Lecture-10: Health Insurance

What is Health Insurance?

Health insurance, like other forms of insurance, is a

form of
collectivism by means of which people collectively pool
their risk, in
this case the risk of incurring medical expenses.

Importance of Health Insurance

(EFKMPRRSU)
Rising medical costs
Sharing of health related risk
Uncertain hospital bills
Expensive/quality health care services
Money value Sick Vs Healthy: costliness for the client/patient
Family health insurance
Productivity of workforce
Removes some of the burden from the state
Keeping pace with the customer needs while achieving
profitability

***How to improve the access to health care and

financial protection of the poor?

Answer
The most obvious solution will be to improve the health
insurance penetration.

How to Improve Health Insurance

Penetration?

Regulator/Government
Enhance customer awareness
Enhance client confidence - real value benefits in the event of
a claim
Effective supervision
Compulsory percentage of total business towards health
Compulsory savings towards health
Tax incentives to employers for promoting group health
coverage

Insurer
Clients confidence - warrantable claim will be paid out in a
reasonable time frame
New clients have to be reached
Design products as per clients needs
Product transparency
Cost efficiency
affordability
Wellness programmes

Initiatives of IDRA (Insurance Development

& Regulatory Authority)
Committee to formulate regulations
Pure health insurance products
Allowing the formation of an stand alone health
insurance company

Promoting the Standalone health insurance

companies

Renewability
Senior citizens

Impediments in Health Insurance

(CCDGLLMMMNU)
Lack of Data
Moral Hazard/Adverse Selection (Misrepresentation of information)
Complex nature of the product
Medical Inflation (medical treatments are becoming more costly day by day)
New treatments
Unnecessary treatments (Bangladesh scenario: Unethical behavior of doctors)
Difficulty in pricing
Government provision of health care
Long term Nature (Medical services for Cancer)
Changing life style (Changing environments coupled with changing habits,
preferences)
Mis-selling/fraud

Mitigation of Impediments

Insurer(C,D,E,E,E,H,N,P,T)
Designing a less complex products
Transparency in the product features
Clarity in policy terms, conditions & exclusions
Efficient back-office support for underwriting and
claims processing
Higher Reinsurance
Need for quicker services. E.g. Toll free numbers,
quick response
Expense analysis on a regular basis
Product innovation
Efficient training of sales force

Mitigation of Impediments
Policyholder

Pay attention to policy conditions

Read the exclusions and limitations very carefully
Compare premium costs, deductibles, copayments (i.e., Medical test to be carried out by
prospective policy holder)
Take an informed decision

Insurer/Insurance Company
Proper infrastructure
Speedy claim settlement process
Less paper work/digitalization

Mitigation of Impediments

Regulator/Government (C,C,C,C,E,F,G,P)
Come out with health insurance regulations
Centralized data base for health insurance experience
statistics
Provide rating to best performing companies
Cap on renewal premiums
Ensure that a decent portfolio of health coverage
represent the rural sector
Guard against ill-effects of privatization
Further tax incentives
Compulsory savings towards health care (Group
insurance is mandatory for govt. officials in Bangladesh)

Types of Health Insurance Plans

Individual health plan

Family Floater plan

Senior Citizens plan

Critical illness plan

Daily hospital cash and

Unit-linked health plan (ULHP)

Individual Health Plans

Largely, an individual health insurance plan (IHIP), or

mediclaim, would cover expenses if you are
hospitalised for at least 24 hours. In Dhaka
University, this plans is in effective for the teachers.

These plans are indemnity policies, that is, they

reimburse the actual expenses incurred up to the
amount of the cover that you buy.

Some of the expenses that are covered are room

rent, doctors fees, anesthetist's fees, cost of blood
and oxygen, and operation theatre charges.

Family Floater Plans

This is a fairly new entrant in the health insurance product
portfolio. It takes advantage of the fact that the possibility of
all members of a family falling ill at the same time or within
the same year is low.
Under a family floater (FF) health plan, the entire sum insured
can be availed by any or all members and is not restricted to
one individual only as is the case in an individual health plan.
Lets look at an example. Say, a family of four has individual
covers of Rs 1 lakh each. If the cost of treating one person
crosses Rs 1 lakh, then the rest has to be borne by the family
out of its own money. If, however, the entire family is insured
for Rs 4 lakh through a floater policy, then any of the
members will be covered for that amount in any year. To the
extent of the annual cover, any number of members can avail
the money.

Senior Citizens Plans

Insurance is considered as a form of long-term

savings for senior citizens.

This money provides financial stability and also helps

them in times of need.

Medical insurance enables senior citizens to pay for

health checkups, emergency medical costs and longterm treatment.

Medical insurance is provided through several private

insurance companies and few public sector general
insurance companies.

Critical Illness Plans

A Critical Illness plan means to insure against the risk

of serious illness. It will give the same security of
knowing that a guaranteed cash sum will be paid if
the unexpected thing happens and one is diagnosed
with a critical illness.

The purpose of a critical illness plan is to let you put

aside a small regular amount now, as an insurance
against all this happening.

Bajaj Allianz, in its efforts to provide a customer

centric solution is offering an insurance policy to
cover to some of these critical illnesses like Cancer
Coronary, Artery bypass surgery, First Heart attack,
Kidney Failure, Major organ transplant, Stroke,etc.

Daily Hospital Cash

Expense benefit is paid on per day basis after

hospitalization (most plans mandate at least 48
hours of hospitalization).

The pre-decided daily benefit amount is paid in full,

irrespective of the actual expenses.

For example, a person buys a DHC plan with a limit

of Rs 2,000 per day. He gets hospitalised for 7 days
and the total bill is Rs 35,000. He would be
reimbursed Rs 14,000 (2,000x7). If the bill is Rs
8,000, he would still be reimbursed Rs 14,000.

Unit-linked health plan (ULHP)

Unit-linked health plans (ULHPs) provide a unique

combination of health insurance and investment. Apart
from giving health protection, they help build a
corpus/amount that can be used to meet expenses not
covered by health policies.

All ULHPs offer one or more combination of the other

benefits.

LIC, a renowned insurance co. in India, has launched

Health Plus plan, a unique long term health insurance
plan that combines health insurance covers for the
entire family (husband, wife and the children)
Hospital Cash Benefit (HCB) and Major Surgical
Benefit (MSB) for the insured members.

Health Insurance in the Sub-continent

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-forprofit schemes;
Mandatory health insurance schemes or government

run schemes.

Microinsurance:

Insurance offered by
community based health insurance, and

Employer-based schemes

NGOs

Voluntary health insurance 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 consumers 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.

Voluntary health 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 due to
illness or injury suffered by the insured, whether the
hospitalization is domiciliary or otherwise.

*** Domiciliary Hospitalization is the treatment of the

patient taken at home due to lack of accommodation
in the hospital/nursing home or the patients
condition being such that he/she cannot be shifted to
the hospital for medical management. Domiciliary
hospitalization is made possible, based on the
treating physician or doctors recommendations
based on the merits of each case.

Mandatory health insurance schemes

Employer State Insurance Scheme (ESI)
Enacted in 1948, the employers state insurance (ESI) Act
was the first major legislation on social security in Indian
subcontinent.

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,
non-governmental
organizations (NGOs) and empanelled private practitioners.

Mandatory health insurance schemes

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.

Mandatory health insurance schemes

Universal Health Insurance Scheme (UHIS)
For providing financial risk protection to the poor, the
Indian 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.

Insurance offered by NGOs: Microinsurance

Insurance offered by NGOs/Community based schemes are
typically targeted at poorer population living in communities.
Such schemes are generally run by charitable trusts or nongovernmental 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 in patient care is also covered.
Such schemes tend to be financed through patient collection,
government grants and donations.
Some of the popular Community Based Health Insurance
schemes are: - Grameen, Asha, Proshika, TMSS in Bangladesh.
Self-Employed Womens Association (SEWA), Action for
Community Organization, Rehabilitation and Development
(ACCORD), Voluntary Health Services (VHS) in India.

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.