HEALTH INSURANCE

Introduction

Method to finance healthcare “ The reduction or elimination of the uncertain risk of loss
for the individual or household by combining a larger number of similarly exposed
individuals or households who are included in a common fund that makes up the loss caused
to any one member”

ILO (International Labor Organization) 1996

Background

 1818- Advent of life insurance business in India.

 Oriental insurance company set up in Calcutta. It failed in 1834. 1829-
Madras Equitable started life insurance business
 in Madras Presidency. 1870- British Insurance Act

The Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in
the Bombay Residency

Background

 1912- Indian Life Assurance Companies Act

 1928- Indian Insurance Companies Act
 1938- Insurance Act
 1950- Insurance Amendment Act
 1956- Life insurance sector nationalized

1972- General Insurance Business (Nationalization) Act

Background

 1973-National Insurance Company Ltd.,

 the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the
United India Insurance Company Ltd. 1994- Malhotra committee recommended
 private sector to enter the insurance industry 1999-IRDA(Insurance regulatory and
development authority) set up

Essentials in Health Insurance Prepayment and risk pooling:

Individuals or families pay when they are healthy and are able to pay. However, when they
are affected by illness, the insurance fund can be used to finance their healthcare needs.
Health insurance functions when there are large numbers enrolled. With large numbers, the
chances of adverse events are reduced and so is the outflow from the insurance fund.
Essentials in Health Insurance Solidarity:

A successful health insurance programme requires people to contribute, knowing fully well
that their contribution may not help them directly, but will help others who require the
support.

Basic elements in health insurance

Risks in Health Insurance-

 Adverse selection
 Sick people enrol in large numbers as compared to healthy. Cream skimming (risk
selection)
 Opposite of adverse selection. Insurance companies selectively choose low-risk
individuals

Risks in Health Insurance-

 Moral hazard- fact of being insured

 changes the behaviour of the patient or the provider Supply side moral hazard,
Demand side moral hazard

Functions of Health Insurance

A health insurance programme has two main functions To increase access to healthcare

 To protect households from high medical

 Eexpenses at the time of illness.

Importance of Health Insurance

Average medical expenses of an Indian household is 6.5 per cent of the annual income.

It increases sharply to around 37.4 per cent in case of major ailments. According to a study
“India Knowledge @ Wharton Report” around 65 per cent of people remain in debt for life
due to their expenditure on major health problems.

- NCAER(National council of applied economic research) study in 2012

 Direct out-of-pocket payments could push 2.2% of all healthcare users and one-fourth
of all hospitalized patients, into poverty in a year. Health insurance is the ticket to
healthcare and
 the best mechanism to finance healthcare to protect one’s savings, avoid debts and
miseries.
 National Commission on Macroeconomics and Health, Ministry of Health and Family
Welfare, Govt of India.
HEALTH INSURANCE IN INDIA

According to the World Health Organization (WHO), in 2011, India has spent only 3.9 per
cent of gross domestic product (GDP) on the health sector which is the lowest amongst the
BRICS (Brazil, Russia, India, China, South Africa) member countries. Amongst the BRICS
nations, in 2011, Russia’s out-of-pocket expenses stood highest at 87.9 per cent closely
followed by India (86 per cent), China (78.8 per cent), Brazil (57.8 per cent), and South
Africa (13.8 per cent).

On the other hand, these expenses in developed economies of US and UK were comfortably
poised at 20.9 per cent and 53.1 per cent respectively.

The health insurance premium has registered a compounded annual growth rate (CAGR) of
32 per cent for the past eight financial years.

Over 300 million people, or more than 25 percent of India’s population, gained access to
some form of health insurance by 2010, up from 55 million in 2003-04. More than 180
million of these were people below the poverty line.

“Government-Sponsored Health Insurance in India: Are You Covered? – World Bank Report
in 2012.

TYPES OF HEALTH INSURANCE

Health Insurance Social Private Community Based

SOCIAL HEALTH INSURANCE

There are two mandatory and contributory health insurance schemes in India – the Central
Government Health Scheme (CGHS) for the government of India’s employees and the
Employees' State Insurance Scheme (ESIS) for the low-paid industrial workers. The eligible
people contribute towards a specific health fund. This fund then finances specific benefits
for them. Rashtriya Swasthya Bima Yojana (RSBY) for BPL families is a recent addition.

ESI Scheme Established in 1948,

The Employees’ State Insurance Scheme (ESIS) provides both cash and medical benefits. It
was conceived as a compulsory social security benefit for workers in the formal sector. The
Employees’ State Insurance Corporation (ESIC) manages the scheme and is a corporate semi-
government body headed by the Union Minister of Labour as Chairman and a Director
General as the Chief Executive.

ESI Scheme

The Act compulsorily covers:

(a) all power-using non-seasonal factories employing 10 or more persons

(b) all non-power-using factories employing 20 or more employees, and

(c) service establishments like shops, hotels, restaurants, cinemas, and road transport.

To avail of the sickness benefit, the employee has to have worked for 78 days prior to the
sickness. Similarly, to avail of the maternity benefit, the woman has to have worked for 70
days prior to availing the benefit. Act does not include employees whose wages exceed Rs.
25000 per month.

Scheme Contribution :-

State Governments share 1/8th of expenditure on medical treatment and attendance (7/8
being borne by the ESIC). Employees pay on an average 1.75% of the wages and
employers contribute 4.75% of the wage bill. The employee who is getting daily wage of less
than Rs. 100.00 shall be exempted from payment of contribution

Benefits :

1) Sickness Benefit: At the rate of 70% of the daily average wage is given to the employee
for a maximum period of 91 days in one year. In diseases like tuberculosis, leprosy, fracture,
malignancy etc, the sickness benefits are extended to two years.(80% of wages)

2 Maternity Benefit: At the rate of full wages for a period of 84 days in case of pregnancy
and 6 weeks in case of miscarriage or MTP.

Benefits 3) Disablement Benefit :- In cash, 90% of the wages is given to the temporary
disabled person during the period of disablement. In case of permanent disablement, the
payment is made at the same rate for the whole of his life in the form of pension.

4) Dependent Benefit :- Paid at the rate of 90% of wage in the form of monthly payment
to the dependants of a deceased Insured person in cases where death occurs due to
employment injury or occupational hazards.

Benefits 5) Funeral Benefit :- An amount of Rs.10,000 is paid to the eldest surviving

member for the funeral purpose.

6) Medical Benefit :- All member of the worker gets the medical cover including the
outdoor treatment, specialist services, ambulance services, and indoor services.

Problems in ESI Scheme

Large numbers of posts of medical staff remain vacant due to high turnover and low
remuneration.

Rising costs and technological advancement in super specialty treatment.

Patient satisfaction is low.

 In rural areas, the access to services is also a problem.

CGHS (Central Government Health Scheme)

The CGHS provides comprehensive health care facilities for the Central Govt. employees and
pensioners and their dependents residing in CGHS covered cities. Started in New Delhi in
1954. Operational in 25 cities in India.

BENEFICIARIES :

 All Central Govt. Servants

 Pensioners and their family members.
 Hon'ble Members of Parliament
 Hon'ble Judges of Supreme Court of India.
 Employees & Pensioners of Autonomous Bodies covered under CGHS.
 Former Judges of Hon'ble Supreme Court of India and
 Hon'ble High Courts Freedom Fighters.

CGHS (Central Government Health Scheme) Main components-

 The dispensary services

 Family welfare & M.C.H. Services
 Specialists consultation facilities Hospitalization
 Provision of medicines
 Network- 254 allopathic dispensaries
 19 polyclinics ,
 78 Ayush dispensary
 units 3 Yoga Centres,
 65 Laboratories,
 17 Dental Units

Problems in CGHS Slow reimbursement

 Demand side moral hazard

 Many patients are self-referred. It appears that most patients prefer to bypass the
dispensaries and directly avail of specialist services.
 Poor quality care
 Long waiting periods,
 inadequate supply of medicines and equipments.
 Private hospitals to stop CGHS cashless scheme from March 7,2014.
 TheTimes Of India CGHS owes these hospitals around Rs 200 crore in unpaid
services and "unreasonably low" CGHS tariffs .

Universal Health Insurance Scheme Launched w.e.f. 14.7.2003 for BPL families

 Standard product with an annual cover of Rs 30,000 for a family. Premium of Rs.
165 per year per person,
 Rs.248 for a family of five and Rs.330 for a family of seven.
Universal Health Insurance Scheme Reasons for failure:

The public sector companies found it to be potentially loss making .

Improper identification system of beneficiaries. Cumbersome paper work.

RSBY(Rashtriya Swasthya Bima Yojna) Started on 1st April 2008.

 Launched by Ministry of Labour and Employment, Government of India to provide

health insurance coverage for Below Poverty Line (BPL) families. Beneficiaries
under RSBY are entitled to hospitalization coverage up to Rs. 30,000/- for most of
the diseases that require hospitalization.

RSBY(Rashtriya Swasthya Bima Yojna Pre-existing conditions are covered from day one
and there is no age limit. Coverage extends to five members of the family which includes the
head of household, spouse and up to three dependents. Beneficiaries need to pay only Rs.
30/- as registration fee. Central (75%)and State(25%) Government pays the premium to the
insurer selected by the State Government on the basis of a competitive bidding.

Unique features of RSBY Empowering the beneficiary Business Model for all Stakeholders
Information Technology (IT) Intensive Safe and foolproof Portability

 Cash less and Paperless transactions

 biometric enabled smart card.

RSBY Plus Introduced on 1st March 2010 in Himachal Pradesh. An additional benefit of Rs
1,75,000 is provided under Critical care for meeting the expenses of surgical procedures.

From 1st January 2013, extended to other categories viz. APL MNREGA Building & Other
Construction Workers, Persons with more than 70% disability, Domestic Workers and Street
Vendors. MNREGA- Mahatma Gandhi National Rural Employment Guarantee Act APL-
Above poverty Line

Private Health Insurance:

A voluntary health insurance where people can enroll and purchase the insurance product of
their liking, paying a risk-rated premium. Eg.Asha deep plan II , Jeevan Asha plan II, Jan
Arogya policy, Raja Rajeswari policy, Mediclaim policy. Out of these ‘Mediclaim’ is the
most sold product.

Mediclaim Introduced in 1986:

A voluntary health insurance scheme public and private companies. Anybody (3 months to
80 years) who can afford the risk-rated premium is eligible to join the scheme. The premium
depends on the age, risk and the package opted for.

Mediclaim The subscribers are usually the middle and upper class as there is a tax benefit
( Under Sec 80 D of Income Tax Act) Pre-existing diseases are covered from the fifth year
of policy provided the renewals are done without break in insurance.
IRDA(Insurance Regulatory and DevelopmentAuthority) Set up in 1999:

Agency of Government of India for insurance sector supervision and development.

Headquarter at Hyderabad, Andhra Pradesh Composition 1 Chairman , 4 whole time
members , 4 part time members.

IRDA(Insurance Regulatory and DevelopmentAuthority) Authority to protect the interests of

holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance
industry. Proposal to increase FDI(foreign direct investment) in insurance from 26% to 49%.

TPA(Third PartyAdministrator) :

Organization that processes insurance claims or certain aspects of employee benefit plans for
a separate entity. Outsourcing the administration of the claims processing. Eg. E-Meditek –
TPA for Oriental Insurance Company in Delhi NCR.

INSURANCE OMBUDSMAN Created on 11 November 1998.

Quick disposal of the grievances of the insured customers and to mitigate their problems
involved in redressal of those grievances. Ombudsman are drawn from Insurance Industry,
Civil Services and Judicial Services. Appointed for a term of three years or till the incumbent
attains the age of sixty five years, whichever is earlier.

Twelve Ombudsman across the country with different geographical areas as their areas of
jurisdiction. The ombudsman shall pass an award within a period of three months from the
receipt of the complaint. The awards are binding upon the insurance companies. If the policy
holder is not satisfied with the award of the Ombudsman he can approach other venues like
Consumer Forums and Courts of law.

Issues In Private Health Insurance- Many times insurance claims are rejected due to small
technical reasons. This leads to disputes . The most important area of dispute is the
knowledge and implications of pre-existing conditions . There is no analysis on what is fair
practice and what is unfair practice .

COMMUNITY HEALTH INSURANCE

“Any not-for-profit insurance scheme aimed primarily at the informal sector and formed on
the basis of a collective pooling of health risks, and in which the members participate in its
management.”

Characteristics of CHI Community-

based social dynamics and risk pooling, where the schemes are organized by and for
individuals who share common characteristics (geographical , occupational, ethnic, etc.)
Solidarity, where risk sharing is as inclusive as possible within a given community and
membership premiums are independent of individual health risks.

Participatory decision-making and management.

Nonprofit character.
Voluntary affiliation.

Models of CHI

 Type I (HMO Model)

 Type II (Insurer Model)
 Type III (Intermediate Model)

CHI in India Yeshaswini Scheme, Karuna Trust SEWA scheme,ACCORD scheme, Rajiv
Aarogyasri CHI Scheme, Kalaignar Insurance Scheme, Vajpayee Arogyasri Scheme

Yeshasvini Cooperative Farmers Health Care Scheme Covers Co-operative farrmers of

Karnataka. Inaugurated on 14 November 2002 , operationalised in June 2003. Beneficiaries
contribute a small amount of money every year to avail any possible surgery during the
period.

Yeshasvini Cooperative Farmers Health Care Scheme Implemented through network

hospitals to provide cost effective quality healthcare facilities to the Co-operative farmers.
Nearly 823 defined surgical procedures. Maximum benefit up to Rs 2,00,000/-

Features: A person should be a member of Rural Co- operative Society of the State. All
family members of the main member are eligible to avail the benefits.

Each beneficiary is required to pay prescribed rate of annual contribution every year.
Presently [2013-14] member contribution is Rs.210. The higher age limit fixed is 75 years .
Scheme covers entire state of Karnataka particularly Rural Areas excluding Corporation and
Urban cities.

SEWA Scheme Self Employed Women's Association Insurance scheme in Gujarat.

Started in 1992

The insurance scheme called Vimo SEWA proposes a composite package, simultaneously
covering: life, assets and health care while also providing maternity benefits. The insurance
plan is open to all women operating in the informal economy and their families without any
age limit.

Premium per year is Rs 175- Rs 375 Maximum benefit up to Rs 75000.

Karuna Trust Principle of PPP( Public Private Partnership):

Began with management of a PHC at Gumballi in Yelandur Taluk ,Karnataka. Has

expanded to include 50 PHCs in partnership with the state governments of Karnataka, Andhra
Pradesh, Orissa, Arunachal Pradesh, Manipur and Meghalaya. Equal focus on promotive,
preventive, curative & rehabilitative care.

Karuna Trust Provides CHI for a low premium of Rs.22/person/year. Key features No
disease exclusion, Immediate settlement of claims Rs.50 per day as compensation for wage
loss for in - patients and Rs. 50 per day out - of - pocket expenditure. Rs. 500 for patients
who undergo surgery in addition to Rs. 500 for drugs.
 ACCORD –AMS –ASHWINI (AAA) CHI Scheme :

ACCORD is a local non-governmental organisation (NGO) staffed by a group of

professionals and adivasi youth. Established in 1986, it works exclusively for
indigenous groups, or ‘the adivasis’, of Gudalur taluk, Nilgiris district, Tamil Nadu.
Action for Community Organisation, Rehabilitation and Development ASHWINI
-Association for Health Welfare in the Nilgiris, AMS - Adivasi Munnetra Sangam

ACCORD –AMS –ASHWINI (AAA) CHI Scheme : The health programme consists
of a two-tier structure

 A network of seven health centres, manned by medical assistants and

 A 20-bed hospital with all basic facilities, including obstetrics and surgery.

The health centres provide a mixture of curative and preventive care. Those between
six months to sixty years are eligible to enrol as per the NIAC (New India Assurance
Corporation)guidelines.

RajivAarogyasri CHI Scheme RACHI Scheme:

Started as a PPP model for all the families below poverty line from 1st April 2007 in
Andhra Pradesh. Beneficiaries for the RACHI scheme are identified through the white ration
cards provided as part of Annapoorna and Anthyodaya Anna Yojana Scheme, for BPL
families.

RajivAarogyasri CHI Scheme Covers nearly 8 crore people who live below poverty line in
23 districts of AP. The state government is the sole funding agency for this health insurance
scheme.

Kalaignar Insurance Scheme Launched in 2009 in Tamil Nadu:

The government in contract with Star Insurance has put in place an insurance program for
families earning Rs. 72,000 or less annually. Biometric smart cards issued. 1.43 crore
families enrolled.

Vajpayee Arogyashree Scheme Launched in Karnataka in 2010:

To improve access of BPL families (5 members) towards quality tertiary medical care .
Identification of beneficiaries through BPL ration cards. Government of Karnataka/ Trust
will pay the premium on behalf of the BPL beneficiaries for the insurance. Sum assured will
be Rs.1,50,000/- on a family floater basis per year.

VajpayeeArogyasri Scheme Objectives:

 To Cover Catastrophic illnesses

 Universal Coverage of BPL (Rural + Urban)
 Catastrophic illnesses can wipe out decades of savings of BPL families.
 To protect life time savings of BPL families which would be wiped out in case of
catastrophic illness.
 Problems in CHI :

Problem of adverse selection as premiums are not based on assessment of individual

risk status .

 Fail to include the poorest of the poor .

 They have low membership and require extensive financial support .
 Poor design and management.

The Way Ahead Health insurance has become one of the most prominent segments
in the insurance space today and is expected to grow significantly in the next few
years. A World Bank report estimates that about half of the country’s population, can
be covered with health insurance by 2015. 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 .

CONCLUSION:

The Lack of insurance coverage within family member has the potential to afftect the
financial and emotional well being of all members of the family.

References :

 www.esic.nic.in/esi_act.php
 Verma R et al.Health Insurance: Need Of The Hour In India.
 International Journal of Basic and Applied Medical Sciences.2013 ; 3 (2) :161-5
 CGHS msotransparent.nic.in/cghsnew
 Community Health Insurance and Universal Coverage: Multiple paths, many
rivers to cross – WHO 2010 IRDA
 -www.irda.gov.in