What is health insurance?

You must have read about life insurance but do you know what is health insurance? Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is available to pay for the health care benefits specified in the insurance agreement . It may be provided through a government-sponsored social insurance program, or from private insurance companies. It may be purchased on a group basis (e.g., by a firm to cover its employees) or purchased by an individual. In each case, the covered groups or individuals pay premiums to help protect themselves from unexpected healthcare expenses. nt.

HEALTH INSURANCE IS :
RISK TRANSFER Ind. Family Org. Community

Insurer / Govt. / Community

Revenue Transfer

Hospitals / Providers

The World Health Organization has defined possible approach to financing of health expenditure
Using central / state revenues for health Channeling loans, grants etc. to healthcare Compulsory premium contributions to health Payments to health care providers for services Premium contributions towards health support Channeling donations etc. to healthcare

Taxfunded

Public

Social security Externally funded Out-ofpocket Private health ins. Externally sourced

Total health expenditure Private

COST DRIVERS IN HEALTH INSURANCE

Technology / Specialization

Prescription Drugs
Medical Inflation Moral Hazard / Adverse Selection

Usage Increase
New treatments Unnecessary treatments

The Need for health insurance Now that you know what is health insurance you must be wondering whats the need for health insurance. Most of us today, lead very hectic lives, trying to juggle between work and home. All the stress, travelling, long hours and irregular eating habits makes our lifestyle very susceptible to illnesses. With a lifestyle where we do not get enough exercise and face the problems of pollution and stress, the number of people suffering from health problems is on the rise. Health care has also become very expensive and as such, it becomes difficult to bear the increasing costs of the doctors fee and hospital charges. A medical insurance or health insurance policy is a way to safeguard our health from the impact of illnesses as it helps reduce the financial impact as well as the mental stress associated with an illness. Hope this illustration gives u a clear picture.

Health Insurance : Need

Population covered under some form of Healthcare Prepayment
16 14 12 10 8 6 4 2 0 14.3

Indian health financing CHALLENGES:

Increase in health care costs High financial burden on the poor Need for long term and nursing care for senior citizens

Percentage (%)

3.4 0.9

Increasing burden of new diseases and health risks

Private Social Employer Community Health Insurance Spend Insurance Insurance Healthcare Type
Source: Mckinsey

Total

Due to under funding, preventive and primary functions objectives. care are and yet public to meet health their

ILLUSTRATION: Assume A (25 yrs) has a salary of Rs 4 lakhs. He drives to office on a bike everyday. His yearly savings come to around 1.5 lakhs. In a span of 3 years he saves 6 lakhs. He has not availed any medical cover. The possibility that A is hospitalised once in these three years due an accident or illness is very likely. The likely expenses for a three day admit along with cost of the diagnosis and operation (minor) would come to around 18,000. Had he had a medical cover the premium paid by him in these three years for a cover of Rs 1,00,000 would be 1250*3 = 3750 Rs. This cover would have saved him the expenses of Rs 18,000 (thus resulting in a net savings of almost Rs 14000). I hope this illustration makes it clear why we need health insurance

CYCLE OF COSTS & CARE

What we can pay Vs. What we need.

Claims

Premium

CARE

Costs

Health insurance companies in India

In India, there are companies both in public as well as private sector providing health insurance solutions to individuals and to groups. Some of the health insurance companies in India are: 1) Life Insurance of India 2) New India Assurance 3) Royal Sundaram Insurance 4) ICICI Lombard 5) Star Allied Health Insurance and many more.

Whats is a good health plan? With numerous companies offering health insurance and with a variety of heath insurance plans on the offer its hard to decide which plan you should go for. How do you define if a health policy is a good health plan? Following some of components of a good health plan: Hospitalisation cover: This ensures that medical expenses incurred on hospitalisation for more than 24 hours are covered by the insurance company. This may include room charges as well as the money spent towards the surgeon, medicines and other tests. Cashless claims: In a cashless claim, the hospitalisation expenses are directly settled between the hospital and the insurance company.

 Tax benefits: An insured person can receive a tax

exemption on the premium paid, up to a significant amount each financial year. This means that while he is safeguarding himself, he is also reducing his tax deductions and saving money on a portion of his income.
Pre & Post-hospitalisation expenses: Daily cash

allowance and payment for treatments received prior to hospitalisation and during the recovery period are extremely beneficial, as the insured might not have an alternate source of income during those trying times.
Floater plans: Floater plans cover the entire family

under one policy and allow the coverage of the medical insurance policy to be shared among the family members.

CREATING HEALTH VIRTUOUS CYCLE

Better Health Infrastructure

More Coverage

Secure Payments

More Affordability

A health insurance policy is:

1) A contract between an insurance provider (e.g. an insurance company or a government) and an individual or his sponsor (e.g. an employer or a community organization). The contract can be renewable (e.g. annually, monthly) or lifelong in the case of private insurance, or be mandatory for all citizens in the case of national plans. The type and amount of health care costs that will be covered by the health insurance provider are specified in writing, in a member contract or "Evidence of Coverage" booklet for private insurance, or in a national health policy for public insurance. 2) Insurance coverage is provided by an employer-sponsored self-funded ERISA plan. The company generally advertises that they have one of the big insurance companies. However, in an ERISA case, that insurance company "doesn't engage in the act of insurance", they just administer it. Therefore ERISA plans are not subject to state laws. ERISA plans are governed by federal law under the jurisdiction of the US Department of Labor (USDOL). The specific benefits or coverage details are found in the Summary Plan Description (SPD). An appeal must go through the insurance company, then to the Employer's Plan Fiduciary. If still required, the Fiduciarys decision can be brought to the USDOL to review for ERISA compliance, and then file a lawsuit in federal court.

The individual insured person's obligations may take several forms: Premium: The amount the policy-holder or his sponsor (e.g. an employer) pays to the health plan to purchase health coverage. Deductible: The amount that the insured must pay out-of-pocket before the health insurer pays its share. For example, policy-holders might have to pay a $500 deductible per year, before any of their health care is covered by the health insurer. It may take several doctor's visits or prescription refills before the insured person reaches the deductible and the insurance company starts to pay for care. Co-payment: The amount that the insured person must pay out of pocket before the health insurer pays for a particular visit or service. For example, an insured person might pay a $45 co-payment for a doctor's visit, or to obtain a prescription. A co-payment must be paid each time a particular service is obtained. Coinsurance: Instead of, or in addition to, paying a fixed amount up front (a co-payment), the co-insurance is a percentage of the total cost that insured person may also pay. For example, the member might have to pay 20% of the cost of a surgery over and above a co-payment, while the insurance company pays the other 80%. If there is an upper limit on coinsurance, the policy-holder could end up owing very little, or a great deal, depending on the actual costs of the services they obtain.

 Exclusions: Not all services are covered. The insured are generally

expected to pay the full cost of non-covered services out of their own pockets. Coverage limits: Some health insurance policies only pay for health care up to a certain dollar amount. The insured person may be expected to pay any charges in excess of the health plan's maximum payment for a specific service. In addition, some insurance company schemes have annual or lifetime coverage maximums. In these cases, the health plan will stop payment when they reach the benefit maximum, and the policy-holder must pay all remaining costs. Out-of-pocket maximums: Similar to coverage limits, except that in this case, the insured person's payment obligation ends when they reach the out-of-pocket maximum, and health insurance pays all further covered costs. Out-of-pocket maximums can be limited to a specific benefit category (such as prescription drugs) or can apply to all coverage provided during a specific benefit year. Capitation: An amount paid by an insurer to a health care provider, for which the provider agrees to treat all members of the insurer

 In-Network Provider: (U.S. term) A health care provider on a

list of providers preselected by the insurer. The insurer will offer discounted coinsurance or co-payments, or additional benefits, to a plan member to see an in-network provider. Generally, providers in network are providers wh-] have a contract with the insurer to accept rates further discounted from the "usual and customary" charges the insurer pays to out-of-network providers. Prior Authorization: A certification or authorization that an insurer provides prior to medical service occurring. Obtaining an authorization means that the insurer is obligated to pay for the service, assuming it matches what was authorized. Many smaller, routine services do not require authorization.[3] Explanation of Benefits: A document that may be sent by an insurer to a patient explaining what was covered for a medical service, and how payment amount and patient responsibility amount were determined.[3]

There are mainly three types of Health Insurance covers:

Individual Medi claim : The simplest form of health

insurance is the Individual Medi claim policy. It covers the hospitalization expenses for an individual for up to the sum assured limit. The insurance premium is dependent on the sum assured value. Example : If you have 3 family members you can get an individual cover of Rs 2 lacs each . In this case each of you are covered for 2 lacs , if 3 members face a need for hospitalization , all 3 of them can get expenses recovered upto Rs 2 lacs . All the 3 policies are independent.

Family Floater policy : Family Floater Policies are

enhanced version of the mediclaim policy. The sum assured value floats among the family members. i.e each opted family member comes under the policy, and it covers expenses for the entire family up to the sum assured limit. The premium for family floater plans is typically less than that for separate insurance cover for each family member.

Example : In this case if suppose there are 3 family

members , you can take a Family floater policy for Rs 6 lacs in total . Now anyone can claim upto 6 lacs in expenses , but then the cover will go down by that much amount for that year . So if one of the family member is hospitalised and the expenses are 4.5 lacs . It will be paid and then the cover will be reduced to 1.5 lacs for that particular year . Next year again it will start from fresh 6 lacs. Family floater makes sense for a family because that way each one in family gets a big cover and probability of more than 1 getting hospitalized in same year is too low untill and unless whole family is travelling together most of the times in a year.

Unit Linked Health Plans : Taking the ULIP route,

health insurance companies too have introduced Unit Linked Health Plans. Such plans combine health insurance with investment and pay back an amount at the end of the insurance term. The returns of course are dependent on market performance. These plans are very new and still in development phase . This is only recommended for people who can handle market linked products like ULIP and ULPP .

CONCLUSIONS
Creating awareness & meeting the demand for health care & financing Creating modules for aligning the services of all

concerned Focusing on enhancing affordability & reducing costs Rapid coverage and health benefit to all