HEALTH INSURANCE

Why is Health Insurance important?

Having health insurance is important for several reasons :

– Rising medical costs

– Sharing of health related risk
– uncertain hospital bills
– Expensive/quality health care services
– Money value – Sick Vs Healthy
– Family health insurance
– Tax benefit
– Productivity of workforce
– Removes some of the burden from the state
– Keeping pace with the customer needs while achieving
profitability
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 Progression of Health Insurance business in India
Policy Growth Rate

2007-08 2008-09

Health Insurance Policies Procured by lines of business Standalone 282% 117%

Non-life 67% 23%

12,000,000
Life 110% 124%

10,000,000 Total 70% 29%

8,000,000
Standalone

Non-life
6,000,000
Life

4,000,000

% share of Health insurance policies sold

2,000,000
356419 332,541
798588
2006-07 2007-08 2008-09
40,078 169703 153,097
Standalo
0
ne 0.75% 1.67% 2.82%
2006-07 2007-08 2008-09
Non-life 96.10% 94.43% 90.41%
Life 3.16% 3.90% 6.77%
100.00 100.00
Total 100.00% % %

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 Progression of Health Insurance business in India (cont….)

Premium Growth Rate

Health Insurance Premium Procured by lines of business
(In lakhs)
2007-08 2008-09

700,000.00 Standalone 1297% 243%

609,037
Non-life 55% 23%
600,000.00
Life 222% 278%
496,901

500,000.00 Total 61% 34%

Standalone

400,000.00 Non-life
319,757
Life

300,000.00
% share of health Premium

200,000.00 2006-07 2007-08 2008-09

Standalone .34% 2.99% 7.68%

100,000.00 53,509
33875
15,594 8968
1,116 2788
Non-life 98.79% 95.29% 87.45%
0.00
2006-07 2007-08 2008-09 Life .86% 1.72% 4.86%

Total 100% 100% 100%

J ANITA & D CHAKRAVARTHI 4
Journey of Life health insurance products since
2003…..
Subject Observations
Term 1 to 30 years
Premium From 1 year to 5 years
Guaranteed
Diseases From 5 to 100.
Covered Focus on rampant diseases
Death Benefit With introduction of Sec 80(D), most products do not
have death benefit
Coverage Only life assured to Dependent members
Type Non linked to linked
Max. Entry age 50 to 65 years
Max. Maturity 65 to 75 years
age

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 Health Insurance Plan
Social Health Insurance
• The SHI is based on income-determined contributions from
mandatory membership of, in principal, the entire
population with the government subsidizing the financially
vulnerable sections.
• While the SHI is an effective risk-pooling mechanism that
allocates services according to need and distributes the
financial burden according to the ability to pay (thereby
ensuring equity in access), such schemes are difficult and
expensive to implement where a majority of the workforce
is unemployed or employed in the informal sector.
Employees’ State Insurance Scheme (ESIS)
Enacted in 1948, the Employees’ State Insurance (ESI) Act was
the first major legislation on social security in India.

Employees earnings up to Rs 7500 per month being covered, along with their dependants.
The current coverage stands at 84 lakh employees and 353 lakh beneficiaries across 22
States and Union Territories (expectedly, the membership is higher for more industrialized
States).

The benefit package is quite comprehensive in its coverage of health-related expenses,

going beyond the cost of medical care to include cash benefits (sickness, maternity,
permanent disablement of self and dependant) as well as other benefits such as funeral
expenses and rehabilitation allowance. However, the actual package of benefits available is
determined more by the type of facility accessed rather than the type of cover.

The ESIS is financed by a three-way contribution from employers, employees and

the State Government.
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. It also
Covers Members of Parliament, governors, accredited journalists and members of the general
public in some specified areas.

The families of the employees are also covered under the scheme. Total beneficiaries stand
at 43 lakh (10.4 lakh card holders, 2003) across 24 cities with membership in Delhi being
the highest. Benefits under the scheme include medical care at all levels

Benefits under the scheme include medical care at all levels and home visits/care as well as
free medicines and diagnostic services. These services are provided through public facilities
(including CGHS-exclusive allopathic, ayurvedic, homeopathic and unani dispensaries) with
some specialized treatment (with reimbursement ceilings) being permissible at private
facilities. Of the total expenditure, about a third is spent on wages and salaries of the CGHS
staff
Universal Health Insurance Scheme (UHIS)
For providing financial risk protection to the poor, the Government announced a
UHIS in 2003.

Under this scheme, for a premium of Rs 365 per year per person, Rs 548 for a
family of five and Rs 730 for a family of seven, health care for an assured sum of
Rs 30,000 was provided. BPL families were given a premium subsidy of Rs 200 p.a

In 2004 the subsidy was increased to Rs 200, Rs 300 and Rs 400 to individuals,
families of five and seven, respectively. To make the scheme more saleable, the
insurance companies provided for a floater clause that made any member of the
family eligible as against the Mediclaim Policy which is for an individual member.

Failure:-
The public sector companies find it to be potentially loss-making and do not invest in
propagating it, resulting in very low levels of awareness, reflected in the low
enrollment and very poor claim ratios.

Identification of the eligible families

The procedures are cumbersome and difficult for the poor—the premium has to be paid in
a lump sum
Community-Based Health Insurance
The initiative had the following objectives:
(i) to revitalize public health systems; (ii) to decentralize decision-making; (iii) to mobilize
resources to cover local operating costs; (iv) to encourage community participation
through management of services and locally generated funds; and (v) to define the
minimum package of essential health services.

The membership of these CHIs scheme varies from 1000 to more than 20 lakh. Most of the
schemes operate in rural areas and cover people from the informal sector. Enrolment
is usually facilitated by membership of the organizations, e.g. micro finance groups,
cooperatives, trade unions, etc. The annual premium ranges from Rs 20 to Rs 120 per
individual. The unit of enrolment is an individual and the membership is voluntary in most
of the schemes.

Yeshaswani, an insurance scheme for farmers, designed and implemented by the

Government of Karnataka since 2002 has widespread attention.
COMMUNITY HEALTH INSURANCE SCHEME

INSURANCE COMPANY
NGO
SHH,VHS,ACCORD,JRHIS
GROUP REIMBURSEMENT
PREMIUM
PREMIUM HEALTH
CARE
NGO
(SEWA,BAIF,NAVSARJAN AND KARUNA)

COMMUNITY
PREMIUM REIMBURSEMEN PROVIDER

COMMUNITY
 THE HEALTH INSURANCE VALUE CHAIN

THE HEALTH INSURANCE INDUSTRY CONSISTS OF SEVERAL KEY

PLAYERS ACROSS ITS VALUE CHAIN AS SHOWN IN THE ABOVE FIGURE
 Types of health insurance ?
1. Individual health plan – ‘mediclaim’,
• Cover expenses if hospitalised for at least 24 hours.
• Indemnity policies, i.e., 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, doctor’s fees, anaesthetist’s fees, cost of blood and
oxygen, and operation theatre charges.

2. Family floater plan

• Fairly new entrant in the health insurance.
• 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.
• 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.

3. Daily hospital cash

• One can buy maximium daily covers of anything between Rs500 and Rs5000.
• The premium would depend on the age and amount.
• For stay in ICU, the amount is automatically doubled.
• There is usually a cap on the number of days of claim per year .
 How they work ?
1. Individual health plan, Family floater plan, Senior Citizens’ plan
In case of a claim, expenses incurred are reimbursed. The remaining
amount can be claimed during the year. In case of no claim, 5% or 10% of
the sum insured is given as no-claim bonus.

2. Critical illness plan

In case of a claim , the entire sum insured is paid on diagnosis of the
specified issue. No-claim bonus is paid only by few plans .

3. Daily hospital cash (DHC) plan- Expense benefit is paid on per day basis
after hospitalisation (most plans mandate at least 48 hours of
hospitalisation). The pre-decided daily benefit amount is paid in full,
irrespective of the actual expenses.
 Roadmap
• Step I Get Started
• Individual health plan. If you are single, buy this basic plan, which offers wide coverage with minimum restrictions.
The amount of cover would depend on the age, lifestyle and choice of hospitals. Go for as much as you can afford.

• Family floater plan. Buy or enhance your cover when you have a family. Double the amount of what you would
have paid for an individual plan. Try to continue with the earlier insurer.

• Senior citizens’ plan. Acquire this plan as soon as you cross the threshold age.

• Sep II Get critical cover

• Critical illness plan. Buy this plan as the second level of protection to meet higher financial contingencies. The
treatment of critical illnesses is generally expensive, so do take adequate cover.

• Step III Add special covers

• Specific plans. Your final level of protection could be in the form of specific plans, such as a cancer plan or a diabetes
plan.

• Step IV Go for cash benefit plans

• Daily hospital cash. This is needed to meet any incidental hospital expenses
 Recent initiatives of IRDA

 Committee to formulate regulations

 Pure health insurance products

 Allowing the formation of an stand alone health insurance

company

 Standalone health insurance companies

 Renewability

 Senior citizens
J ANITA & D CHAKRAVARTHI 16
 Challenges in Health Insurance
• Medical advance, both a challenge & also impediment

• Increase in health care cost

• Ageing population

• Acute shortage of trained personnel ranging from doctors to

health care administrators

• New emergence and resurgence of old diseases

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 Impediments to providing Health
Insurance….
• Lack of Data
• Moral Hazard/Adverse Selection
• Complex nature of the product
• Medical Inflation
• New treatments
• Unnecessary treatments
• Difficulty in pricing
• Government provision of health care
• Long term nature
• Changing life style
• Mis-selling/fraud……

J ANITA & D CHAKRAVARTHI 18

 How to mitigate/address these
impediments…
• Insurer
– 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. Eg: Toll free no.s, cashless, quick
response
– Expense analysis on a regular basis
– Product innovation
– Efficient training of sales force
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