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Health insurance in India



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I feel highly elated to present the project Research on HEALTH INSURANCE IN INDIA, which owes its very existence to a number of people without thanking whom, I would fail to do proper justice to its original profounder. Firstly, I would like to thank the Insurance law Subject Faculty, MRS. SANGEETA CHANDA for showing his belief in me and considering me potent enough to carry out the research methodology, and thereby assigning the said topic to me. In fact without his continuous exemplary guidance and worm- view criticism the project could never have reached its current stature. Thus I extend a sincere heart-felt thanks to My Preceptor Mrs. Sangeeta Chanda - the ever helping Faculty of CHANAKYA NATIONAL LAW UNIVERSITY.

Secondly, I would like to extend my sincere acknowledgement towards the Librarian of CNLU, for making all the reading materials available relevant for my Research Paper, within such short notice. In fact the CNLU Library came up as an excellent source for all the requisite data.

Thirdly, I would like to thank the Managing staff of CNLU, for providing me with the facility of 24 hours/ 7 days a week Internet connection, since the search engines namely,,, where an indispensable need to facilitate data access within fractions of seconds.


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Method of Research: The researcher has adopted a doctrinal as well as non doctrinal method of research. The researcher has made extensive use of the library at the Chanakya National Law University and also the internet sources as well as interacted with the general mass of society. Scope and Limitations The project offers a comprehensive study of the HEALTH INSURANCE IN INDIA. The research paper does not provide a complete understanding of the all the provisions of Health Insurance. Chapterisation I have divided the project into various chapters. Each dealing with different aspects of the topic. In the initial chapters, I have discussed elaborately, the meaning of Health Insurance. Further, I have elaborate different provisions and lastly; I have concluded the topic by summarizing the highlighting aspects of the Health Insurance in India. Sources of Information The researcher has relied on secondary sources for the purposes of this project such as books, articles. Style of writing The researcher has adopted a descriptive and analytical style of writing for the purposes of this research paper. Mode of citation A uniform mode of citation has been followed throughout the course of this project.

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When health is absent, wisdom cannot reveal itself, art cannot manifest, strength cannot fight, wealth becomes useless, and intelligence cannot be applied. Herophilus It sums up the importance of good health. No nation could progress without its citizen being healthy. But, ever increasing medical cost has made health care a distant dream. People are forced to pay out of their pocket and sometimes due to lack of proper financial assistance even suffer death or serious health hazard, bringing their or their closed ones life to a still. In India, particularly such sight is very common. People do not have adequate economic capacity to avail hi-tech medical facility because of the expensive medical procedure. Every poor/middle class/upper middle class in their life time faces such contingencies were his or his loved one life is at risk and require medical attention but due to lack of financial resources they are not able to help them, in such a situation Health Insurance serves as a boon. Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care and health system expenses, among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is available to pay for the health care benefits specified in the insurance agreement. The benefit is administered by a central organization such as a government agency, private business, or not-for-profit entity. According to theHealth Insurance Association of America, health insurance is defined as "coverage that provides for the payments of benefits as a result of sickness or injury. Includes insurance for losses from accident, medical expense, disability, or accidental death and dismemberment"

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Brief History of Health Insurance

The Greek and the Romans have introduced the concept of Health Insurance and Life Insurance in 600 AD. They organized the society with the name of guilds. These societies were open to all the persons irrespective of their paying capacity, their class, their work and their status in the society. Here the member of the society used to divide the expense coming to the society at an equal platform. Say for example, there are 10 members in a community and A dies leaving behind dependents and B incurs certain medical expense, then the total cost of the expenses to the dependents and medical expense will be calculated and will be duly divided among all members of the community except B. Hammurabi code, advocated the concept of Health Insurance. The modern day health insurance drives many of its characteristic from the code of Hammurabi. Rates were set for different surgeries and successful surgeons were awarded and in case of failure penalty was imposed on them.1 It was actually in early twentieth century that concept of Health insurance was recognised. Individual health insurance plans became available in the United States during the Civil War. The plans provided coverage for injury related caused by travelling in railways and steam boat. Massachusetts Health Insurance of Boston offered early group policies with a relatively comprehensive list of benefits as early as 1847.2 Individual accident insurance proved a successful venture, so these kinds of early plans began to evolve into more expansive programs that covered a broader range of illness and injury, including early versions of disability coverage by the end of the nineteenth century. In the early years of the twentieth century, groups began developing relationships with health care providers

Allen D. Spiegel, Hammurabi's Managed Health Care Circa 1700 B.C. available at (last accessed on 15th February, 2014) 2 See New world Encylopedia, available at (last accessed on 15th February, 2014)

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to develop what would become the predecessors to modern health insurance plans, or fee-based contracts.3 In Germany, insurance for compulsory accident and sickness was triggered by Otto Von Bismarck.4 After the World War I this policy was adopted by Soviet Union and Great Britain.5National Health Insurance Act of 1948 provides for compulsory health insurance in Britain. Cost was bore by the government and tax authority and only minimal service charge was to be provided.6

The History of Health Insurance in the United States of America. available at (last accessed 15th February, 2014)

Lawrence F. Wolper, Health Care Administration- Managing Organized Delivery System, 5th Edition, Jones and Barlett Publishers International, 12th April, 2010 5 ibid 6 See National Assistance Act 1948 (1948 CHAPTER 29) available at (last accessed 15th February, 2014)

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Definition of Health Insurance

Health Insurance is a kind of insurance policy taken by the insured to avail benefit whenever he faces any medical contingencies. The effect on health shack of policies to provide everyone against known high frequency, health care services such as high risk priority health care. This is important because many countries introduce this with two fold objective, to reduce the catastrophic health care cost and to make its citizen healthy by providing them with better medical facilities.7 A Health insurance contract of insurance is a contract either to indemnify a person against a loss which may arise on happening of certain events or to pay a sum of money on the happening of some or any event in agreed consideration. Health insurance in recent years has been introduced and felt necessary in developing countries. So in a lay man manner we can describe health insurance as a mechanism to indemnify the insured when he suffers any medical contingencies by the person who undertakes to pay the money or assistance known as insurer.8 .

Pablo Enrique Gottret & George Schieber, Health Financing Revisted; A practioners Guide (World Bank, 2006) 8 See Section 2 (9) of Indian Insurance Act, 1938

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Health expenditure
Health expenditure means health and health related expenditure. Public health expenditure consists of recurrent and capital spending from government (central and local) budgets, external borrowings and grants (including donations from international agencies and nongovernmental organizations), and social (or compulsory) health insurance funds. It is the sum of public and private health expenditure. It covers the provision of health services (preventive and curative), family planning activities, nutrition activities, and emergency aid designated for health but does not include provision of water and sanitation.9 Health-related expenditures include expenditures on health-related functions such as medical education and training, and research and development.10In United States of America total per capita health expenditure amounts to $8,402 (as per 2010).11 The Health expenditure; total (% of GDP) in India was last reported at 4.05 in 2010, according to a World Bank report published in 2012.12 Now we can see that health care expenditure generally involves two parties either the Public or Private. Public expenditure generally draws funds from the tax i.e. using central or states revenue for health which is enshrined in Part IV of the Indian Constitution. It is the duty of the state to take care of the health of its people. Private expense on the health care in India is generally meted out of pocket i.e. payments to health care providers for services, sometimes donations are also channelized and the other mode is Private Health Insurance. It is the premium contributions towards the health support and health insurance provides pool for future health care. Most

India - Health expenditure Health expenditure, private (% of GDP) available (Last accessed 16 February, 2014) 10 Definition of Health Expenditure available at (Last accessed on December, 2013) 11 Centre for Disease control and Prevention available at (last accessed on 16 February, 2014) 12 Health Expenditure; Total (% Of GDP) in India

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countries have mix of private and public role care of health funding.

Overview of Different Countries

In United Kingdom, there is a body called National Health Service. It aims at providing equal care and protection to every citizen. Medical care is free and each citizen is entitled to avail this benefit.13 Germany has public corporations which are entrusted to provide compulsory health insurance. In Australia life time health insurance is a government initiative. Health care fund depends on the age of the person availing such service.14 There are two major types of insurance programs available in Japan Employees Health Insurance, and National Health Insurance National Health insurance is designed for people who are not eligible to be members of any employment-based health insurance program. Although private health insurance is also available, all Japanese citizens, permanent residents, and nonJapanese with a visa lasting one year or longer are required to be enrolled in either National Health Insurance or Employees Health Insurance. Since 1974, New Zealand has had a system of universal no-fault health insurance for personal injuries through the Accident Compensation Corporation (ACC). The ACC scheme covers most of the costs of related to treatment of injuries acquired in New Zealand (including overseas visitors) regardless of how the injury occurred, and also covers lost income (at 80 percent of the employee's pre-injury income) and costs related to long-term rehabilitation, such as home and vehicle modifications for those seriously injured. Funding from the scheme comes from a combination of levies on employers' payroll (for work injuries), levies on an employee's taxable income (for non-work injuries to salary earners), levies on vehicle licensing fees and petrol (for



Expat guide to Australia: Health Care, The Telegraph, 21 July, 2013 available at (last accessed on 18 February, 2014)

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motor vehicle accidents), and funds from the general taxation pool (for non-work injuries to children, senior citizens, unemployed people, overseas visitors, etc.) The United States health care system relies heavily on private health insurance, which is the primary source of coverage for most Americans. According to the CDC, approximately 58% of Americans have private health insurance.15 The Agency for Healthcare Research and Quality (AHRQ) found that in 2011, private insurance was billed for 12.2 million U.S. inpatient hospital stays and incurred approximately $112.5 billion in aggregate inpatient hospital costs (29% of the total national aggregate costs).16 Public programs provide the primary source of coverage for most senior citizens and for low-income children and families who meet certain eligibility requirements. The primary public programs are Medicare, a federal social insurance program for seniors and certain disabled individuals; and Medicaid, funded jointly by the federal government and states but administered at the state level, which covers certain very low income children and their families. Together, Medicare and Medicaid accounted for approximately sixty three percent of the national inpatient hospital costs in 2011. SCHIP is a federal-state partnership that serves certain children and families who do not qualify for Medicaid but who cannot afford private coverage. Other public programs include military health benefits provided through TRICARE and the Veterans Health Administration and benefits provided through the Indian Health Service. Some states have additional programs for lowincome individuals.17 In India, we do not have any universal health care policy. It is limited to industrial workers and their family. Central Government Health Scheme (1954) and Employees State Insurance scheme talks about providing insurance to its employees. It is shocking to know that the country which is prone to so many fatal diseases and where death due to lack of proper medical attention is common, has no policy to cover the medical contingencies. Almost 80% of Indian do not have health insurance policy.18

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Centers for Disease Control and Prevention. (2011-03-06). Retrieved on 2011-10-26. Torio CM, Andrews RM. National Inpatient Hospital Costs: The Most Expensive Conditions by Payer, 2011. HCUP Statistical Brief #160. Agency for Healthcare Research and Quality, Rockville, MD. August 2013 17 U.S. Census Bureau 18 Source IRDA and annual report of Apollo Hospital and Max India for 2012-2013.

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As per world Health Organization, health insurance sector is not well organized in India and almost 86% of health care financing is through unplanned and noncontributory spending.19


Health is a human right. Its accessibility and affordability has to be ensured. The escalating cost of medical treatment is beyond the reach of common man. While well to do segment of the population both in Rural and Urban areas have accessibility and affordability towards medical care, the same cannot be said about the people who belong to the poor segment of the society. Health care has always been a problem area for India, a nation with a large population and larger percentage of this population living in urban slums and in rural area, below the poverty line. The government and people have started exploring various health financing options to manage problem arising out of increasing cost of care and changing epidemiological pattern of diseases. The control of government expenditure to manage fiscal deficits in early 1990s has let to severe resource constraints in the health sector. Under this situation, one of the ways for the government to reduce under funding and augment the resources in the health sector was to encourage the development of health insurance. In the light of escalating health care costs, coupled with demand for health care services, lack of easy access of people from low income group to quality health care, health insurance is emerging as an alternative mechanism for financing health care. Indian health financing scene raises number of challenges, which are: Increase in health care costs High financial burden on poor eroding their incomes Need for long term and nursing care for senior citizens because of increasing nuclear family system Increasing burden of new diseases and health risks


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Due to underfunding of government health care, preventive and primary care and public health functions have been neglected In the above scenario, exploring health financing options became critical. Naturally, health Insurance has emerged as one of the financing options to overcome some of the problems of our system. In simple terms, health insurance can be defined as a contract where an individual or group purchases in advance health coverage by paying a fee called premium. Health insurance refers to a wide variety of policies. These range from policies that cover the cost of doctors and hospitals to those that meet a specific need, such as paying for long term care. Even disability insurance, which replaces lost income if you cannot work because of illness or accident, is considered health insurance, even though it is not specifically for medical expenses. Health insurance is very well established in many countries, but in India it still remains an untapped market. Less than 15% of Indias 1.1 billion people are covered through health insurance. And most of it covers only government employees. At any given point of time, 40 to 50 million people are on medication for major sickness and share of public financing in total health care is just about 1% of GDP. Over 80% of health financing is private financing, much of which is out of pocket payments and not by any pre-payment schemes. 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.

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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.


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
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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.

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Health Insurance, Laws and guidelines in India

Insurance regulation formally began in India, after the passing of Life Insurance Companies Act, 1912 and Provident Fund Act of 1912. Today insurance sector in India is broadly governed by Insurance Act, 1938 and Insurance Regulatory Development Authority Act, 1999 (IRDA Act, 1999). The preamble to the IRDA Act, 1999 read as follows: An Act to provide for the establishment of an authority to protect the interests of holders of Insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto and further to amend the Insurance Corporation Act 1956 and the general Insurance Business (Nationalization) Act 1972. Indian insurance companies like the United India Insurance Co. Ltd., New India Assurance co. Ltd. National Insurance Co. Ltd. keeping in pace with time have initiated some of the main health policies. There is Central Government Health schemes which provide comprehensive medical care to government employees. As per the guidelines issued by IRDA for standardization of health insurance,20 out of the 46 standardized terminologies for health insurance, the regulator has revised 19 of them. The guideline was introduced to curb the ambiguities and to provide better services and enable customers to interact more effectively with insurers, third-party administrators and providers.21 Under the new norms, an establishment registered with the local authorities does not have any minimum in-patient bed requirement. One of the most significant changes brought by IRDA is

Guidelines on Standardization in Health Insurance, available at %20Insurance.pdf (Last accessed on 20th February, 2014)

Anirudh Laskar ,Irda issues guidelines to standardize health insurance, Live Mint and The Wall Street Journal, 21 February, 2013

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that the health Insurance Policy could be extended for life time and can be renewed except the customized one. Insurer is mandated to set claim within 30 days of application of claim by the insured. In order to end the confusion regarding critical illness among the insurer Guideline 2, of the IRDA health insurance recommendation have introduced 11 standardized definitions for inclusion in every health policy in its Annexure II.

Suggestions and Conclusion

Having a health insurance policy is the need of the hour. By availing such policy the insurer can avail best medical services without worrying about the cost of the treatment, he can have regular health checkups and if diagnosed with any disease could do away with it at the very nascent stage but there few factors as well, which prevent people from opting for the health insurance policy. Modern insurance companies are indulging in minting money and are more concerned about warming their pockets than providing service. Another demerit is that insurance policy contains too many exclusion clauses. The traditional model have focused on insurer or intermediaries working with the employment segment only as the front end to one that allows the flexibility to serve different segments of the population is an efficient manner. Health Insurance providers may need to align themselves to overall health care including financing, preventive health care and health outreach in order to grow coverage. Regulations policy must be designed to encourage this. The experience of different countries suggests that private insurance has an important role to play in overall health care. Private health Insurance has enhanced access to timely hospital care. In U.K. waiting time reduction and private health insurance coverage has led to vicious cycle. Private health insurance increases choice for the individual. In Australia, it offers the option of access to spare capacity and elective care in non-public institutions. Thus we see that it has led to expansion of health coverage and expenditure in other countries. However, regulation as well the role of public health expenditure cannot be ignored. Healthcare delivery would certainly be improved tremendously with all these measures.

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BIBLIOGRAPHY Websites Referred :

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