Winner of D.

Subrahmaniam Award 2010-11 {III}

TOPIC: A study on the development Health Insurance - its history, current scenario & the future prospects in India.
By: Mr. Dilpreet Singh, ARM-Sales Training, ICICI Prudential Life Insurance, New Delhi, Email: dilpreet111@gmail.com. ABSTRACT {Article at a Glance} This article is divided into 5 sections respectively. Each of these sections highlights an important area, which is related to the concept of Health Insurance. In addition, every section helps in developing an overall understanding, of the journey of Health Insurance to present state (avatar)& tries to inculcate a perspective, of appreciating the importance of Health Insurance & the its bright future as being the Insurance of Tomorrow. The sections are as follows:1. History of Healthcare & the evolution of Health Insurance {Introduction} 2. The Health Insurance initiatives of the State in the last 60 years 3. The current Health Insurance scenario (penetration) 4. The Gaps & improvements area in Health Insurance 5. The Future opportunities in this sector in India {Article}

Introduction
The English word "health" comes from the Old English word hale, meaning "wholeness, a being whole, sound or well,. At the time of the creation of the World Health Organization (WHO), in 1948, health was defined as being "a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity" The term health insurance is generally used to describe a form of insurance that pays for medical expenses. It is sometimes used more broadly to include insurance covering disability or long term nursing or custodial care needs. It may be provided through a government-sponsored social insurance program, or from private insurance companies. For an individual, either at a personal level or the family front, of which he or she is a part, health is an extremely important subject, which needs to be given priority. The same concept can be extended to the level of the country, where the health of the citizens, comes at the core for its long term sustainable development.

The history of the concept Health insurance can be traced back to the year 188384, when in Germany, compulsory accident and sickness insurance was initiated by Otto von Bismarck. The same concept was also adopted by Great Britain, France, Chile, the Soviet Union, and other nations after World War I. In the year 1946, in Britain the National Health Insurance which went into effect in 1948 provided the most comprehensive compulsory medical care plan. In which individual obtained free medical attention by participating doctors of National Health Service. The cost was met by the national government and local taxation & nominal charges for some services were levied. Similarly 1958 the Canadian Hospital and Diagnoses Act provided full hospital services almost free of charge in public wards. The concept of National health insurance widely adopted in Europe and parts of Asia. Social Security for Health Insurance is a new thing for the Indians. 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. 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. Before independence in India, health care has been based on voluntary work. Since ancient times traditional practitioners of health care have contributed to the medicinal needs of society. Acute knowledge in the medicinal properties of plants and herbs were passed on from one generation to another to be used for treatment. The colonial rule and the dominance of the Britishers changed the scenario. Hospitals managed by Christian missionaries took centre stage. Even the intellectual elite in India with their pro west bias favored Western practices. Prior to independence the healthcare in India was in shambles with large number of deaths and spread of infectious diseases. After independence the Government of India laid stress on Primary Health Care and India has put in sustained efforts to better the health care system across the country.

In 1947, the Bhore Committee Report attempted to analyze the state of health care in India and to make recommendations for the improvement of health care services in India. On the eve of India's independence in 1947, the Bhore Committee Report became the template for the structure of health care services in India in the postcolonial era, as reflected in the postcolonial government of India's Five-Year Plans. The government initiative was not enough to meet the demands from a growing population be it in primary, secondary or tertiary health care. Alternate sources of finance were critical for the sustainability of the health sector. We need to understand the various methods that are used by individuals & families in financing the overall health care expenditure, before we go into further details regarding the various initiatives of state & society. There is a basic structure & process as to how Healthcare Expenditure is financed by people in India. I am providing below a flowchart, highlighting the various options undertaken to finance their health care expense.

Flow-chart showing options of Healthcare Expense financing by individuals or families

State Funded State /Public

Social Security External Funded

Health Expenditure

Out of Pocket

Private Health Insurance

Private
External Sourced

There are mainly 2 ways, by way of which health care expense can be tackled. It can either be done, privately (i.e. procure the money personally) or with the help pf State or Society/public. In case of Private financing, there are 3 options, available with any person, which are under-mentioned: Out of Pocket Self financing. I.e. the person pays from his or her own pocket & savings. Private Health Insurance The expense is taken care by the health policy, which the person owns. External Source By way of managing personal loans from friends & family or Banks etc In the case of Public Financing option, the person again has 3 options, undermentioned: State Funded The Govt. provides for the medical care or gives some subsidy. Social security In developed countries by paying a small amount to the state, you are covered for medical. External funded Aid or grants etc Till about 20 years back, the private sectors venture in the health care sector consisted of only solo practitioners, small hospitals and nursing homes. The quality of service provided was excellent especially in the hospitals run by charitable trusts and religious foundations. In 1980's realizing that the government on its own would not be able to provide for health care, the government allowed the entry of private sector to reduce the gap between supply and demand for healthcare. The private hospitals are managed by corporate, non-profit or charitable organizations. The establishment of private sector has resulted in the emergence of opportunities in terms of medical equipment, information technology in health services, BPO, Telemedicine and medical tourism

The current Health Insurance scenario India spends about 6.5 to 7% of GDP on Health care (official estimates around 6%) out of which 1.2% is in the Govt. sector (this accounts for 22% of overall spending) and 4.7% in private sector (78% of overall spending).

In India, we yet do not have any universal health insurance plan, which caters to all the citizens of our country.

There are various types of health overages in India. Based on ownership the existing health insurance schemes can be broadly divided into 4 categories, such as: Government or state-based systems Market-based systems (private and voluntary) Employer provided insurance schemes Member organization (NGO or cooperative)-based systems The 3 broad institutions under which the above-mentioned 4 health Insurances schemes are offered, are under-mentioned pictorially:-

Health Insurance Plans

Private Social Community Based / Micro Insurance

Market & Employer M based Schemes

Government or State based Schemes

NGO or Cooperative based CHI

Government or state-based systems Government or state-based systems include Central Government Health Scheme (CGHS) and Employees State Insurance Scheme (ESIS). It is estimated that employer managed systems cover about 20-30 million of population. The schemes run by member-based organizations cover about 5 per cent of population in various ways.

But there are some special insurance schemes promoted by the Government, which provide medical benefits to specific sections of our society. The under-mentioned initiatives & schemes are those which have been promoted by the Government or with the help of the Government.

Central Government Health Scheme (CGHS)

Started in 1954 with 16 allopathic dispensaries covering 2.3 lac beneficiaries Provides comprehensive medical care to central govt. employees Mutual advantage to both employee and employer Now 320 dispensaries/hospitals in various systems of medicines covering 42.76 lac beneficiaries

Since 1954, all employees of the Central Government (present and retired); some autonomous and semi-government organizations, MPs, judges, freedom fighters and journalists are covered under the Central Government Health Scheme (CGHS). This scheme was designed to replace the cumbersome and expensive system of reimbursements (GOI, 1994). It aims at providing comprehensive medical care to the Central Government employees and the benefits offered include all outpatient facilities, and preventive and promotive care in dispensaries. Inpatient facilities in government hospitals and approved private hospitals are also covered. This scheme is mainly funded through Central Government funds, with premiums ranging from Rs 15 to Rs 150 per month based on salary scales. The coverage of this scheme has grown substantially with provision for the nonallopathic systems of medicine as well as for allopathy. Beneficiaries at this moment are around 432 000, spread across 22 cities. The CGHS has been criticized from the point of view of quality and accessibility. Subscribers have complained of high out-of-pocket expenses due to slow reimbursement and incomplete coverage for private health care (as only 80% of cost is reimbursed if referral is made to private facility when such facilities are not available with the CGHS). Employee and State Insurance Scheme (ESIS) The enactment of the Employees State Insurance Act in 1948 led to formulation of the Employees State Insurance Scheme. This scheme provides protection to

employees against loss of wages due to inability to work due to sickness, maternity, disability and death due to employment injury. It offers medical and cash benefits, preventive and promotive care and health education. Medical care is also provided to employees and their family members without fee for service. Originally, the ESIS scheme covered all power-using non-seasonal factories employing 10 or more people. Later, it was extended to cover employees working in all non-power using factories with 20 or more persons. While persons working in mines and plantations, or an organization offering health benefits as good as or better than ESIS, are specifically excluded. Service establishments like shops, hotels, restaurants, cinema houses, and road transport and news papers printing are now covered. The monthly wage limit for enrolment in the ESIS is Rs. 6 500, with a prepayment contribution in the form of a payroll tax of 1.75% by employees, 4.75% of employees' wages to be paid by the employers, and 12.5% of the total expenses are borne by the state governments.
The number of beneficiaries is over 33 million spread over 620 ESI centers across states. Under the ESIS, there were 125 hospitals, 42 annexes and 1 450 dispensaries with over 23 000 beds facilities. The scheme is managed and financed by the Employees State Insurance Corporation (a public undertaking) through the state governments, with total expenditure of Rs 3 300 million or Rs 400/- per capita insured person. The ESIS programme has attracted considerable criticism. A report based on patient surveys conducted in Gujarat (Shariff, 1994 as quoted in Ellis R et a,2000) found that over half of those covered did not seek care from ESIS facilities. Unsatisfactory nature of ESIS services, low quality drugs, long waiting periods, impudent behaviour of personnel, lack of interest or low interest on part of employees and low awareness of ESI procedures, were some of the reasons cited/

Other Government Initiatives

Apart from the government-run schemes, social security benefits for the disadvantaged groups can be availed of, under the provisions of the Maternity Benefit (Amendment) Act 1995, Workmens Compensation (Amendment) Act 1984, Plantation Labour Act 1951, Mine Mines Labour Welfare Fund Act 1946, Beedi Workers Welfare Fund Act 1976 and Building and other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996. The Government of India has also undertaken initiatives to address issues relating to access to public health systems especially for the vulnerable sections of the society. The National Health Policy 2002 acknowledges this and aims to evolve a policy structure, which reduces such inequities and allows the disadvantaged sections of the population a fairer access to public health services. Ensuring more equitable access to health services across the social and geographical expanse of the country is the main objective of the policy. It also seeks to increase the aggregate public health investment through increased contribution from the Central as well as state governments and encourages the setting up of private insurance instruments for increasing the scope of coverage of the secondary and tertiary sector under private health insurance packages. The government envisages an increase in health expenditure as a % of GDP from existing 0.9% to 2.0 % by 2010 and an increase in the share of central grants from the existing 15% to constitute at least 25% of total public health spending by 2010. The State government spending for health in turn would increase from 5.5% to 7% of the budget by 2005, to be further increased to 8% by 2010.

Health insurance initiatives by State Governments

In the recent past, various state governments have begun health insurance initiatives. For instance, the Andhra Pradesh government is implementing the Aarogya Raksha Scheme since 2000, with a view to increase the utilization of permanent methods of family planning by covering the health risks of the acceptors. All people living below the poverty line and those who accept permanent methods of family planning are eligible to be covered under this scheme. The Government of Andhra Pradesh pays a premium of Rs 75 per acceptor. The benefits to be availed of, include hospitalization costs up to Rs.4000 per year for the acceptor and for his / her two children for a total period of five years from date of the family planning operation. The coverage is for common illnesses and accident insurance benefits are also offered. The hospital bill is directly reimbursed by the Insurance Company, namely the New India Assurance Company. The Government of Goa along with the New India Assurance Company in 1988 developed a medical reimbursement mechanism. This scheme can be availed by all permanent residents of Goa with an income below Rs 50 000 per annum for hospitalization care, which is not available within the government system. The non-

availability of services requires certification from the hospital Dean or Director Health Services. The overall limit is Rs 30 000 for the insured person for a period of one year. A pilot project on health insurance was launched by the Government of Karnataka and the UNDP in two blocks since October 2002. The aim of the project was to develop and test a model of community health financing suited for rural community, thereby increasing the access to medical care of the poor. The beneficiaries include the entire population of these blocks. The premium is Rs 30 per person per year, with the Government of Karnataka subsidizing the premium of those below poverty line and those belonging to Scheduled Castes/ Scheduled Tribes. This premium entitles them to hospitalization coverage in the government hospitals up to a maximum of Rs 2500 per year, including hospitalization for common illnesses, ambulance charges, loss of wages at Rs. 50 per day as well as drug expenses at Rs 50 per day. Reimbursements are made to an insurance fund which has been set up by the NGO / PRI with the support of UNDP. The Government of Kerala is planning to launch a pilot project of health insurance for the 30% families living below the poverty line. The scheme would be associated with a government insurance company. Currently, negotiations are under way with the IRA to seek service tax exemption. The proposed premium is Rs 250 plus 5% tax. The maximum benefit per family would be Rs 20 000. The amount for the premium would be recovered from the drug budget (Rs 100), the PRI (Rs 100) and from the beneficiary (Rs 62.50) while the benefits available would include cover for hospitalization, deliveries involving surgical procedures (either to the mother or the newborn). Instead of payment by the beneficiary, Smart Card facility would be offered. This scheme would be applicable in 216 government hospitals.

Market-based systems (private and voluntary)

In the Open Market based category, there are various Health Insurance plans being offered by both Private & Public Insurance companies. A Broad outline of the health plans, available is provided below:Individual health plan: - These are the so-called 'traditional' health insurance covers, commonly known as 'Mediclaim' policies. They mainly cover hospitalization expenses provided it is for at least 24 hours. The expenses for hospital bed, nursing, surgeon's fees, consultant doctor's fees, cost of blood, oxygen and operation theatre charges are the usual inclusions. However, unlike the past, most plans now come with sub-limits for each of these heads. They usually do not cover pre-existing diseases or complications arising from them for the first four years of the policy. Besides, claims for specific ailments may not be allowed in the first or second year. For every claim-free year, most plans add 5 per cent to the sum insured. Market-based systems (voluntary and private) have Mediclaim scheme which covers about 2.5 million of population. There are many employers who reimburse costs of medical expenses of the employees with or without contribution from the

employee. It is estimated that about 20 million employees may be covered by such reimbursement arrangements Mediclaim being one of the oldest & most popular health insurance plans, a brief summary of its development, success & gaps is provided below:History of Mediclaim scheme The government insurance companies started first health insurance in 1986, under the name Mediclaim; thereafter Mediclaim has been revised to make it attractive product. Mediclaim is a reimbursement base insurance for hospitalization. It does not cover outpatient treatments. First there is used to be category-wise ceilings on items such as medicine, room charges, operation charges etc. and later when the policies were revised these ceilings were removed and total reimbursements were allowed with in the limit of the policy amount. The total limit for policy coverage was also increased. Now a person between 3 months to 80 years of age can be granted Mediclaim policy up to maximum coverage of Rs. 5 lakh against accidental and sickness hospitalizations during the policy period as per latest guidelines of General Insurance Corporation of India. This scheme is offered by all the four subsidiary companies of GIC. Mediclaim scheme is also available for groups with substantial discount in premium. The current statistics on health insurance indicate that out of 1 billion populations only about 2.5 million of population is covered by Mediclaim scheme. The reason for lack of popularity of this scheme could be several. The health insurance products are generally complicated and it is suggested that GIC and its subsidiary companies who deal in non-life insurance market which is dominated by mandated insurance such as accident, fire and marine, do not have expertise in marketing health insurance and therefore this scheme is not popular. Health insurance also represents very small percentage of overall business of GIC and its subsidiaries hence they have also not focused their attention in this area. The GIC companies have little interest and mean to monitor the scheme. It should also be recognized that because of technicalities of health service business there are number of cumbersome rules which have hampered the acceptance of the scheme. It is also reported that in number of cases the applicants of older ages have been refused to become member of Mediclaim scheme due to unnecessary conservatism of the companies. Mediclaim has provided a model for health insurance for the middle class and the rich. It covers hospitalization costs, which could be catastrophic. Family floaters Plans- These can be seen as agglomerations of individual health plans, for a family. The benefits remain largely the same, but the sum insured can be availed by any or all members of the family and not a single person. Rather than buying, say, a Rs 200,000 health cover for each member of the family of four by spending for a total cover of Rs 800,000, if you bought an

FF for Rs 800,000, each person covered under it can avail benefits up to Rs 800,000 as opposed to Rs 200,000 in the earlier instance. This reduces the need for you to pay from your pocket. Also, it comes at a lower premium than otherwise. A FF can be bought by an individual who becomes the proposer along with spouse, dependent children up to 25 years or even unmarried, divorced, widowed daughter and dependent parent. Critical illness plan:This is not a substitute for a 'Mediclaim', but you should ideally add this layer to the latter. It provides financial assistance if the insured develops a serious ailment, such as cancer, or has a stroke. Each cover has a list of ailments, usually 9-12 of them. One can get it in the form of a rider attached to a life insurance cover, or as a standalone policy from either a life insurer or a non-life insurer. If critical illness occurs, it pays the entire sum insured and terminates and can happen only once for any particular illness. To get the payout, the insured has to survive for 30 successive days after the diagnosis. No claim can be made during the first 90 days of the inception of the policy. The policy term is usually longer (10-20 years) if this cover is bought from a life insurer as a rider than from a general insurer (1-5 years). Senior citizens health plan:- Most Individual Health plans, cap the entry age at around 60 years, while Senior Citizen Health Plans, are generally for the age group of 60-80 years. Most can be renewed lifelong or up to the age of 90, and have a fixed coverage of, say, Rs 100,000 or Rs 200,000. Besides looking for sublimits, those taking SCHP should watch out for certain illnesses as many ailments are excluded from the plan. Senior Citizen Health Plans might even have the option to attach a Critical Illness plan rider. Daily hospital cash benefit: - This should be the last option when buying health plans. Most hospital cash plans might also inconvenience you as they offer the benefit after discharge from the hospital, and only after the policyholder produces proof of the number of days he stayed there. Hospital cash benefit has a pre-defined limit in most cases, say Rs 500 per day for up to 50 days in a year and up to 250 days during the entire term. Unit-linked health plans:- These are mostly defined benefit plans - usually for the long term - and, unlike a standard health insurance policy, the payout is not dependent on the costs actually incurred. Health Ulips are made up of two parts - a health plan and a unit-linked investment plan. Although these policies are being sold by life insurers, they may not cover life risk. Out of the premium one pays, a portion goes towards medical coverage and the rest of the premium is invested in a fund that operates like a mutual fund.

Covers from life insurers: - Life insurance companies, too, have started offering health plans. Most of these are, however, defined benefit plans - the prespecified amount which is the sum insured is paid as compensation, irrespective of the actual amount of expenses incurred. Also, these are long-term, having a fixed premium for, say, three, five, or even 10 years. Most of the types of plans discussed above are on offer. Some will even throw in a life cover for good measure. Note on Pre-existing diseases - This is a common problem area since there was no standard definition of pre-existing illness earlier. In June 2008, the General Insurance Council said "the benefits (of health insurance) would not be available for any condition, ailment or injury or related condition for which the insured had signs or symptoms, and/or was diagnosed and/or received medical advice/treatment, prior to inception of the first policy, until 48 consecutive months of coverage have elapsed, after the date of inception of the first policy."

Employer provided insurance schemes

There are several government and private employers such as Railway and Armed forces and public sector enterprises that run their own health services for employees and families. It is estimated that about 30 million employees may be covered under such employer managed health services (Ellis et al. 1996). General Insurance Corporation (GIC) and its four subsidiary companies and Life Insurance Corporation (LIC) of India have various health insurance products. These are Ashadeep Plan II and Jeevan Asha Plan II by Life Insurance Corporation of India and various policies by General Insurance Corporation of India as under: Personal Accident Policy, Jan Arogya Policy, Raj Rajeshwari Policy, Mediclaim Policy, Overseas Mediclaim Policy, Cancer Insurance Policy, Bhavishya Arogya Policy and Dreaded Disease Policy (Srivastava 1999). The health care demand is rising in India now days. It is estimated that only 10 per cent of health insurance market has been tapped till today. Still there is a scope of rise up to 35 per cent in near

Member organization (NGO or cooperative)-based systems - Community Health Insurance

CHI is any not-for-profit insurance scheme that is 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. Various other terms are used in reference to community health insurance, including: micro health insurance local health insurance and mutuelles

They are generally targeted at low-income populations, and the nature of the communities around which they have evolved is quite diverse: from people living in the same town or district, to members of work cooperative or microfinance groups. Often, the schemes are initiated by a hospital, and targeted at residents of the surrounding area. As opposed to social health insurance, membership is almost always voluntary rather than mandatory. In recent years, community health insurance (CHI) has emerged as a possible means because of: (1) Improving access to health care among the poor; and (2) Protecting the poor from indebtedness and impoverishment resulting from medical expenditures. Most of the insurance schemes have been started as a reaction to the high health care costs and the failure of the government machinery to provide good quality care. The objectives range from providing low cost health care to protecting the households from high hospitalization costs. BAIF, DHAN, Navsarjan Trust and RAHA explicitly state that the health insurance scheme was developed to prevent the individual member from bearing the financial burden of hospitalization. Health insurance was also seen by some organizations as a method of encouraging participation by the community in their own health care. And finally, especially the more activist organizations (ACCORD, RAHA) used community health insurance as a measure to increase solidarity among its members one for all and all for one. Most of these are based in rural or semi urban areas, working among the poor. (ACCORD, Karuna Trust, RAHA), dalits (Navsarjan Trust), farmers (MGIMS, Yeshasvini, Buldhana, VHS), women from self help groups (BAIF, DHAN) and poor self-employed women (SEWA). The size of the target population (i.e. the population from which they aim to draw members) ranges from a few thousands to 25 lakh. Most of them use existing community based organizations to piggyback the health insurance programme. While in some it is the existing self help groups (SHGs), e g, DHAN, BAIF; in others it is a union (SEWA, ACCORD and Navsarjan). In two others it is the cooperative movement (Yeshasvini and Buldhana).
In India, there appears to be three basic designs, depending on who is the insurer (see the Figure). In Type I (or HMO design), the hospital plays the dual role of providing health care and running the insurance programme. There are five programmes under this type. In Type II (or Insurer design), the voluntary organization is the insurer, while purchasing care from independent providers. There are two programmes under this type. And finally in Type III (or Intermediate design), the voluntary organization plays the role of an agent, purchasing care from providers and insurance from insurance companies. This seems to be a popular design, especially among the recent CHIs.

 The Gaps & improvements area in Health Insurance

Health insurance is an expense, to be sure, but the importance of health insurance really helps defray that expense. To save money, it is better to work with a health insurance agent who can help you compare plans and costs to find the best one for you and your family's needs. Remember, medical expenses are higher than ever, so if you have to be hospitalized for any reason, your costs are going to be a lot higher than you might have anticipated. They could be so high that you simply can't pay them, and bankruptcy is your only recourse. It doesn't make sense to go bankrupt, and ruin your financial future, just because you didn't buy affordable health insurance. Think about another importance of health insurance. Your family. your children need health care throughout their young lives, and it seems like kids are always getting into scrapes that require a trip to the emergency room. If you take care of a family, you owe it to them to get health insurance. Without it, your entire family is vulnerable, and if anything happened, would you want to live with the guilt that having no health insurance could create? The importance of health insurance cannot be overrated. Certainly, it can be difficult to come up with the money for individual health insurance. But can you afford to be without it, really? Over the last 50 years India has achieved a lot in terms of health improvement. But still India is way behind many fast developing countries such as China, Vietnam and Sri Lanka in health indicators (Satia et al 1999). In case of government funded health care system, the quality and access of services has always remained major concern. A very rapidly growing private health market has developed in India. This private sector bridges most of the gaps between what government offers and what people need. However, with proliferation of various health care technologies and general price rise, the cost of care has also become very expensive and unaffordable to large segment of population. The government and people have started exploring various health financing options to manage problems arising out of growing set of complexities of private sector growth, increasing cost of care and changing epidemiological pattern of diseases. The proportion of insurance in health care financing in India is extremely low. Public spending in health care is very low at 17% and the National Health Policy has recognized this More than 86% of healthcare financing is through unplanned or, non-contributory spending 86% from outof-pocket expenses 83% from private sector spending Health care financing in India. As per the statistics of the total health expenditure in India, worth Rs 3 lakh crore, the spending on hospitalization accounts for Rs 1 lakh crore in the country. Against this, the existing level of health insurance premium was worth only Rs 6,000 crore, which means that a majority section of the Indian populace does not have an insurance cover, which is a great opportunity to be tapped.

The Insurance industry should share data with each other, as the data of people who have made claims is available, which is not adequate. A much wider database would make all the difference. The IRDA is in the process of establishing a data warehouse that will contain information in detail about health insurance, which can benefit the industry as a whole. In Andhra Pradesh, the data is collected right at village level with a target of 2.5 crore people. "During the data collection, it was found that the disease burden of diabetes in poor families is less. One reason is that people from lower socio-economic classes have to do more physical work and their diet is not rich which is responsible for inducing lifestyle diseases." Some of the main reason, as to why there has been restraint in the growth of Health Insurance, during the last decade is jotted down:1. Inadequate healthcare infrastructure 2. Limited reach

3. Significant underwriting losses for Health Insurance business in India 4. Lack of standardization and Accreditation norms in healthcare industry in India 5. Insufficient data on Indian consumers & disease patterns resulting in difficulty in product development and pricing. There has been some resistance (observed) from the Health Insurance Companies, which is adding to the suspicion of customers before making any decision to enroll with a health insurance policy or scheme. The doubts raised by customers are as follows:DOUBTS OF CUSTOMERS 1. New modern private insurance companies are indulging in moneymaking businesses with little interest in insurance. 2. Insurance policies contain too many exclusion clauses. 3. Most insurance companies now use call centers and staff attempt to answer questions by reading from a script. It is difficult to speak to anybody with expert knowledge. These are some of the main short-coming which the Health Insurance companies, need to tackle to raise the confidence level of the customers and also gain positive word of mouth feedback & references. In addition, there are some inherent changes, which the industry should look at, if we want to move towards the next plat-form in Health Insurance, in India. We can call these the Pillar of Changes, necessary to evolve the Health Insurance market. These changes need to be brought about at the industry level, where all the companies should make combined efforts. Pillars of Change I am jotting down the same, with a brief description of the change that are required. 1. Consumer Awareness We need to create the Awareness Increase exposure through media (TV, Radio and Internet). In this case, the traditional model is more generic and there is a need to reinvent the messages based on target groups to achieve the business objectives.

2. Standardization of Health care costs and Accreditation norms Lack of standardization & accreditation, makes it difficult to judge the quality of health service being provided by health-care institutions. In addition varying treatment cost & bargaining is adding to the woes of the health industry. Worldwide, the Standardization & Accreditation of Hospitals of Healthcare Delivery System has become the focus. In India health care delivery system has remained largely fragmented and uncontrolled. The focus of accreditation is on continuous improvement in the organizational and clinical performance of health services, not just the achievement of a certificate or award or merely assuring compliance with minimum acceptable standards. 3. Healthcare Infrastructure
Till now, in India, the health sector i.e. the primary health care system has been managed mainly by the shallow structure of government health-care facilities and other public health care systems in a traditional model of health funding and provision. But, it is unable to justify the demand for health security by over 200 million of the health insurable population in India, mainly due to service costs being out of reach of many people, absence of good and effective number of physicians, low rate of education programs, less number of hospitals, poor medical equipment and over all, the poor budget of government towards the health program.

4. Data & Information Exchange On account of insufficient & properly managed data availability on Indian customers & disease related information, is making is difficult for the Health Insurance companies to properly design & price products. Whatever data is currently available, the Govt., companies & health-care institutions need to share them among themselves.

Opportunities in Health Insurance

According to recent news report Health insurance continues to be the fastest growing segment with annual growth rate of 55%. Health Premium has risen to Rs. 3300 crores in 2006-2007. The Indian healthcare insurance industry was worth INR 5,125crores with a compounded annual growth rate of approximately 37 percent between 2002 and 2008. The market penetration is only around 2 percent of the total population in India. The Health Insurance Industry is one of the fastest growing segments among other non-life insurance segments. The Indian healthcare insurance industry is worth INR 60,497 crores with a compounded annual growth rate of approximately 42.3 percent between 2008 and 2015. The market penetration is will be 3 folds higher in 2015. The main factors of growth are increased awareness.

S W O T Analysis of the Health Insurance Opportunity in India

Strengths (Future Growth Factors)
Weakness (Gaps in the Industry & System)

India is now the second fastest growing major economy in the world. Third largest economy in the world Indian healthcare has emerged as one of the largest service sectors in India. Healthcare spending in India is expected to rise by 15% per annum. Healthcare spending could contribute 6.1% of GDP in 2012 and employ around 9 million people.

Inadequate healthcare infrastructure Limited reach

Significant underwriting losses for Health business in India

Lack of standardization and Accreditation norms in healthcare industry in India

Insufficient data on Indian consumers & disease patterns resulting in difficulty in product development and pricing.

Threats (Areas needing immediate concern)

Opportunities (Untapped Potential)

Increasing awareness of Health Insurance as rising healthcare costs have increased need for health insurance Supporting Demographic Profiles (Prospering Middle Class, increasing disease state, population). There is a clear indication that seekers ( annual income between INR 2,00,000 and 04,99,999) and strivers ( annual income between INR 5,00,000 and 10,00,000) population is significantly increasing in the next future. There will be a direct proportionality of this increase to healthcare spending parity. The Disease rates in India are increasing. India has one of the highest heart disease and diabetes rates in the world. Shift to lifestyle-related diseases

New modern private insurance companies are indulging in money-making businesses with little interest in insurance. Insurance policies contain too many exclusion clauses. Most insurance companies now use call centers and staff attempt to answer questions by reading from a script. It is difficult to speak to anybody with expert knowledge.

As per the recent reports from various agencies the Health sector has the potential to become a Rs. 25000-crore industry by 2010. According to World Bank Report, 99% of Indians will face financial crunch in case of any critical illness. Hence the need for Health Insurance In the next four years (by 2014), a host of factors will be responsible in driving the future of Health Insurance. The under-mentioned factors will play important role, in driving the Health Insurance industry to the next platform. 1. Increasing awareness of Health Insurance as rising healthcare costs have increased need for health insurance 2. Supporting Demographic Profiles (Prospering Middle Class, increasing disease state, population). 3. De-tariffing of the general insurance industry (which has increased emphasis and efforts by insurance companies towards health insurance and other personal lines of business) 4. Rationalization of premium rates (e.g. trend of upward revision in respect of Group Health policies) 5. In order to encourage foreign health insurers to enter the Indian market the government has recently proposed to raise the foreign direct investment (FDI) limit in insurance from 26% to 49% , Government initiatives are always supportive to Healthcare Insurance Environment. 6. The spending on Healthcare is increasing YOY from 2005 to 2025. The prospering middle class in India supports this spending environment. The average annual household consumption in healthcare (discretionary spending ) is expected to double between 2005 and 2025. 7. There is a clear indication that seekers ( annual income between INR 2,00,000 and 04,99,999) and strivers ( annual income between INR 5,00,000 and 10,00,000) population is significantly increasing in the next future. There will be a direct proportionality of this increase to healthcare spending parity. 8. Salient Demographic Features that support the growth of Health Insurance in India: Adult literacy rate in India is 61.3% and the youth literacy rate in India is 73.3% and is expected to increase in the future. 9. The Disease rates in India is increasing. India has one of the highest heart disease and diabetes rates in the world. 10. It is home to one-sixth of the worlds population occupying less than 3 % of the worlds area.

There will be a number of factors, which will lead to growth for the Health industry, including health insurance. The Drivers of Growth are under-mentioned:Growth Drivers
o o o o o

India is now the second fastest growing major economy in the world. Third largest economy in the world Indian healthcare has emerged as one of the largest service sectors in India. Healthcare spending in India is expected to rise by 15% per annum. Healthcare spending could contribute 6.1% of GDP in 2012 and employ around 9 million people.

Along with these other reasons, as why the Health Insurance will see a major boom in the coming days is on account of many factors As under-mentioned:o o o o o o

Shift from socialized to private providers Booming economy and High literacy rates Shift to lifestyle-related diseases Easier financing Increasing life expectancy Recognition by government priority section

The majority of healthcare services in India are provided by the private sector & the Private sector in India is one of the largest in the world, having:

80 percent of all qualified doctors, 75 percent of dispensaries 60 percent of hospitals in India belong to the private sector

With the booming economy and High literacy rates, the capacity to spend along with the capacity of the people to pay has increased. As people earning & education level increase with it will lead to more spending in health care. The increase in purchasing power & education will lead to a number of positive trends for the Health care industry as under-mentioned:o o o

When families move from middle income to rich, the highest growth in spending is recorded in healthcare. The top 33 per cent income earners in India accounted for 75 per cent of total private expenditure on healthcare. The proportion of households in the low income group has declined significantly and the Great Indian Middle-class has come of age. With Literacy the Per-capita expenditures on healthcare rise with higher education levels.

Households that have higher education levels tend to spend more per illness

The Demographics Middle Income Class in India to grow to 400 to 500 Million by 2015. It has been noted in a number of researches & surveys, that there is a alarming increase in lifestyle-related diseases. The shift in disease profiles from infectious to lifestyle-related diseases is expected to raise expenditures per treatment. Lifestyle-related diseases are typically more expensive to treat than infectious ones. Indias disease profile is expected to follow the same pattern as in developed economies. Diseases - cardiovascular, asthma and cancer have become the most important segments & inpatient spending is expected to rise from 39% to nearly 50%. The government of India has also identified Healthcare as the priority section for focused attention. Measures taken by the government to stimulate market development in the healthcare sector are as follows:o

Reduction in Import duty on medical equipment Depreciation Limit on medical equipment increased Customs duty reduced The Government has announced Income tax exemption of the Income Tax for the first five years, to hospitals set up in rural areas US$ 56 million will be earmarked for HIV/AIDS control programme through the use of primary health centers, prevention of drug abuse etc.

Inarguably the potential market for insurance buyers is tremendous in India and offers great scope for growth. While estimating the potential of the Indian insurance market we are often tempted to look at it from the perspective of macro-economic variables like the ratio of premium to GDP (which is indeed comparatively low in India) but the fact is that the number of potential buyers of insurance in India is certainly attractive. However, this ignores the difficulties of approaching this population. New entrants in other mass industries such as consumer products or retail banking have discovered this after burning their fingers. Much of the demand may not be accessible because of poor distribution, large distances or high costs relative to returns.

Also, most new entrants have a tendency to target the business of existing companies rather than expanding the market, this is myopic. This not only leads to intense competition for the new players and their much of their effort is spent on trying to capture existing customers by offering better service or other advantages. Yet, the benefits of this strategy are likely to be limited. For example, 50% of the current demand for general insurance comes from the corporate segment. The corporate are likely to shop around for the best rates, products and service. Nevertheless, the corporate segment, as a hole will not be a big growth area for new entrants. This is because penetration is already good here, companies receive good service because of their size and rates are tariff governed. In both volumes and profitability, therefore, the scope for expansion is modest. A better approach may be to examine specific niches where demand can be met or stimulated, like targeting the chief wage earners and more importantly, moving to rural India. The main thrust of a new insurers strategy should be to stimulate demand in areas that are currently not served at all. If insurers are to take advantage of Indias large population and reach a profitable mass of customers, new distribution avenues and alliances will be imperative. This is also true for the nationalized corporations, which must find fresh avenues to reach existing and new customers. There would be substantial shifts in the distribution of insurance in India. By: Dilpreet Singh, Ass Regional Manager Sales Training & Regulatory ICICI Prudential Life Insurance Co Pvt. Ltd, New Delhi, Email: dilpreet111@gmail.com Mobile: 9873552617