years from date of the family planning operation. The coverage is for common illnesses and accident insurance benefits are also offered. The hospital bill is directly reimbursed by the Insurance Company, namely the New India Assurance Company. The Government of Goa along with the New India Assurance Company in 1988 developed a medical reimbursement mechanism. This scheme can be availed by all permanent residents of Goa with an income below Rs 50 000 per annum for hospitalization care, which is not available within the government system. The nonavailability of services requires certification from the hospital Dean or Director Health Services. The overall limit is Rs 30 000 for the insured person for a period of one year. A pilot project on health insurance was launched by the Government of Karnataka and the UNDP in two blocks since October 2002. The aim of the project was to develop and test a model of community health financing suited for rural community, thereby increasing the access to medical care of the poor. The beneficiaries include the entire population of these blocks. The premium is Rs 30 per person per year, with the


Government of Karnataka subsidizing the premium of those below poverty line and those belonging to Scheduled Castes/ Scheduled Tribes. This premium entitles them to hospitalization coverage in the government hospitals up to a maximum of Rs 2 500 per year, including hospitalization for common illnesses, ambulance charges, loss of wages at Rs. 50 per day as well as drug expenses at Rs 50 per day. Reimbursements are made to an insurance fund which has been set up by the NGO / PRI with the support of UNDP. The Government of Kerala is planning to launch a pilot project of health insurance for the 30% families living below the poverty line. The scheme would be associated with a government insurance company. Currently, negotiations are under way with the IRA to seek service tax exemption. The proposed premium is Rs 250 plus 5% tax. The maximum benefit per family would be Rs 20 000. The amount for the premium would be recovered from the drug budget (Rs 100), the PRI (Rs 100) and from the beneficiary (Rs 62.50) while the benefits available would include cover for hospitalization, deliveries involving surgical procedures (either to the mother or the newborn). Instead of payment by the beneficiary, Smart Card facility would be offered. This scheme would be applicable in 216 government hospitals.

The preceding sections of this paper present the health insurance scenario in India. Given


the situation, there are few issues of concern or barriers towards implementing a social health insurance scheme in India. These are enumerated below along with the possible way ahead. India is a low-income country with 26% population living below the poverty line, and 35% illiterate population with skewed health risks. Insurance is limited to only a small proportion of people in the organized sector covering less than 10% of the total population. Currently, there no mechanism or infrastructure for collecting mandatory premium among the large informal sector. Even in terms of the existing schemes, there is insufficient and inadequate information about the various schemes. Data gaps also prevail. Much of the focus of the existing schemes is on hospital expenses. There continues to be lack of awareness among people about health insurance. In spite of existing regulation in some States, the private sector continues to operate in an almost unhindered manner. The growth of health insurance increases the need for licensing and regulating private health providers and developing specific criteria to decide upon appropriate services and fees.Health insurance per se, suffers from problems like adverse selection, moral hazard, cream-skimming and high administrative costs. This is coupled with the fact that in the absence of any costing mechanisms, there is difficulty in calculating the premium. There is also a need to evolve criteria to be used for deciding upon target groups, who would avail of the SHI scheme/s and also to address issues relating to whether indirect costs would be included in health insurance. Health insurance can improve access to good quality health care only if it is able to provide for health care institutions with adequate facilities and skilled personnel at affordable cost. Given this scenario, the challenge, then, for Indian policy-makers is to find ways to improve upon the existing situation in the health sector and to make equitable, affordable and quality health care accessible to the population, especially the poor and the vulnerable sections of the society. It is in a way inevitable that the state reforms its public health delivery system and explores other social security options like health insurance. Implementing regulations would be one, but by no means the best mechanism to contain


provider behaviour and costs. This can only be done by developing mechanisms where government and households can together pool their funds. This could be one way of controlling provider behaviour. There is an urgent need to document global and Indian experiences in social health insurance. Different financing options would need to be developed for different target groups. The wide differentials in the demographic, epidemiological status and the delivery capacity of health systems are a serious constraint to a nationally mandated health insurance system. Given the heterogeneity of different regions in India and the regional specifications, one would need to undertake pilot projects to gather more information about the population to be targeted under an insurance scheme and develop options for different population groups. Health policy-makers and health systems research institutions, in collaboration with economic policy study institutes, need to gather information about the prevailing disease burden at various geographical regions; to develop standard treatment guidelines, to undertake costing of health services for evolving benefit packages to determine the premium to be levied and subsidies to be given; and to map health care facilities available and the institutional mechanisms which need to be in place, for implementing health insurance schemes. Skill- building for the personnel involved, and capacity-building of all the stakeholders involved, would be a critical component for ensuring the success of any health insurance programme. The success of any social insurance scheme would depend on its design,the implementation and monitoring mechanisms which would be set in place and it would also call for restructuring and reforming the health system, and developing the necessary prerequisites to ensure its success.


Health insurance is like a knife. In the surgeon’s hand it can save the patient, while in the 74

hands of the quack, it can kill. Health insurance is going to develop rapidly in future. The main challenge is to see that it benefits the poor and the weak in terms of better coverage and health services at lower costs without negative aspects of cost increase and overuse of procedures and technology in provision of health care. In India has limited experience of health insurance. Given that government has liberalized the insurance industry, health insurance is going to develop rapidly in future. The challenge is to see that it benefits the poor and the weak in terms of better coverage and health services at lower costs without the negative aspects of cost increase and over use of procedures and technology in provision of health care. The experience from other places suggest that ifhealth insurance is left to the private market it will only cover those which have substantial ability to pay leaving out the poor and making them more vulnerable. Hence India should proactively make efforts to develop Social Health Insurance patterned after the German model where there is universal coverage, equal access to all and cost controlling measures such as prospective per capita payment to providers. Given that India does not have large organized sector employment the only option for such social health insurance is to develop it through co-operatives, associations and unions. The existing health insurance programmes such as ESIS and Mediclaim also need substantial reforms to make them more efficient and socially useful. Government should catalyze and guide development of such social health insurance in India. Researchers and donors should support such development.

 Gumber A., Kulkarni V. 2000. Health Insurance for Informal Sector: Case Study of Gujarat. Economic and Political Weekly, Sep. 30.


 Dholakia R. Economic reforms: Implications for Health Insurance. Presentation at One day workshop on 'Health Insurance in India'. Indian Institute of Management, Ahmedabad. Oct. 30, 1999.  Ellis RP., Alam M, Gupta I. 1996 Health Insurance in India: Prognosis and Prospectus. Boston University: Boston and Institute of Economic Growth: Delhi. December 18.  IIMA 1999. Indian Institute of Management, Ahmedabad. Report of the one day workshop on 'Health Insurance in India'. Oct. 30, 1999.  WHO statistics  IRDA journals  Directorate General Of Health services  Health Policy Challenges for India: Private Health Insurance and Lessons from the international Experience by Ajay Mahal  Health Insurance in India by Sujatha Rao  Different Countries, Different Needs: The Role of Private Health Insurance in Developing Countries by Denis Drechsler, Johannes Jütting   www.dogpile.cpm


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