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INTRODUCTION OF HEALTH INSURANCE

India is the first largest country in terms of purchasing power parity
and is considered one of the fastest emerging economics in the world.
However, its health status remains a major concern. Infant mortality
rate of India is as high as 54.6 while it is around 23 for China.
Similarly life expectancy at birth for India is around 64.7 while it is in
the range of 77.80 for many countries. Insurance generally comprises
of life and non-life (general) insurance. Health Insurance in India
comes under general insurance. The development of health insurance
in India therefore, has to be seen in the backdrop of the development
of insurance in general. Healthcare, with global revenue of over Rs.
2.75 trillion is the largest industry in the world. The nation of India
with a population of 1000 million experiences a vast inequity that
exists in the healthcare industry with barely 3 percent of the
population covered by some form of health insurance, either social or
private.
Health insurance schemes are increasingly recognized as preferable
mechanisms to finance health care provision. The option of insurance
seems to be promising alternatives as its pools and transfers risk of
unforeseeable health care costs for a pre-determined fixed premium.
We do not social security system, appropriate Health Insurance
Schemes

for

different

sections

of

the

society

particularly

underprivileged and the poor is an urgent need of the hour. Insurance

penetration being very low and health insurances share being
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minimal in the existing situation, the vast majority of the populations

are outside the existing Health Insurance System. With the opening up
of the insurance market for private entry and the accompanying hype
it is being hoped that in the days to come, the teeming population of
India can look for health coverage from an array of insurance
providers that too at an affordable price. The present series on health
and group insurance therefore attempts to trace the significance of
health insurance and its basic tenets in preserving the economic value
of the lives of the citizens.

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ORIGIN OF HEALTH INSURANCE

The concept of health insurance was proposed in 1964 by Hugh the
Elder chamberlen form the Peter Chamberlen family. In the late 19 th
century, early health insurance was actually disability insurance, in
the sense that it covered only the cost of emergency care for injuries
that could led to a disability. This payment model continued until the
start of the 20th century in some jurisdictions (like California), where
all laws regulating health insurance actually referred to disability
insurance. Patients were expected to pay all other healthcare costs out
of their own packets, under what is known as the fee for-service
business model.
During the middle to late 20th century, traditional disability insurance
evolved into modern health insurance. It is not an easy task to
regulated health insurance. Some countries including the US had to
launch war-like operation to unearth large scale frauds. Malpractices
in health Insurance range from excessive billing to exaggerating
severity of hospital patient conditions.
In India, Health Insurance is not of recent origin. Concern for loss
resulting from accident and illness can be traced to ancient
civilizations. In fact, one of the earliest forms of health insurance may
have been based on the ancient custom of paying the doctor while in
good health and discontinuing payment during periods of illness. This
custom existed in South East Asian countries including India. The

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development of health insurance in existing form in India is based on

pattern followed in Europe and America.
Health Insurance or medical insurance schemes had developed in
India due to industrial relations problems between the employer and
the employees. The Corporate Houses used to offer core and non-core
benefits to the employees. The insurance policies were granted to
large Corporate Houses purely on an accommodation basis. The cover
usually offered to the employees was in the nature of hospitalization
and domiciliary treatment for dental and non-surgical eye treatment.
The benefits used to be for very small amount. There was no scheme
for individuals and families.
In 1981, the Apex Body of Public Sector Insurance Companies i.e.
GIC designed a limited cover for individuals and families for
covering their hospitalization needs. This was replaced by a
mediclaim policy in the year 1986 under a market agreement to
provide insurance benefits to individuals and groups under a group
mediclaim policy. The scheme so introduced was modified in 1991
and 1996 in the light of experience and suggestions received from the
insuring public and medical fraternity. The benefit provided under the
policy was on reimbursement basis on occurrence of a major calamity
in the form of accident/sickness to an insured person.

The first Mediclaim Insurance Scheme was introduced by GIC in

1986 for people not covered under the above scheme. Prior to 1986,

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cover against sickness and diseases were provided by extension of

Personal Accident Policy. It is interesting to note that even after nearly
two decades of health insurance, the population covered by health
insurance is only 1% of the total population.

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MEANING AND DEFINITION

Health insurance insures you and your family against sudden medical
expenses. A medical emergency can arise due to sudden illness or
injury. With medical expenses rising, a health insurance policy would
help you sail through a bad patch. Your medical expenses will be
taken care of by the Insurance company provided you pay your
premium regularly.
World health organization defines health as complete physical, mental
and social well being and not merely the absence of disease and
injury. As per WHO, a countrys Health Systems comprise of all the
organizations, institutions and resources that are devoted to produce
health actions.
New India Assurance Company Limited, stressing on the social
security aspect of health insurance, in their written note, stated;
Basically the philosophy behind the concept of Health Insurance is
to provide protection against uncertainty of illness /accident by
spreading the risk based on the principle that what is highly
unpredictable for an individual is predictable for a group of
individuals. Thus, insurance is a system by which Healthcare
expenditure of few unfortunate individuals, who suffer from
illness/injury, is shared by many fortunate ones who are insured and
exposed to the same risk but remain healthy.

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Oriental Insurance Company, emphasizing the financial security

aspects of health insurance, in their written note, stated; Health
insurance is a financial mechanism that exists to provide protection to
individuals and households from hospitalization expenses incurred as
a result of unexpected illness or injury. Under the mechanism, the
insurer agrees to compensate or guarantees the insured person against
loss by specified contingent event and provide financial coverage for
which the insured party pays a premium. The case for health
insurance rests on three grounds: a) Illness can not be predicted; b)
Financial burden of hospitalization is high and cannot be planned; c)
The proportion of people requiring hospitalization due to illness or
injury in any large population is small thus enabling risk pooling.
Pooling of risks, resources, and benefits is the hall mark of any
insurance system.

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NEED FOR HEALTH INSURANCE

Health insurance has become a necessity today because it plays a
major role in health care. This is because one never knows when
illnesses may strike. And in such cases hospitalization and medication
expenses can be unaffordable. Health insurance can prove to be a
source of support by taking care of the financial burden of your
family may have to go through.
Advancement in science and technology has brought about a
revolutionary change in mans life. It has reduced mortality rates and
increased his life span but at the same time has given rise to a number
of other ills. Increasing pollution levels especially in metros, stress
and strain at workplace, cut throat competition taking its toll are some
of the harsh realities.
Pollution levels in certain areas are unimaginably high and the areas
are nothing short of gas chambers. An individual going to his place of
work has to spend long hours in queues, inhaling the vehicular
emissions of poisonous carbon monoxide gases affecting his health in
the long run. Besides accidents on roads are common features. In such
instances timely affordable medical help is the need of the hour. But
this may be easier said than done. Treatment for major illnesses or
accidents can be unaffordable and may leave you poorer by thousands
of rupees.

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It is especially worse when the patient needs specialized care.

Expenses are exorbitant and the situation leaves you mentally
devastated also burning a deep hole in your pocket. The family
balance is affected, all those comforts of life have to be given up and
your family has to make up with bare minimum necessities only.
Health insurance takes care of you in such circumstances. It will help
you tackle such situations with ease by providing you with timely and
adequate medical care. The financial burden of footing huge medical
bills is taken care of by health insurance. Besides if the accident
causes life long disability to the patient, the earning member of the
family, the insurance company will come to the rescue.
Primary health care - a basic necessity and right of every individual, is
today only a distant dream. The government has done precious little in
this regard for the masses and hence the private sector has taken up
the challenge to exploit the potential of the 92,400 crore healthcare
industry.
With educational levels going up people are becoming increasingly
aware of the need of timely healthcare facilities. But at the same time
the high costs of private health care is a major deterrent. The need of
the hour is affordable health care for all in order that even the people
in remote villages can have access to it.

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INDIAN SCENARIO
In India, presently the health insurance exists primarily in the form of
Mediclaim policy offered to the individual or to any group,
association or corporate bodies. The government spending is less than
25 percent against the average spending of 30-40 percent in other
developing countries. There is need for regulation for the self-funded
health plans by major employers who may not find insurance as a cost
effective alternative. According to WHO figures (2002), total health
expenditures represent 6.1% of Indias GDP, but most of this amount,
representing 4.8% of GDP is the share of private expenditures and
only 1.3% of GDP is public expenditure. Of the 4.8% private
expenditure, 98.5% are out-of-pocket spending of users. In other
words, 77.5% of total expenditure for health care costs is paid by
individuals or households (WHO, 2005) and this huge expenditure
does not pass through any pooling mechanism. Access to health care
in India is still low and with only less than 1% of GDP allotted to
public health, there is lack of adequate health infrastructure.
Penetration of Mediclaim is currently done by state-owned insurance
companies, covering only about 2.5 million people i.e. less than 0.50
percent of the countrys population. There are some health insurance
schemes issued by four public sector general insurance companies,
namely, National Insurance Company Limited (NICL), New India
Assurance Company Limited (NIACL), Oriental Insurance Company
Limited (OICL) and United India Insurance Company Limited
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(UIICL). Besides these four companies, Life Insurance Corporation

(LIC) of India also offers a few health covers in a limited manner. At
present, 82.44% of the entire commercial health insurance business in
the country is shared between public companies, while private firms
manage the rest 17.56%.
Paradoxically, the medical professionals are resisting standardization
in treatment coding known as ICD and cost cutting measures for
making the medical treatment affordable to the ailing. They tend to
forget that that future growth of healthcare in a country like India
would depend upon the development of health insurance model.
The need for support from the health domain members/players and
the ministry of health both at the centre and the state cannot be
overemphasized. However given the state of affairs of regulations in
the healthcare sector in India, it is doubtful whether full fledged
insurance companies would like to take healthcare risks manageable
so that insurers may find it worthwhile to move into the sector in a big
way.

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ISSUES AND CONCERNS

All over the world, insurance coverage is being extended through 3
basic models: i) public financing and public delivery as practiced in
the UK until its recent reforms, ii) private financing and public
delivery as the model practiced in the US, Singapore, and Taiwan and
iii) public financing and private delivery as the Bismarck model,
idealized national (public or social) health insurance scheme practiced
in Canada, Germany, France, Japan and China.
Health care insurance is one such alternative that covers the risk of
payment for health care. William C Hsiao (1992) of the Harvard
University undertook a comparative study of the three models and
concluded that "public financing and private delivery" of health care
as practiced in Canada is the best among the 3 models in terms of
performance, health outcome, public satisfaction and access to health.
There is however, a school of thought that doubts the suitability of
this model to Indian conditions on the grounds that:
i. The size of the population is far more than any of the countries
where it is being currently practiced efficiently.
ii. The level of the per capita income is far lower than in other
countries.
iii.The type of federal set up India has is different from the rest.
True, these apprehensions cannot simply be shunned off but one
redeeming feature of the Indian system is that it has the necessary
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infrastructure - sizeable public hospitals, not-for-profit voluntary

organizations plus highly skilled professionals in different kinds of
medical services and decades of experience in managing insurance
business. What is therefore needed is a better link-up of these
available resources with the ordinary consumer at an affordable price.
With the opening up of the insurance market for private entry and the
accompanying hype it is being hoped that in the days to come, the
teeming population of India can look for health coverage from an
array of insurance providers that too at an affordable price. The
common negative factors which evolve after looking at various health
coverage phase are
1. Quality of service when facilities are owned by the plan giver.
ESIS, CGHS is grossly inferior Reimbursement delays in case out
of pocket spending and or rejections of claims
2. Limitations of services Either monetary restriction on the amount
available per year or non-comprehensive care of certain pre-existing
& chronic ailments.
3. Inadequate information regarding health, ailment, procedures &
treatments, cost and outcome
4. Provider malpractices
5. Coatings for comprehensive total care
6. The Low Level of Medical Penetration in India
The total percentage of population covered under any sort of medical
coverage is in single digits which is woefully inadequate. Further,
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most of these covered persons belong to the organized sector mainly

in sectors like Railways, Defense, Central Government, etc. Within
this, only a negligible percentage of the persons are covered under
private health insurance. If we are seriously looking at a problem is by
resorting to alternative avenues like private health insurance. It is
usually mentioned that it is difficult to bring the rural, illiterate folk
under the umbrella of insurance. When it comes to health insurance,
this argument would not hold any credence as many of the so-called
educated people themselves do not understand the importance of
having such protection. Thus, there is a monumental task of
convincing different classes of the society about insurance in general
and health insurance in particular.
Let us take a look at how health, as a class, has been performing in the
Indian insurance market. A commercial health insurance policy has
been introduced in the market in the late 1980s; and thus it remains
one of the youngest classes to be introduced in the industry. In spite of
that, it is third largest class in terms of gross premium(Rs.78,831 lakh)
earned for the quarter-ended June 2006, after Motor (2,39,117) and
Fire (Rs. 1,63,286). Further, even if one considers the growth
percentage of any class, health has grown by about 44% for the oneyear period (June 05 to June 06). In absolute terms, it has registered a
growth of Rs.25, 303 lakh from Rs. 53,528 lakh. This compares very
favorably with the overall performance of the industry which
registered a growth of Rs.1, 24,906 lakh, from Rs.5, 38,084.32 to
Rs.6,62,900.78; which is around 23%. In the process, it has overtaken
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more conventional classes of insurance like marine and engineering.

Looking at in isolation, it has a commendable performance.
But when one looks at the percentage of the population who actually
go for commercial health insurance, particularly in the rural areas; one
could easily realize that something grossly wrong with the way
private health insurance is being accessed in the country.
On the contrary, it is commonplace to observe some member or the
other in many families to be hospitalized in a nearby town and in most
of these cases; they end up paying huge amounts of hospital hills.
Going further, the funding for such casualties is provided by the
ubiquitous moneylender; and thus they become unfortunate victims of
a debt trap. Looking at the importance of providing healthcare for the
masses, any amount of hard work should not be deterrent. In
accomplishing this huge task, there is a role for everyone to contribute
in whatever manner they can.

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LICENSING HEALTH INSURANCE IN INDIA

Health insurance is one of the most regulated forms of insurance
business in those countries where it plays a dominant role in financing
of health expenditures. Spiraling healthcare costs and rapid
technological advances in the medical field have triggered the need
for cost-containment by the health insurers without sacrificing the
interest of the policyholders or claimants. The nature of loss in health
insurance might result in differences of opinion. All these call for
intervention by regulatory authorities to protect the consumers
However, under the Insurance Regulatory Development Authority
(IRDA) in India, the powers of licensing and regulatory insurance,
including health insurance, has been mandated under an act
parliament. Despite such a regulatory authority, very little has been
done by IRDA to lay down ground rules for hospitals which run
health plans and may be required to register themselves as insurers or
hospital managed organizations (HMO).
It may be pertinent to note that in similar situation, the US federal and
state health insurance regulation prescribe elaborate legal framework
to ensure quality standards for rate regulation, cost containment, etc.

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HEALTH SECTOR FINANCING

One of the major goals for the future health system in India is to
ensure good health for the population through access to high quality
services. To achieve this goal, there is a need to enlarge coverage and
rationalize the current mechanisms for collective health financing.
There are at least six dimensions of the choice of health financing
policies:
Identification of beneficiaries
Benefits covered by insurance source(s) of financing

Methods for provider payment institutions that pay providers.

Role of public and private sectors in the delivery of service

Tax
funded
Public

Total health
Expenditure

Private

Social
Security
Externally
funded
Out-ofPocket
Private
Health Ins
Externally
sourced

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HEALTH INSURANCE AS A HEALTH FINANCING TOOL

Attracting additional money for health additional resources may be
available through insurance because firstly, consumers are more
enthusiastic about paying for health insurance than paying general
taxations, the benefits are specific and viable and secondly, consumers
are more able and prefer, to pay regular, affordable premiums rather
than paying fees for treatment when they are ill. Getting better value
for money (or increasing efficiency)
Improving the quality and targeting of healthcare (increasing
effectiveness)
1. A greater explicitness and viability of spending on health services
occurs as a result of insurance.
2. The third party institution can specify in contracts the kinds of
healthcare that to be provided and can therefore concentrate on
providing cost effectiveness
3. Consumers, and their representatives, will demand better quality
care because they can see a definite link between their payments
and services

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HEALTH CARE PRODUCTS

The following are brief descriptions of some of the major health care
products available in world markets today.
Capital Disability Policies
Disability benefits cover the financial risk to the insured of his/her
becoming disabled and are expressed either as occupational
disability or the inability to pursue any activity for a living.
Benefits are payable in the form of a lump sum or as an income.
Permanent Health Insurance Policies
Disability income benefits pay a regular income should the insured
experience a loss of income upon becoming fully or partially
unable to follow their own or similar occupation. The benefit
usually pays an income either until the insured has recovered
sufficiently from the temporary disability to return to work, or has
died or until normal retirement age. A waiting period is usually
imposed prior to the commencement of the benefit payment.
Dread Disease (or Critical Illness Policies)
A Dread disease benefit offers a payment (sometimes an
accelerated death payment) on a confirmed diagnosis of a dread
disease. This benefit is usually valid in the case of a limited
number of listed diseases, which often include the following
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diseases: Heart attack, Stroke, Coronary artery disease requiring

surgery, Cancer, Kidney failure, Surgery for a disease of the aorta,
Replacement of a heart value, Organ transplant, Coma
Other diseases can also be included and the percentage of the sum
assured paid for each disease may be related to the severity of the
disease.
Long Term Care Policies
This policy provides financial security against the risk of needing
either home or nursing-home care as an elderly person. Premiums
will be paid regularly and will cease either when benefit payments
commence or earlier (e.g. at a given age). A group version of this
product would enable an employer to provide long term care to
retiring employees and their spouses.
Hospital Cash Policies
Hospital Cash policies usually provide the insured with a daily
cash amount for the duration of an insureds stay in the hospital.
Further benefits are often added in order to cover the additional
costs associated with any visit to the hospital. These would often
be in the form of a major medical expense policy

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Major Medical Expense Policies

Major Medical Expenses policies often complement a hospital
cash policy. The policy would cover the costs associated with
specified medical procedures. These would include the cost of any
surgery or follow-up visits to a Doctor. The actual benefit would
normally be based on a pre-determined fee scale for various
different procedures.

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GOVERNMENT/STATE BASED SYSTEMS

The best documented and largest system of health care delivery in
India is the diverse network of hospitals, primary health Centres,
community health centres, dispensaries and speciality facilities
financed and managed by the Central and State local Governments.
These facilities are officially available to the entire population either
free or for nominal charges. Along with some other networks of
village health workers, maternal and child health programmes and
speciality disease prevention programmes these public facilities carry
out a central role in Indias primary health care system short of durgs
and essential supplies and that they sometimes suffer from low morale
and inadequate motivation.
The health facilities made available to the public are managed and
operated under the authority of central and state agencies. The state
governments mostly own and mange the public sector delivery system
and have to bear the costs of operation. But the Central Government
plays a major role on the planning, financing and transfer for
resources that determine new investment in health facilities and
specialized programmes. Much of the funding for health facilities
originates from the Union Ministry of Health and Family Welfare and
is channeled to the state governments, which retain considerable
authority for the spending decisions. Over the years, the Central
Government have been the main source of funds for the primary
health care facilities, whereas the states bear the major responsibility
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of recurrent costs, especially the costs of running hospitals. This

system has added to the overall inefficiency of public health facilities.

CENTRAL GOVERNMENT HEALTH SCHEME:

The Central Government Health Scheme (CGHS) was introduced in

1954 as a contributory health scheme to provide comprehensive
medical care to the central government employees and their families.
It was basically designed to replace the cumbersome and expensive
system of reimbursements (Ministry of Health and Family Welfare,
Annual Report 1993-94). Separate dispensaries are maintained for the
exclusive use of the central government employees covered by the
scheme. Over the years, the coverage has grown substantially with
provision for the non-allopathic system of medicines as well as for
allopathic. In addition, the CGHS reimburses patients for part of their
out of pocket costs on treatment at the government hospitals and some
other facilities. The list of beneficiaries includes all categories of
current as well as former government employees, members of
parliament and so on. The CGHS has been in the recent past, widely
criticized from the point of view of quality and accessibility.

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EMPLOYEES STATE INSURANCE SCHEME:

Established in 1948, the Employees State Insurance Scheme (ESIS) is
an insurance system which provides both the cash and the medical
benefits. It is managed by the Employees State Insurance Corporation
(ESIC), a wholly government-owned enterprise. It was conceived as a
compulsory social security benefit for workers in the formal sector. It
benefits 33.4 million workers with income less than Rs.6500/- a
month along with their families. Since 1989 the schemes has been
expanded, and it now includes all such factories which are not using
power and employing 20 or more persons. Mines and plantations are
explicitly excluded form coverage under the ESIS Act.

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EMPLOYER-MANAGED SYSTEMS
Employer-managed health facilities and the reimbursement of
health expenses by employers are the other means of health
insurance in India. Generally, the public sector undertakings and big
industrial houses have their own dispensary and hospitals and provide
medicines, etc, across the counter, usually within the company
premises township. These include defence services, educational
institutions, particularly universities also provides medical services to
their employees.In addition, there are various medical reimbursement
plains offered by employees for private medical expenses in the
private sector including commercial banks and autonomous
institutions. Also, in some organization we may find a self-insurance
system known as medical benefit or medical allowance scheme.
Under this scheme, employees incurring medical expenses are
required to submit their claims to their employees for reimbursement,
and reimbursements are not linked to their individual contribution.
Such coverages generally vary according to the employees salary or
designation. Overall, the performance of these systems in India has
been satisfactory.

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NGO SYSTEMS
Health facilities are also provided by voluntary and charitable or Nongovernment organizations (NGOs). Some of the important NGOs are
Child In Need Institute (CINI), Self-employed Womens Association
(SEWA), Streehitkarni and Parivar Seva Sanstha. The health care
facilities offered by these organizations are a part of their main
objectives. Though, these are not exactly health insurance
programmes, yet they have potential to generate awareness and
associate themselves with the major health insurance.

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MARKET BASED SYSTEMS

A. GIC Mediclaim Coverages:
1) Mediclaim or Hospitalization Benefit Insurance Policy
2) Bhavishya Arogya Insurance Policy
3) Jan Arogya Bima Policy
B. LIC Coverages:
1) Jeevan Asha
2) Asha Deep
A. GIC (GENERAL

INSURANCE

CORPORATION)

Mediclaim Coverages:
The GIC holds a major share in the market-based health insurance
segment. It introduced the standard Mediclaim health insurance
scheme in 1986, and become operational in 1987. This product was
later on modified in 1997 to allow for premium differentials for
various age group meant for both individuals and groups. As on date,
the GIC and its subsidiaries offer the following products:
1) Mediclaim or Hospitalization Benefit Insurance Policy:
Suitability:
Anyone in the age group of 5 to 80 years can take the policy.
Children in the age group below the age of 5 years can also be
covered from the age of 3 months onwards provided one or both of
the parents are covered concurrently. Higher limits are permitted of
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the policy is in renewal for the preceding three years. Suitable for
persons of any nationality but treatment should be availed of within
the country and the claim is paid in Indian currency/foreign
currency.
Salient Features:
Provides cover, which takes care of medical expenses following
hospitalization from sudden illness or accident
Cover extends to pre-hospitalization and post-hospitalization for
periods of 30 days and 60 days respectively.
Domiciliary hospitalization is also covered.
Benefits:
Reimbursement of medical expenses
Discount in insurance premium is allowed on family package,
cumulative bonus and health check. In case of family package
cover, a single member can avail of the entire policy limits.
The premium paid by a cheque upto a maximum of Rs. 10,000 is
totally exempt from income tax.

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Domiciliary Hospitalization:
The term means that a patient can be treated at home when he is not
in a fit condition to be moved to the hospital or where is no
accommodation in the specialist hospital provided.
The treatment was for a period not less than 3 days.
The sub-limits of sum insured towards domiciliary hospitalization
are furnished

in the sum insured and premium schedules.

Exclusions:
The facility is not available if any illness is contracted within 30
days from the commencement of risk except in case of an accident.
Any pre-existing diseases
Treatment for contracts, benign prostatic hypertrophy, hydrocele,
congenital internal diseases, fistula in anus, piles sinusitis and
related disorders for 1st year of policy
AIDS or conditions of similar kind.
Requirements:
A completed proposal form. If the prosper is a Diabetic, a separate
questionnaire completed by the family physician.

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2) BHAVISHYA AROGYA INSURANCE POLICY:

Suitability:
Bhavishya Arogya is a life term policy where medical benefits are
made available after retirement of the insured. Therefore, by paying
premiums during the earning period, one can make a provision for
medical benefits after retirement. Persons in the age group- of 25 to
55 years are eligible for this policy.
Salient Features:
The policy provides hospitalization benefits for lifetime after
retirements age of the insured.
Premiums can be paid in equated annual installments up to the age
of retirement
Premiums can also be remitted in lumpsum on one time basis.
Discount is offered for one time payment
Benefits:
The policy comes into force after retirement and provides for
hospitalization and domiciliary hospitalization benefits, following
an accident or sickness.
Other conditions:

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The minimum sum to be insured is Rs. 50,000 and can be increased

in multiples of Rs.10, 000 as a unit, thereafter.
For every Rs. 10,000 increase of sum insured, the premium is
loaded by 20%
Maximum sum insured is Rs. 2 lakh.
After commencement of the risk (i.e. after retirement) cumulative
bonus @ 5% for every successive claim free year is added upto a
maximum of 50%.
In case of death of insured before retirement, refund of premium
will be at a pre-determined scale and it is payable to
nominee/assignee.
In the event of voluntary cancellation of the policy, the refunds will
be75% of the set scales applicable for death claims, provided there
is no claim under the policy.
Requirements
A completed proposal form
Proof of age is necessary as the payment of premium depends on
the age

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3) JAN AROGYA BIMA POLICY:

This policy was introduced in the year-1998. It is designed to
provide hospitalization insurance to poorer sections of the society.
The coverage is along the lines of the individual mediclaim policy
except that cumulative bonus and medical check up benefits are not
included.
The sum insured per insured person is restricted to Rs. 5000/-.
Premium up to Rs. 10000/- qualifies for tax benefit under Section
80D of the Income Tax Act. Service tax is not applicable to the
policy. The premium payable as per the following table
Age of the person

Up to 45 46-55

56-65

66-70

years
Head of the family
70
Spouse
70
Dependent child up to 25 years
190
For family of 2+1 dependent 190

100
100
250
250

120
120
290
290

140
140
330
330

children
For family of 2+2 dependent 240

300

340

380

children
The policy is available to individuals and family members by duly
completing the proposal form. The age limit is 5 to 70 years.
Children between the age of 3 months and 5 years can be covered
provided one or both parents are covered concurrently.
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B. LIC COVERAGES:
The Life Insurance Cooperation of India introduced a special
insurance programme in 1983 which covered medical expenses for
only four dreaded diseases. It was withdrawn and introduced
subsequently in 1995. At present the modified versions are
available in the form of two products viz. Jeevan Asha and Asha
Deep
1) Jeevan Asha:
Features:
Open ended scheme
Covers many surgical procedure
Fixed benefits for surgical treatment can be availed twice
(subject to conditions)
Exclusive Double/Triple accident benefit.
Option to switch over from existing Jeevan Asha plan
Suitable for:
The Jeevan Asha II plan is apt for people who whose family history
tends to show hereditary lineage of maladies and afflictions that
have required major or minor surgery from time to time.

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Special Features:
Under the Jeevan Asha plan, the major surgical procedures covered
for are:
Nervous system (non-malignant causes)
Respiratory system
Cardiovascular system
Haemic and lymphatic system

Endocrine & Ocular system

2) Asha Deep:

Features:
Cover the risk of four major ailments namely, Cancer (malignant),
Paralytic stroke resulting in permanent disability, renal failure of
either kidneys or Coronary artery diseases where by-pass surgery
has been done.

Suitable for:
The Asha Deep II (with profits) policy is best suited for people if
they anticipant or have a family history of serious diseases like
Cancer, Paralysis, Renal failure and Coronary disease.

Special Features:

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During the term of the policy, if the life assured is afflicted by any
of the major ailments listed above and the same is established as per
rules (in case of Coronary artery disease, the life assured must have
undergone the by-pass surgery), the policyholder will be eligible for
the following benefits, the policy is in force for the full sum
assured. Immediate payment of 50% of the sum assured
Payment of an amount equal to 10% of the sum assured, every year
commencing from the policy anniversary falling on or after the date
of affliction and ending with the policy anniversary preceding the
date of maturity or the date of death of the life assured whichever is
earlier.
Payment of balance 50% of the sum assured and vested bonuses on
the date of maturity or on death of life assured, whichever is earlier.
The bonuses will be calculated on the full sum assured even though
50% of the sum assured would have been paid earlier
A lien for a period of one year will be imposed on all policies on all
policies under this plan. If the life assured does not get afflicted by
any of the diseases mentioned above, the full sum assured and
vested bonuses will be paid on the date of maturity or on death of
the life assured, whichever is earlier.
Benefits
1. Survival Benefits
2. Sum Assured and vested Bonus on maturity.

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Death Benefits:

Natural: If the life assured is not afflicted by any of the

specified ailments, the legal heirs get the full Sum assured +
accrued bonus.
Accidental: Accidental benefits available to the life assured
whether afflicted or not afflicted by any of the specified
ailments.

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MEDICLAIM - AT A GLANCE:
The Policy basically covers reimbursement of expenses of
hospitalization and domiciliary hospitalization for illness, diseases
or injuries sustained. This Policy is available to persons between the
age of 5 and 80 years (children between the age group of 3 months
to 5 years can be covered if one or both their parents are also
covered concurrently).
Basic Cover
Pre hospitalization Benefits
Post hospitalization Benefits
Sponsored Health Check Ups
Discount in Premium for family cover

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Basic Cover:
The insured person can claim reimbursement for the following
expenditures, provided they are reasonable and necessary
incurred:
Room expenses
Nursing expenses
Surgeon, anesthetist, consultants, specialists fees
Artificial limbs, cost of organs, O.T charges, medicines
and drugs and similar expenses
Note: Under no circumstance will the reimbursement
exceed the sum insured. In case of a Family Mediclaim
Policy, the claim cannot exceed the sum insured specified
against each person in the proposal form
Any relevant medical expense incurred within 30 days
prior to hospitalization will also be covered under this
policy
Post Hospitalization Benefits

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Any relevant medical expense incurred within 60 days after

hospitalization will be considered for reimbursement under this
policy.
Sponsored Health Check Ups
A person insured under this scheme is eligible for reimbursement of
the cost of a complete medical check up (subject to 1% of average
sum insured). This benefit can be availed once at the end of a block
of every four underwritten - claim free years. To be eligible for this
benefit you must ensure that the policy is renewed within a week
from its expiry.
Discount in Premium- for family cover
If you take a Mediclaim Policy to cover yourself and one or more of
the following persons in your family, you get a 10 % discount in the
total premium payable.

Spouse

Dependent children

Dependent parents

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OVERSEAS MEDICLAIM
At a glance you need Videsh Yatra Mitra Policy if you are going
abroad on business or holiday. The benefits under policy include:
1. General Insurance Plans
a) Personal Accident Cover
b) Medical Expenses and Repatriation
c) Cover Loss of Checked in Baggage
d) Cover Delay of Checked in Baggage
e) Cover Loss of Passport
f) Personal Liability Cover
2. Special Insurance Plans
a) Corporate Frequent Travelers
b) Overseas Journey Business and holiday

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1. General Insurance Plans:

a) Personal Accident Cover
If the insured person suffers any bodily injury during the overseas
trip and such injury, within 12 months of its occurrence, is the sole
cause of death, loss of sight or limbs of the insured, the Insurance
Company will pay up to US$ 50,000 as compensation.
Note: No claim will be satisfied in excess of US$ 2000, on death of
the insured person, if he/she was less than 16 years of age at the
time of affecting the insurance.
b) Medical Expenses & Repatriation
The cover provided by the Insurance Company extends to US$
500,000 (for worldwide travel including USA & Canada) and US$
250,000 (for worldwide travel excluding USA & Canada). It is paid
to the insured in respect of any permissible and necessary medical

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expenses that are borne by him outside India on account of any

injury or sickness suffered during the period of insurance.
If "Mercury" recommends that continued treatment in India is
appropriate, then (notwithstanding anything specified above), the
insurance is extended to cover medical expenses incurred in India
also. These expenses will be paid only towards treatment undergone
within 90 days from the date on which the injury or illness first
manifested itself.
Medical Expenses Covered:

Physician's services, hospital and medical services and local

ambulance services.

Up to US$ 225 per dental service taken only for immediate

relief of toothache. Dental care rendered necessary as a result of
an accident that is covered, shall be reimbursed subject to the
limit of cover under Personal Accident.

Expenses incurred for emergency medical evacuation including

transportation and medical care en route.

If the insured person dies abroad, the expenses incurred for the
preparation and air transportation of the remains to India or an
equivalent amount for their local burial or cremation.
Specific Conditions:

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Claims will be reimbursed only to the extent they are reasonable

and customarily incurred whether in case of medical or dental
attention or transportation.

"Mercury" and their Medical Advisors must approve medical

evacuation and transportation in advance.

Medical expenses that could have been postponed till the

insured returned to India will not be reimbursed. The attending
physician and the Medical Advisors shall decide which expenses
can be and which can't be delayed.

US$ 100 is the deductible amount and any expense below this
amount will have to be borne by the insured person. Further, it
also means that from every claim this amount will be deducted
before making settlement.

Claims in respect of cosmetic surgery will not be paid unless it

is rendered necessary as a result of a covered accident.

Routine physical examinations and any other examinations that

are not undertaken as result of impairment of normal health shall
not be covered.

Pregnancy and related complications are not covered under this

policy.

Where the insured person is unable to present himself or herself

for the medical examination (where one is called for by the
Insurance Company), the limit of indemnity will be reduced to
US$ 10,000. This limit will be utilized only towards physician's
services, hospital and medical services and local emergency

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transportation. Further, the insurance cover will be restricted to

cover only illness or diseases contracted abroad and not cover
accidents.

c) Covers Loss of Checked in Baggage

The insured will receive US$ 1,000 from the Insurance Company in
the event of total loss of baggage that has been checked in by an
International Airline for an international flight. The insurers
however reserve the right to either replace or pay the intrinsic value
of the lost article.
Specific Conditions:
The Insurance Company will not reimburse partial loss or damage
of baggage
No claim will be paid for items whose value exceeds US$ 100,
unless the proof of ownership is presented to Mercury, in the
event of submission of claim.
Valuable items are not covered by the policy since they should at
all times be carried by the insured person and not be packet as part
of checked in baggage.
Any recovery from the airline under the terms of the Warsaw
Convention shall become the property of the insurers.

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d) Covers Delay of Checked in Baggage

The Insurance Company will pay up to US$ 100 towards necessary
purchases, to replace items, in the event of more than 24 hours
delay (from the scheduled arrival time) in delivery of checked in
baggage. The baggage should have be checked into an International
Airline on an international flight from India.
Specific Conditions:
The proof of purchase must be provided for all items reimbursed
under this cover
Any payment made by the Insurance Company for delay of
baggage will be offset against a claim arising for loss of the same
baggage.
e) Covers Loss of Passport
In the event of loss of passport, the Insurance Company will pay up
to US$ 250 towards expenses reasonably and necessarily incurred
by the insured person in obtaining a fresh or duplicate passport.

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US$ 30 is the deductible amount and any expense below this

amount will have to be borne by the insured person. Further, it also
means that from every claim this amount will be deducted before
making settlement.

Specific Conditions:

Loss or damage to the passport due to confiscation or detention

by customs, police or other authority will not be covered under this
policy.

Claims for loss of passport will not be entertained if the theft of

passport was not reported to any police authority within 24 hours of
discovery. An official report is also to be obtained from them.

No claim shall be paid for loss or theft of the passport if it was

left unattended by the insured person. However, if the passport was
left in a locked room or apartment and the insured person could not
have stored it in a safety deposit box, the claim will be satisfied.

f) Personal Liability Cover

The Insurance Company will pay up to US$ 200,000 in case the
insured person, in his or her personal capacity, become legally
liable to pay third parties for accidental personal or property
damage, arising from an incident during the overseas journey.
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Specific Conditions:
US$ 200 is the deductible amount and any expense below this

amount will have to be borne by the insured person himself or

herself. Further, it also means that from every claim this amount
will be deducted before making settlement. This deductible applies
only to third party property damage.
The Insurance Company shall meet no claims arising from

Employers or Contractual liability.

No claims arising from liability to any family members,

traveling companion, friend or colleague of the insured, shall be

met.
Claims arising directly or indirectly from the following shall not

be paid.

Animals belonging to the insured person or in their care, custody

or control.

Any willful, malicious, or unlawful act.

Pursuit of a trade, business or profession, employment or

occupation.

Ownership, possession, or use of vehicles, aircraft, watercraft,

parachuting, hand gliding, air ballooning or use of firearms.

Legal costs of any proceedings that result from any criminal or

illegal act.

Insanity, use of alcohol, drugs (except as medically described) or

drug addiction.

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Supply of goods or services.

Any form of ownership or occupation of land or buildings (other

than occupation only of any temporary residence)

2. Special Insurance Plan:

a)Insurance Plan for Corporate Frequent Traveler:
This is a one-year cover issued to employees of companies who have
to travel abroad frequently.

Features:

Each trip should not exceed 30 days. This period can be extended
by 7 days without any extra charge, if the delay is beyond the
control of the insured person.

The insured person can be between 18 and 70 years of age. The age
limit can be extended to 75 years at the option of the Insurance
Company and after such person undergoes a thorough medical
check up. The Medical Reports should be authorized by an M.D. in
Cardiology and should include, ECG Reading, fasting blood
sugar/Urine sugar & Treadmill test in case of medical history.

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The Monetary Compensations offered in each case:

LIMIT (in

BENEFIT

US$)

REMARKS
Deductible:

US$

Medical Expenses

500,000

Personal Accident

25,000

1,000

100

Delay > 12 hrs

Loss of Passport

250

Deductible: US$ 30

Personal Liability

200,000

Loss

of

Checked

in

Checked

in

Baggage
Delay

of

Baggage

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Deductible:

US$

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MICRO HEALTH INSURANCE IN INDIA

Health risks and resulting catastrophic financial losses are probably
significant threats to the people, particularly persons belonging to
lower income groups as these people will be excluded from private
health insurance. A health shock leads to direct expenditures for
medicine, transport and treatment but also to indirect costs related to
loss of wages. Since studies have found a very strong link between
health and income poor are the most susceptible to a health shock.
Given the problem with public health delivery system, the access to
and utilization of these facilities remain problem. Strategy to improve
the access by developing insurance system to private providers has
been one such area. For low-income people in rural and informal
sector market based insurance such as Mediclaim can not meet the
requirements because of its high cost. Insurance companies and
healthcare providers face high transaction costs and also they do not
have local information available with them. This makes their job of
providing health insurance to this segment very difficult and schemes

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which are of local origin have more chance of attracting more

members because of high level of trust with them.
Several community based organizations in India have focused on
developing community based insurance schemes during the last
decade. Most of these community based insurance schemes (CBHI)
are also known as micro health insurance schemes. Micro insurance is
a form of health, life or property insurance, which offers limited
protection at a low contribution (hence micro). It is aimed at poor
sections of the population and designed to help them cover
themselves collectively against risks (hence insurance). More
specifically micro insurance and CBHI are different in term
interchangeably.
In India, community health insurance started way back in Kolkata in
1952 which was part of a students movement. This scheme, which is
called the Students Health Home (SHH), caters to the schools and
universities students of West Bengal. Currently there are more than 20
documented CBHI programmes, of which five were initiated in the
past three years community based health insurance schemes is
different from normal market based schemes like Mediclaim. Though
the basic principle of covering future risks by paying premium in
advance is same in all health insurance schemes, CBHI schemes are
tailored for local needs and provide health insurance at low cost.
CBHI schemes in India can be divided in three broad categories.
Table 1 indicates that these three categories are quite distinct from
each other in terms of the function of the agency. An agency here can
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be a NGO, Trust, Hospital or Cooperative etc. their role can vary from
performing as intermediary where both treatment and insurance are
provided by intermediary itself or where the treatment and insurance
are provided by third party.
Micro health insurance as mechanism of providing healthcare to the
poor, the role of these CBHI schemes will be very crucial. The
success of many of these schemes though at a smaller level at present,
provides important lessons for the policy makers. One important point
to remember here is that CBHI schemes have their own problems
which are non-availability of good providers, lack of professional
management, financial sustainability issues and non-recognition by
IRDA. These problems need to be taken into account while assessing
their benefits. Though at present CBHI schemes in India are serving a
very small population, it lessons learnt from each of these schemes
can be used to design more of such schemes in different parts and at
much larger level they can be beneficial.

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THIRD PARTY ADMINISTRATORS

Its an institution which facilitates a system of cash-less settlement of
medical bills for the insured under health insurance has been
introduced in India as recently as 2001. The first set of companies was
given licenses in March, 2002. Today, there are 25 licensed Third
Party Administrators (TPAs). Covered medical expenses are paid by
the TPAs directly to the hospital. Administrator It acts a link between
the insurer and the hospital. TPAs basically are professional
organizations servicing health insurance policies sold by insurance
companies by way of facilitating cash less treatment to insured
individuals through institutional arrangements with insurance
companies and networked service providers i.e. hospitals and nursing
homes, etc. The TPAs are registered with and licensed by the IRDA
and regulated by IRDA regulations, 2001 as amended from time to
time. They will provide quality health care and services at affordable
costs, which hitherto was unheard of. The role of TPAs will

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particularly be beneficial to those sections of society for whom

quality healthcare has always remained a dream.
By processing claims with due diligence, TPAs are expected to
control claims costs for the insurers. In the long run, TPAs are
expected to bring in greater professionalism in the health insurance
industry, which would augure well for the growth of this segment of
insurance business. TPAs are licensed by the Insurance Regulatory
and Development Authority.
The criteria for licensing are
Only a company with a share capital and registered under the
Companies Act, 1956 can function as a TPA.
Company shall not engage itself in any other business.
The minimum paid up capital shall be Rupees One Crore in equity
shares.

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FURTHER ISSUES RELATING TO HEALTH INSURANCE

POLICIES:

The Legislative Environment

A fine balance between government imposed regulation and self
regulation by the industry needs to be found. It a particular industry
is over regulated it stifles innovation and development. On the
other hand under regulation can result in unwanted practices and
fly by night operations.

Socio-Economic Environment
The socio-economic environment has a significant impact on the
type of health insurance policy that consumes will look to buy. If
will also have an impact on the claims patterns of consumers. For
instance, in a relatively poor society, product demand will be for
products that cover day-to-day basic medical care. This will tend to
be products which have high frequency of claims where the
average claim sizes are relatively low.

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Post Retirement Benefits

Another challenge for the insurance industry is how to deal with
post retirement medical benefits. One possible way of dealing with
these is to use some form of endowment product ( where premiums
are paid during the working life of the insured) to provide a lump
sum at retirement date which can be used to pr-fund medical
expenses (or a future Medical Expense Policy).

IT Systems
The measurement and manipulation of data is of essential
importance in operating an effective health care management
system. There is a vast quantity of data that must be stored and
manipulated for the various aspects of health care management. In
addition this data should be readily available and easily updateable.
In short the system should be robust!

Investment Strategy
Due to the frequency and level of the contribution received for
most health insurance products, providers have large amounts of
funds that need to be invested in appropriate vehicles. Certain
countries (e.g. South Africa) have also introduced reserving
requirements, which will result in significant reserves building-up
over time for health Insurance products. This has introduced the

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additional complication of matching assets and liabilities. This is

an area where actuarial judgement is essential.

Cross Subsidies
The issue of cross-subsidies is another item which needs to be
carefully considered by any insurer. There often tends to be crosssubsidies in health insurance policies and in particular in medical
expenses policy. Even when legislation does not force crosssubsidies, it is quite common for there to be cross-subsidies in
health Insurance products. The insurance company needs to
examine the level of the cross-subsidies and ensure that the style of
their products is such that anti-selection will not result in abuse of
these cross-subsidies.

Risk Management
The success of any health insurance policy is crucially dependent
on appropriate management of the underlying risks which can be
best attained by

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Setting of appropriate premiums

Measurement and control of expenses
Appropriate use of reinsurance avoidance of anti-selection
Investment strategy and subsequent measurement
Effective underwriting effective claim control
Appropriate reserving
Internal operational control
AIDS

The challenges that faces health insurers is how to deal with AIDS
claims, and what product can be designed that meet the needs of
AIDS suffers. This is a challenge that has not, in any market, to my
knowledge, been fully addressed. In some Southern African
countries, insurance companies are offering certain anti-retroviral
treatments in order to extend the expected life span of their policy
holders. This is one area where health Care Management can be
used to delay the payment of insured benefits (normally Life
Insurance) and also add the expected life of the insured, thus
benefiting all parties concerned.
Medical Savings Account:
One example of a new product introduced to relieve the risk of
rising costs is the introduction of medical Savings Account (MSA)
as a component of a Medical Expense Policy. The account holder,
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at each ill health incident, has to take a conscious decision whether

or not to draw on savings and deplete his wealth. MSAs can be
encouraged fiscally by providing savers with tax breaks not
available to savers for other purposes. The funds in an MSA could
be used to pay health premiums, deductibles or other medical bills
not covered by insurance. An MSA minimizes moral hazard. There
are two main kinds. One is a short term scheme which can be used
at the discretion of the account holder for day-to-day expenses; the
other is long term, where the savings are intended to build up to a
substantial sum for either major expenditures or for old age.

Capitated Arrangements:
A further innovation in some progressive markets, including the
South African market is the use of a capitation arrangement for
Medical expense Policies. A capitation arrangement involves
identifying certain service providers usually doctors who will
provide given services to their patients. The services provided are
usually doctors consultations. The doctor is paid a fixed fee per
policyholder under its care. The doctor is then responsible for
providing whatever care is necessary to that patient. By linking up
a provider network through a capitation arrangement the risk of
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over servicing and hence higher costs is placed in the hands of the
doctors. It will then be up to the doctor to ensure that members
receive appropriate services which will costs the doctor and not the
insurer more.

CONCLUSION:
The Government of India, in one of its economic survey reports, has
proclaimed that human development is the ultimate goal of India's
developmental plans. It is also being realized that sound long-term
development of social sectors, such as education, and health is crucial
to sustain economic growth in an increasingly integrated world
economy. The government can intervene in the health insurance
market in two ways: by directly providing subsidizing insurance or by
regulation. These two forms of intervention do not lead to identical
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results. Provision of partial public insurance, even supplemented by

the possibility of opting out, can lead to second beat equilibrium.
Regulation of the private insurance market by imposition of a
standard contract or by restricting premium rates, on the other hand,
can exacerbate the problem of adverse selection and lead to chronic
market instability.
There is yet another criticism about the Indian health delivery system:
urban bias in the allocation of resources. As of 90-91, 66.96 percent of
the resources spent on health care had gone to the urban sector which
accounts for 25.7 percent of the total population, while only 33.04
percent of the resources had gone to the rural sector, which accounts
for 74.30 percent of the total population. The per capita expenditure
on health care of the urban sector was said to be around Rs.152 as
against Rs.26 of the rural sector.
The Government being the central player in the health care delivery,
the system is suffering from financial constraints and inefficiency in
allocating whatever resources available. It is slowly being realized
that sole reliance on the public health care system is no longer
desirable.

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