A

Research Report
On
Study the reasons for the disapproval of
Health Insurance policies in India
by the young individuals

Submitted by
G. Sahitya Reddy
PGDM-BIF
Roll. No: 39
Institute of Public Enterprise
Acknowledgement:

I would like to thank all the respondents who spared some

time to respond to my questionnaire and provided the data required
for my academic purpose.
I also like to thank Mrs. Jayashree Raveendran for
accounting me for the short term project in the marketing research.

G. Sahitya Reddy
0911PGDM-BIF
Table of Contents:

1. Introduction
2. Literature Review
3. Research Design
4. Research Methodology
5. Questionnaire
6. Data Tabulation
7. Data Analysis

8.
Introduction

The conception of insurance is the spreading of risks for a few individuals,

among many. This is done when individuals and businesses pay a premium to an
insurance company to cover them in case of a catastrophic occurrence. In other words, we
all pay premiums in case something happens to one of us.

Health is wealth

Is that true? Of course, everyone wants to be healthy and this is why we say
health is the greatest wealth in the world. Apart from a balanced meal, exercise, and so
on, we need to have a health insurance to be in good health. Health insurance is,
basically, a promise by an insurance company or health plan to provide or pay for health
care services in exchange for payment of premiums.

Insurance policy has started since the 18th century. However, at that time, we had
Accident Insurance. The first accident insurance company was Franklin Health
Assurance Company of Massachusetts which was founded in the year 1850. This
insurance was mainly offered because at that time there were a lot of accidents and
injuries due to railroad and steamboat. Accident insurance agencies soon started sky
rocketing. It was indeed very successful. People had started realising how important
insurance is. In the year 1866, there were around sixty accident insurance companies
which were set up and ultimately, the number of insurance companies kept on
mushrooming.

Health insurance was proposed by Hugh the Elder Chamberlen in 1964. A health
insurance is a contract renewable either monthly or yearly between the insurance
company and the person. The Insurance Company will provide you with a quotation of
the insurance company. In the quotation, you will have the term of policy, that is how
long are you covered with the health insurance. The duration of the health insurance will
depend on the age of the insurance holder. If he is young, the insurance company may
advise him to take a long term health insurance and if the person is old, it might be the
contrary. Apart from age, there are other factors like health and income which are taken
into consideration when quoting a health insurance. Some insurance companies also do a
medical check up before provide a health insurance policy. In the quote, you will also
find how much you have to pay on a monthly or a yearly basis. The health insurance
quotation all consists of all the benefits which it covers. Certain health insurance covers
the insurer 100% but certain not. There are several conditions which are applied.
Different amount is paid in case of natural death, accidental death, loss of one limb or
two limbs or in case of permanent disability.

There are mainly four different types of health insurance plan, which are namely:

1. Fee-for-Service Plans
2. Health Maintenance Organizations (HMOs)
3. Point-of-Service Plans (POS)
4. Preferred Provider Organizations (PPOs)

These four different types of insurance may have different names however their
goal is to provide medical care to people. Fee-for-service plan is the more affordable
plan. However it has got some limitations. Preferred Provider Organization has got more
options; however, this is the most expensive. Its up to you to decide which type of
insurance is the best and which one you would like to purchase.

To get a better medical care, it is very important to have a good health insurance
plan. You have health insurance companies all around your country; however, you have
to decide which one is the best and will provide you with the best medical facilities. You
can have health insurance quotes of different companies online. You can compare the
price as well as the medical benefits which are provided by the health insurance company
on the internet along with its quote.
 Since health insurance has now become a necessity, do not waste time, get
connected to the internet, compare prices and benefits and purchase a good health
insurance.

Literature Review:

Health Insurance in India:

SOCIAL SECURITY FOR MEDICAL EMERGENCIES IS NOT NEW TO THE

INDIAN ETHOS. It is a common practice for villagers to take a ‘piruvu’ (a collection) to
support a household with a sick patient. However, health insurance, as we know it today,
was introduced only in 1912 when the first Insurance Act was passed (Devadasan 2004).
The current version of the Insurance Act was introduced in 1938. Since then there was
little change till 1972 when the insurance industry was nationalized and 107 private
insurance companies were brought under the umbrella of the General Insurance
Corporation (GIC). Private and foreign entrepreneurs were allowed to enter the market
with the enactment of the Insurance Regulatory and Development Act (IRDA) in 1999.
The penetration of health insurance in India has been low. It is estimated that only
about 3% to 5% of Indians are covered under any form of health insurance. In terms of
the market share, the size of the commercial insurance is barely 1% of the total health
spending in the country. The Indian health insurance scenario is a mix of mandatory
social health insurance (SHI), voluntary private health insurance and community- based
health insurance (CBHI). Health insurance is thus really a minor player in the health
ecosystem.

Central Government Health Scheme (CGHS):

Established in 1954, the CGHS covers employees and retirees of the Central
Government, and certain autonomous, semiautonomous and semi-government
organizations.
Current status of private health insurance in India:

India has lessons to learn from the experience of Chile. India too has a dual
system of care—a private fee-for-service based sector where the money is paid out-of-
pocket by individual households and a tax-based public sector where the providers are
salaried. Utilization of insurance under both these systems is partly restricted and
rationed by the affordability of the individual household and availability of the budget.
On the other hand, insurance as a means of financing is a far more sophisticated
mechanism, requiring a comprehensive understanding of the failures that characterize
health insurance markets.

For example, a problem such as asymmetry in information puts the patient and the
insurer at a disadvantage due to their inability to resist or challenge medical opinion
regarding an existing condition or future treatment. Besides, in the absence of knowledge
of prices, the provider can short change the two by overcharging. Second, cashless
insurance creates disincentives to control costs as it appears to be a =free‘ good for the
patient and the provider, often resulting in excessive treatment by the provider (induced
demand) and frivolous use by the patient taking treatment even for a condition which he
would normally have ignored or cured with a home remedy (moral hazard). Third, it is
only the patients who know their health status. Since it is normally those in need of health
care who tend to subscribe to health insurance, this puts the risk on insurance agencies to
resort to extensive processes of risk selection, such as medical examination, before being
given admittance as an enrollee and focusing on lowrisk groups, such as the young or
healthy. Risk selection in individual- based policies however results in increasing the
loading fee and consequently the cost of premium.

This is one reason for the attractive group discounts being as high as 67%. For
these reasons, private commercial health insurance is known to select its customers—the
young, healthy, rich, males—leaving the bad risks to the government—old, poor, young
women in the reproductive age group, and the ill.
 Health insurance in India is usually associated with the =Mediclaim‘ policy of the
GIC, which was introduced in 1986 as a voluntary health insurance scheme offered by
the public sector. The premium based on the age, risk and the benefit package opted for,
ranged from a minimum premium of Rs 201 for those <25 years of age, to a maximum
benefit of Rs 15,000 with discounts for group memberships. In 2001, there were 78 lakh
persons covered under Mediclaim (Gupta 2003).

The subscribers are usually from the middle and upper class, especially since
there is a tax benefit in subscribing to Mediclaim. The standard Mediclaim policy covers
only hospital care and domiciliary hospitalization benefits. Most medical conditions are
reimbursed though there are important exclusions, such as pre-existing diseases,
pregnancy and child birth, HIV/AIDS, etc. Hospitals with more than 15 beds and
registered with a local authority can be identified as providers. The insurance company
(or the TPA, where applicable) administers the scheme. Being an indemnity scheme, the
patient pays the hospital bills and submits the necessary documents to the company. The
company in turn reimburses the patient. A study of 621 GIC claims for the year 1998–99
by Bhat and Reuben (2001) showed that the average time between submission of
documents and reimbursement is 121 days. This study also showed that onethird of the
claims were due to adverse selection; 38% pertained to doctor‘s fees and 25% charges for
diagnostic services. The provider-induced claims thus accounted for 63%. Yet another
interesting insight was that 22% of the total claims were for the treatment of
communicable diseases, while 64% were for non-communicable diseases. There is also
uncertainty about the amount reimbursed, there are times when the patient is reimbursed
only partially, the usual reason being the insufficiency of documentation. The policy is
not renewed automatically and is dependent on the timely payment of premium. Ellis et
al. observed that the GIC was more interested in whether the claim pertained to an
existing disease or whether the facility was qualified or not, but spent little time on
detecting fraud. With claims exceeding 30% a year, more than the household spending, it
reflects the problem of moral hazard which requires close monitoring.
 Second, it was also observed that the GIC sets premium on the filing of claims
and not actual amounts settled, giving it a cushion year on year as settled claims amounts
are always lower than those filed, an amount that remains unadjusted. During 1994, 4.4%
of the insured persons made a claim, of which only 75% of claims were settled. The
claims ratio was 45%. However, of late, the claims ratio is growing at a fast rate,
allegedly because of collusion between the patients, insurance agents and hospitals. From
the above discussion, five features that characterize the health insurance system in India
emerge:

By and large, the system offers traditional indemnity, under which the insured
first pay the amount and then seek reimbursement. Under indemnity, all known diseases
or health conditions are excluded and therefore such policies typically have a large
number of exclusions. This also means that those most in need of insurance, i.e. the sick,
get excluded for any financial risk protection against the diseases they are suffering from.
It is a fee-for-service-based payment system. Such a system of payment is advantageous
for the provider since he bears no risk for the prices he can charge for services rendered
by him. Combined with the asymmetry in information, such a system usually entails
increased costs. Policies provide a ceiling of the assured sum. Such a system, and that too
within a fee-for-service payment system, results in shortchanging the insured as he gets
less value for money, as the provider and the insurer have no obligations to provide
quality care and/or over provide/over charge services so long as the amounts are within
the assured amount of the insurance policy. The system is based on risk-rated premiums.
This again puts the risk on the insured as the premium is fixed in accordance with the
health status and age. Under such a system, women in the reproductive age group, the
old, the poor and the ill get to pay higher amounts and are discriminated against. The
system is voluntary, making it difficult to form viable risk pools for keeping premiums
low.
Reasons for poor penetration of health insurance

Penetration of health insurance has been slow and halting, despite the ‘huge
market’ estimated to range between Rs 7.5–20 crores. Some reasons that explain for the
slow expansion of health insurance in the country are as follows:

1. Lack of regulations and control on provider behavior

The unregulated environment and a near total absence of any form of control over
providers regarding quality, cost or data-sharing, makes it difficult for proper
underwriting and actuarial premium setting. This puts the entire risk on the insurer as
there could be the problems of moral hazard and induced demand. Most insurance
companies are therefore wary about selling health insurance as they do not have the data,
the expertise and the power to regulate the providers. Weak monitoring systems for
checking fraud or manipulation by clients and providers, add to the problem.

2. Unaffordable premiums and high claim ratios

Increased use of services and high claim ratios only result in higher premiums.
The insurance agencies in the face of poor information also tend to overestimate the risk
and fix high premiums. Besides, the administrative costs are also high— over 30%, i.e.
15% commission to agent; 5.5% administrative fee to TPA; own administrative cost 20%,
etc. Patients also experience problems in getting their reimbursements including long
delays to partial reimbursements.

3. Reluctance of the health insurance companies to promote their products and lack
of innovation

Apart from high claim ratios, the non-exclusivity of health insurance as a product
is another reason. In India, an insurance company cannot sell non-life as well as life
insurance products. Since insurance against fire or natural disaster or theft is far more
profitable, insurance companies tend to compete by adding low incentive such as
premium health insurance products to important clients, cross-subsidizing the resultant
losses. With a view to get the non-life accounts, insurance companies tend to provide
health insurance cover at unviable premiums. Thus, there is total lack of any effort to
promote health insurance through campaigns regarding the benefits of health insurance
and lack of innovation to make the policies suitable to the needs of the people.

4. Too many exclusions and administrative procedures

Apart from delays in settlement of claims, non-transparent procedures make it

difficult for the insured to know about their entitlements, because of which the insurer is
able to, on one stratagem or the other, reduce the claim amount, thus demotivating the
insured and deepening mistrust. The benefit package also needs to be modified to suit the
needs of the insured. Exclusions go against the logic of covering health risks, though,
there can be a system where the existing conditions can be excluded for a time period—
one or two years but not forever. Besides, the system entails equity implications.

5. Inadequate supply of services

There is an acute shortage of supply of services in rural areas. Not only is there
non-availability of hospitals for simple surgeries, but several parts of the country barely
one or two hospitals with specialist services. Many centres have no have cardiologists or
orthopaedicians for several non-communicable diseases that are expensive to treat and
can be catastrophic. If we take the number of beds as a proxy for availability of
institutional care, the variance is high with Kerala having 26 beds per 1000 population
compared with 2.5 in Madhya Pradesh.

6. Co-variate risks

High prevalence levels of risks that could affect a majority of the people at the
same time could make the enterprise unviable as there would be no gains in forming large
pools. The result could be higher premiums. In India this is an important factor due to the
large load of communicable diseases. A study of claims (Bhat 2002) found that 22% of
total claims were for communicable diseases.

Research Methodology:

Research Problem:

“To study the reasons for the disapproval of Health Insurance policies in India for
the young individuals.”

Dependent Variable: Preference

Independent Variable:
1. Awareness

2. Location

3. Media Exposure

4. Affordability

Sample Size: 40

Conceptual Model:

Awareness

Location
Disapproval

Media
exposure

Affordability
Research Design

Descriptive Research: - Descriptive research includes surveys and fact finding enquiries
of different kinds. The major purpose of descriptive research is description of state of
affairs as it exists at present. The main characteristic of this method is that the researcher
has no control over the variables; he can only report what has happened or what is
happening.

Sampling Design
Population: People under the age of 25 years
Sample Size: 40
Sample Design: Non Probability
Convenience Sampling
Non-probability sampling technique has been used because the population which
includes all those people preferring is very large. Secondly, source list of the population
cannot be made available.

Data Collection:

Instrument: Questionnaire
Scaling Technique Used: Likert Scale
Primary Data: Structured Questionnaire
Secondary Data: Online Database, Journals, Surveys
Tools:
Statistical: SPSS
Techniques: Multiple Regressions
 Questionnaire

Strongly Agree Neutral Disagre Strongly

Agree e Disagree
• I feel health insurance policy is
compulsory for every individual.
• I feel investing in health insurance
policy is a best available option for
savings.
• My family has never needed any
insurance cover.

• I am aware of all the latest health

insurance policies.
• I participate in the discussions about
the health insurance with my peer
group.
• I feel health insurance companies
are taking many measures for its
promotion.

• I feel that the life style of the people

where I stay encourage me to take
health insurance policy.
• The location in which I stay is so
hygienic

• I feel media is focusing on expert

interview groups, which help people
in knowing benefits of health
insurance.
• I feel advertisements have an effect
on influencing people to opt for
health insurance.

• I feel I need health insurance to

cover my risks at this particular age.
• I feel the term period for health
insurance policy is very small.
• I can afford to pay premium on
regular basis.
Data Analysis:
Reliability:
Findings from Questionnaires
Reliability and Descriptive statistics of the Instruments
“Reliability” can be defined as the extent to which measurements of the particular test
are repeatable. In other words, the measuring procedure should yield consistent results on
repeat tests.
The most highly recommended measure of internal consistency is provided by coefficient
alpha (α) or Cronbach’s alpha as it provides a good reliability estimate in most situations.
The nearer the value of alpha (α) to 1, the better the reliability. If the value is low, either
there are too few items or there is very little commonality among the items
The reliability of 0.50-0.60 is sufficient, although a coefficient of 0.70 or above is
desirable

Reliability Analysis Scale for Preference

Case Processing Summary

N %
Cases Valid 40 100.0
Excluded(a) 0 .0
Total 40 100.0
a Listwise deletion based on all variables in the procedure.

Reliability Statistics

Cronbach's
Alpha N of Items
.404 3

Reliability scale for preference alpha is 0.404 which is less than 0.6 that means the data
about preference of health insurance is not reliable.

Reliability Analysis Scale for Awareness

Null Hypothesis: Awareness of health insurance has no impact for the preference of
health insurance.
Alternate Hypothesis: Awareness of health insurance has impact for the preference of
health insurance.

Case Processing Summary

N %
Cases Valid 40 100.0
Excluded(a) 0 .0
Total 40 100.0
a Listwise deletion based on all variables in the procedure.

Reliability Statistics

Cronbach's
Alpha N of Items
.537 3

Reliability scale for awareness of health insurance alpha is 0.537 is slightly less than 0.6
that means the data about awareness of health insurance is reliable for measuring the
preference for health insurance.

Reliability Analysis Scale for Location

Null Hypothesis: Location where the person stay has no impact for the preference of
health insurance.

Alternate Hypothesis: Location where the person stay has impact for the preference of
health insurance.

Case Processing Summary

N %
Cases Valid 40 100.0
Excluded(a) 0 .0
Total 40 100.0
a Listwise deletion based on all variables in the procedure.

Reliability Statistics

Cronbach's
Alpha N of Items
.092 2
Reliability scale for location alpha is 0.092 that is very less than 0.6 that means the data
about location where a person stay is not reliable for measuring the preference for health
insurance.

Reliability Analysis Scale for Media exposure

Null Hypothesis: Media exposure has no impact for the preference of health insurance.

Alternate Hypothesis: Media exposure has impact for the preference of health
insurance.

Case Processing Summary

N %
Cases Valid 40 100.0
Excluded(a) 0 .0
Total 40 100.0
a Listwise deletion based on all variables in the procedure.

Reliability Statistics

Cronbach's N of
Alpha Items
.366 2

Reliability scale for media exposure alpha is 0.366 that is less than 0.6 that means the
data about exposure to media is not reliable for measuring the preference for health
insurance.

Reliability Analysis Scale for Affordability

Null Hypothesis: Affordability of the person has no impact for the preference of health
insurance.

Alternate Hypothesis: Affordability of the person has impact for the preference of
health insurance.

Case Processing Summary

N %
Cases Valid 40 100.0
Excluded(a) 0 .0
Total 40 100.0
a Listwise deletion based on all variables in the procedure.
Reliability Statistics

Cronbach's
Alpha N of Items
.404 3

Reliability scale for affordability alpha is 0.404 that is less than 0.6 that means the data
about affordability of the person is not reliable for measuring the preference for health
insurance.

Regression:

We perform regression analysis to indicate the relationships between the ‘predictor’ and
‘dependent variable’ R squared is the proportion of variation in the dependent variable
explained by the regression model.

Variables Entered/Removed(b)

Variables Variables
Model Entered Removed Method
1
AffordMean,
LocationMean,
. Enter
MEmean,
Awaremean(a)

a All requested variables entered.

b Dependent Variable: DVMean

Model Summary

Adjusted R Std. Error of

Model R R Square Square the Estimate
1 .537(a) .289 .207 .52489
a Predictors: (Constant), AffordMean, LocationMean, MEmean, Awaremean

ANOVA(b)

Sum of Mean
Model Squares df Square F Sig.
1 Regression 3.913 4 .978 3.551 .016(a)
Residual 9.643 35 .276
Total 13.556 39
a Predictors: (Constant), AffordMean, LocationMean, MEmean, Awaremean
b Dependent Variable: DVMean

Coefficients(a)

Unstandardized Standardized
Model Coefficients Coefficients t Sig.
Std.
B Error Beta B Std. Error
1 (Constant) -.676 1.165 -.580 .566
Awaremean .315 .140 .342 2.247 .031
LocationMean .482 .292 .236 1.649 .108
MEmean .215 .145 .224 1.484 .147
AffordMean .203 .146 .203 1.397 .171
a Dependent Variable: DVMean

The sample R squared tends to optimistically estimate how well the model fits the
population. Small values indicate that the model does not fit the data well.
The values of R squared range from 0 to 1. R squared is the proportion of variation in the
dependent variable explained by the regression model. Larger values of R indicate
stronger relationships .The values of R for models produced by the regression procedure
range from 0 to 1.
R, the multiple correlation coefficients, is the correlation between the observed and
predicted values of the dependent variable.

The unstandardized coefficients are the coefficients of the estimated regression model.
The t statistics can help you determine the relative importance of each variable in the
model. As a guide regarding useful predictors, look for t values well below -2 or above
+2.

From the above analysis it implies that the adjusted R square value which is 0.207 and
the significance of ANOVA which is 0.016 is very good.

From above data analysis through regression model, we can see that:

• The awareness has 96.9% confidence on the accuracy of the data.

• The location has 89.2% confidence on the accuracy of the data.
• The media exposure has 85.3% confidence on the accuracy of the data.
• The affordability has 82.9% confidence on the accuracy of the data.

Correlations
A correlation analysis was conducted on all the variables to explore the relationship
between variables. In interpreting the strength of relationships between variables, the
classification of the correlation coefficient (r) is as follows:
0.0 to 0.2 Very weak, negligible
0.2 to 0.4 Weak, low
0.4 to 0.7 Moderate
0.7 to 0.9 Strong, high marked
0.9 to 1.0 Very strong, very high

Correlations

DVMean Awaremean
DVMean Pearson Correlation 1 .381(*)
Sig. (2-tailed) .015
N 40 40
Awaremean Pearson Correlation .381(*) 1
Sig. (2-tailed) .015
N 40 40
* Correlation is significant at the 0.05 level (2-tailed).

The preference of health insurance and awareness of health insurance are weekly
correlated.
Correlations

DVMean LocationMean
DVMean Pearson Correlation 1 .264
Sig. (2-tailed) .100
N 40 40
LocationMean Pearson Correlation .264 1
Sig. (2-tailed) .100
N 40 40

The preference of health insurance and location where the person stay are weekly
correlated.

Correlations

DVMean MEmean
DVMean Pearson Correlation 1 .324(*)
Sig. (2-tailed) .041
N 40 40
 MEmean Pearson Correlation .324(*) 1
Sig. (2-tailed) .041
N 40 40
* Correlation is significant at the 0.05 level (2-tailed).

The preference of health insurance and media exposure of the person are weekly
correlated.

Correlations

DVMean AffordMean
DVMean Pearson Correlation 1 .115
Sig. (2-tailed) .481
N 40 40
AffordMean Pearson Correlation .115 1
Sig. (2-tailed) .481
N 40 40

The preference of health insurance and affordability of the person are weekly correlated.

References:
1. National Commission on Macroeconomics and health, Government of India, New
Delhi
2.