HEALTH INSURANCE IN INDIA

R AHUL M UNSHI | 05PH2010

With a 60% growth in the financial year 2007-08 and a market share of Rs. 5100 crores,
health insurance is touted as the fastest growing segment in non-life insurance sector in
India in the recent years.

Zooming out the view to gain a broader vista we find juxtaposed the World Bank report
stating that there is only a dismal 10% penetration of health insurance among the Indian
population and 24% of all hospitalized people are impoverished to below poverty line, each
year.

Overall, Indian health sector is still characterized by near absence of significant risk
protection against major healthcare related expenditure ensuring that that large proportion
of people, especially those in the bottom four income quintiles borrow money or sell assets
towards meeting this end.

In India, health care is financed through general tax revenue, community financing, out of
pocket payment and social and private health insurance schemes. According to National
Health Accounts published by NCMH, India spends around 4.9% GDP on health making the
per capita total expenditure on health US$ 23, of which the per capita Government
expenditure on health is US$ 4. Hence, it is seen that the total health expenditure is around
5% of GDP, with breakdown of public expenditure (0.9%); private expenditure (4.0%). The
private expenditure can be further classified as out-of-pocket (OOP) expenditure (3.6%) and
employees/community financing (0.4%). It is thus evident that public health investment has
been comparatively low.

Nevertheless, governments at the centre as well as many states have started large scale
health insurance programmes to protect their vulnerable groups from health related
financial crisis.

GOVERNMENT RUN SCHEMES

Government has set up funds in the form of social insurance with explicit benefits in return
for payment. It is usually compulsory for certain groups in the population and the premiums
are determined by income (and hence ability to pay) rather than related to health risk. The
benefit packages are standardized and contributions are earmarked for spending on health
services. The government-run schemes include the Central Government Health Scheme
(CGHS) and the Employees State Insurance Scheme (ESIS). Whereas the prominent state
efforts include Rajiv Gandhi Aarogyasri Scheme in Andhra Pradesh, and the centrally
sponsored Rashtriya Swastha Bima Yojna. Such schemes have contributed to the increase in
penetration of health insurance in the country.

CENTRAL GOVERNMENT HEALTH SCHEME (CGHS)

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It aims at providing comprehensive medical care to the employees of Central Government,
certain autonomous and semi-government organizations, MPs, judges, freedom fighters and
journalists and has been in place since 1954. The benefits offered include all outpatient
facilities and preventive and developmental care in dispensaries as well as inpatient
facilities in government hospitals and approved private hospitals. The scheme also covers
non allopathic system of medicine. At present there are 432,000 beneficiaries spread across
22 cities.

This scheme is mainly funded through Central Government funds, with monthly premiums
ranging from Rs 15 to Rs 150 based on salary scales.

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.

EMPLOYEE AND STATE INSURANCE SCHEME (ESIS)

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 developmental care and health education. Also included is
free medical care of the employees and their family members.

The number of beneficiaries is over 33 million spread over 620 ESI centres 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 3300 million or Rs 400 per capita insured person.

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.

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 have attracted much criticism.

OTHER GOVERNMENT INITIATIVES

Apart from running schemes the Government has also brought under statutory provisions,
social security benefits for disadvantaged groups and has undertaken initiatives to ensure
fairer and equitable access to public healthcare systems especially by the underprivileged
sections of the society. The National Health Policy 2002 aims to evolve a policy structure to
address these. 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.

A comprehensive increase in expenditure on health amounting to 2% of GDP by 2010 with

central grants constituting ¼ of total public health spending is on the cards.

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Steps towards implementation of alternative system of healthcare financing in the form of
health insurance to facilitate availability of essential need based affordable healthcare
services to all income groups have been evolved with an aim towards the protection of the
needy population. In the 2002-2003 budget, an insurance scheme targeted towards the poor
called Janraskha was introduced. With a premium of Re 1 a day, it ensured indoor treatment
up to Rs 3000 per year at selected and designated hospitals and outpatient treatment up to
Rs 2 000 per year at designated clinics, including civil hospitals, medical colleges, private
trust hospitals and other NGO-run institution.

Another initiative of community-based health insurance, taken in the 2003-04 budget aimed
to enable easy access of less advantaged citizens to good health services, and to offer
health protection to them. This policy covers people between the ages of three months to 65
years. Under this scheme, a premium equivalent to Re 1 per day (or Rs 365 per year) for an
individual, Rs 1.50 per day for a family of five (or Rs 548 per year), and Rs 2 per day for a
family of seven (or Rs 730 per year), would entitle them to get reimbursement of medical
expenses up to Rs 30000 towards hospitalization, a cover for death due to accident for Rs
25000 and compensation due to loss of earning at the rate of Rs 50 per day up to a
maximum of 15 days. The government would contribute Rs 100 per year towards the annual
premium, so as to ensure the affordability of the scheme to families living below the poverty
line.

The government also offers assistance by way of Illness Assistance Funds, like National
Illness Assistance Fund (NIAF) was set up in 1997, which have been set up by the Ministry of
Health and Family Welfare at the national level and in a few states.

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA)

The IRDA has taken many proactive steps in its developmental agenda for health insurance.
The authority had set up National Health Insurance working Group in 2003 under which the
stake holders of health insurance industry would work together and suggest reforms. A
subgroup for electronic standardized data acquisition was formed. This system has now
been functional for over 3 years with a health data repository at the Tariff Advisory
Committee (TAC), wherein considerable data on insured persons and claims has been
collected and analyzed. Steps have also been initiated to further streamline the process of
data collection and analysis.

Initiatives towards registration of stand alone health insurance companies have already seen
the entry of M/s Star Health and Allied Insurance Co. Ltd. and M/s Apollo DKV Insurance Co.
Ltd. Newer and innovative products of the likes of Hospital Cash and Hospitalization/ Critical
Illness benefit products are being designed and made available to supplement the indemnity
products that have dominated the market so far. Recent addition to the steadily growing
pool of innovations include specific for senior citizens, for particular diseases like Diabetes,
for lower socio-economic groups, products providing outpatient coverage, and those
covering preexisting diseases, none of which was available until recently.

IRDA is closely working with the Union Ministry of Health and Family Welfare and the World
Health Organization in their work on Standard Treatment Guidelines and Health Insurance
Training. Co-ordination is on with FICCI in their joint group of insurers and hospitals in

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developing standards of care, and to take further steps towards sustainability of health
insurance.

PRIVATE –FOR PROFIT SCHEMES

In private insurance, buyers voluntarily pay premium to an insurance company that pools
people with similar risks and insures them for health expenses. Premiums are based on an
assessment of the risk status of the consumers and the level of benefits provided.

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) and the Life Insurance Corporation
(LIC) of India provide voluntary insurance schemes. The Life Insurance Corporation offers
Ashadeep Plan II and Jeevan Asha Plan II. The General Insurance Corporation offers Personal
Accident policy, Jan Arogya policy, Raj Rajeshwari policy, Mediclaim policy, Overseas
Mediclaim policy, Cancer Insurance policy, Bhavishya Arogya policy and Dreaded Disease
policy etc. Of these Mediclaim is the main product of GIC.

The insurance sector was opened to private and foreign participation in the year 1999 with
the passing of IRDA bill. The Bill also facilitated the establishment of an authority to protect
the interests of the insurance holders by regulating, promoting and ensuring orderly growth
of the insurance industry. The bill allows foreign promoters to hold paid up capital of up to
26 percent in an Indian company and requires them to have a capital of Rs 100 crore along
with a business plan to begin its operations.

Few companies and their health insurance schemes are listed below.

NGOS / COMMUNITY-BASED HEALTH INSURANCE

Community based financing schemes are generally based on three principals community co-
operation and local self reliance and are typically targeted towards poorer population in the
community who primarily influence the contribution level and collecting mechanisms as well
as the content of the benefit package, and allocating the schemes. The premium is pre-paid
and usually flat rate.

Such schemes are generally run by trust hospitals or nongovernmental organizations

(NGOs). 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. Increasingly in India, CBHI schemes are negotiating with

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the for-profit insurers for the purchase of custom designed group insurance policies. A few
larger non –profit SBHI schemes and their base are listed below.

NAME LOCATION MEMBERS TYPE OF INSURANCE

Self Employed Gujarat 40,000 Integrated Insurance
(Ahmedabad) Scheme, Health Insurance,
Women’s Association Life Insurance (with LIC),
(SEWA) Accident (with NIA), Asset
Insurance, Maternity Benefit
Trivandrum District Kerala 1,00,000 Craft & Gear Fund (loan
(Thiruvanantha families basis),
Fishermen’s Federation puram)
(TDFF) Contingency Fund(death,
accidents, loss of work)

Voluntary Health Services Tamil Nadu 1,60, 000 Health Insurance

Medical Aid Plan
Students Health Home West Bengal 5,50,500 Health Insurance
Society for Promotion of Mumbai 1,200 Health Insurance Accident
Area Resources Centre couples Housing (with OIC)

(SPARC)
Raigarh Ambikapur Madhya 75,000 Health Insurance
Pradesh
Health Association(RAHA) (Raigarh
Medical Insurance District)
Scheme
Mathadi Hospital Trust Mumbai 1,50, 000 Health Insurance

Studies show that CBHI schemes are highly unorganized and suffer from poor design and
management. Often there is a problem with adverse selection because of a large number of
high-risk members, since premiums are not based on assessment of individual risk status.
These have also reportedly failed to include the poorest-of-the-poor, have low membership
and often require extensive third party financial support. Also, there are issues relating to
the sustainability and replication of such schemes.

CONCLUSION
Being a low income country and due to the presence of large sections of illiterate masses
there continues to be lack to penetration of health insurance in to the masses. Currently,
there is no mechanism or infrastructure for collecting mandatory premium among the large
unorganized sector. Even in terms of the existing schemes, there is insufficient and
inadequate information about the various schemes. Data streamlining is also rudimentary.

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There is an urgent need to document global and Indian experiences in social health
insurance. Given the heterogeneity of different regions in India and the regional
specifications, one would need to undertake pilot projects specific to each target population
under an insurance scheme. Health policy-makers and health systems research institutions,
in collaboration with economic policy study institutes, need to map the prevailing disease
burden at various geographical regions to develop standard treatment guidelines and
estimate the cost of such health services. Benefit packages can then be designed and the
premium to be levied and subsidies to be given determined for each region. Skill-building for
the personnel involved, and capacity-building of all the stakeholders involved, would be a
critical component for ensuring the success of any health insurance programme.

Apart from developing equitable accessibility to affordable quality health care through
reforms in public health delivery system, the government can promote health insurance by
playing a regulatory role as well as developing a fund pool with the community and working
at a mandatory grassroots level though the local governing units and NGOs.

It should be the endeavour of all associated with healthcare to ensure both equity and
efficiency in the development and regulation of health insurance and to promote a just and
humane environment in the landscape of health insurance.

REFERENCES
1. www.searo.who.int/linkfiles/social_health_insurance_an2.pdf
2. Yojana, October 2009
3. http://www.ilo.org/gimi/concertation/resource.do?
page=/concertation/publications/carte/autrespublications/Monographies_323711566
1_4821.PDF