HEALTH INSURANCE IN INDIA-AN OVERVIEW

1. HEALTH INSURANCE IN INDIA-AN OVERVIEW 06.01.2019 Ranchi Chapter of Cost Accountants (RCCA) Of The Institute of Cost Accountants of India Dr. (CMA) RAJESH KUMAR SINHA PhD (IIM Indore), FCMA (M-24426) Lady Hardinge Medical College (LHMC), N. Delhi

2. TOPICS TO BE COVERED • Overview of health finance-Global and India • Models of Health Financing • Rationale and benefits of Tax Based Health Finance • Overview of health insurance • Underlying principles and values of health insurance • Elements of health insurance • Health insurance-market failures • Types of health insurance • Types of health insurance in India • Health insurance policy terms • Regulation and promotion of health insurance in India • Criticism of health insurance companies • Health insurance market in India

3. OVERVIEW OF HEALTH FINANCING • There are broadly three methods of financing health care in the world. • From tax based revenues. • From health insurance • From out of pocket payments at the time of illness • Many countries use tax based revenues to finance health care. E.g. UK, Netherlands, Scandinavian countries etc. • If well managed, this is the most equitable form of financing, as everybody contributes (taxes) to take care of the sick. • Some countries use health insurance as the mechanism to finance their health care. E.g. Germany, Belgium, France, USA etc. • There are different types of health insurance e.g. social health insurance, private health insurance, publicly financed health insurance, community based health insurance. • In most low income countries, individual households pay from their pockets at the time of illness for their health care. • India has a mixed form of financing health care.

4. GLOBAL EXPERIENCE IN HEALTH FINANCING

5. OVERVIEW OF INDIA’S HEALTH EXPENDITURE • Total health expenditure in the country is around 4% of GDP • Public expenditure is around 1% of GDP on health. • 12th five year plan recommends increasing public expenditure on health to 2.5% of GDP by 2017. • This figure is much lower compared to BRICS countries – Brazil spends around 8.3%, Russian 7.1% and South Africa 8.8%. • Among SAARC countries, Afghanistan spends 8.2%, Maldives 13.7% and Nepal 5.8%. • This low spending by India has been a cause for the growing inequities, insufficient access and poor quality of healthcare services • In India, out-of-pocket health expenditure is 63% against the world’s average of 18% as per WHO. • According to NHP 2018 around 43 crores or 34% population are covered with any form of health insurance

6. CURRENT HEALTH EXP. IN INDIA BY FINANCING SCHEMES

7. MODELS OF GOVT’S HEALTH FINANCE MODELS Two well known Publically Financed Health Finance models: Social Health Insurance & Tax Based Finance

8. RATIONALE FOR TAX BASED HEALTH FINANCE • Poverty is very high • More than 94% of Indian workforce are working in unorganised sector • Overall health exp. is very low (4% of GDP) • Govt. exp. on health is very low (1% of GDP) • Triple burden of disease • Very poor health indicators (Worldwide India accounts for 20% of maternal deaths, 21% of under-5 child deaths, 25% of all neonatal deaths, Malnutrition is 50% (UNICEF) • Care seeking is very low. Hospitalization rate is 2.5% • More usage of private care which is costly (72% of OP care & 60% of IP care) and unregulated. • OOP health expenditure is very high (63%) • Catastrophic Expenditure is very high (39 million pop. pushed to BPL every year due to health exp.) • Half of the pop. are indebted due to health exp. (52%) • 1% of rural and 4% of urban gets some reimbursement • Monopoly in the market-patented drugs • Externality-public good • PHI generally suffers with market inefficiencies/failures: Information asymmetry, adverse/cream selection, moral hazard, supplier/provider induced demand • No redistribution because PHI are mostly risk/experience rated (community rated plans for weaker section) • Filling the incomplete market-poor, old age, chronic diseases, diseases with high prevalence, high probability events (OPD) are not covered etc.

9. BENEFITS OF PURE TAX BASED FINANCE Mandatory regardless to health status hence no adverse selection Low cost because no FFS or PPS. No Supplier Induced Demand GP Gatekeeper model Market correction by providing depth and breadth of services. For all sections and covers preventive and curative Better redistribution of resources. Not concentrated in few places. Progressive finance and Progressive distribution of services. Efficient health financing mechanism -prepayment, pooling and cross-subsidisation. Large pool of resources hence easy to achieve Universal Health Care (e.g. UK, Canada, Turkey etc.) People receive services irrespective of occupation unlike SHI Tax-Based Systems can benefit from scale economies in administration and purchasing power.

10. HEALTH INSURANCE • Health insurance systems have three basic sub-functions – revenue collection, pooling of revenue and purchasing of health care. • Revenue collection is the way the health system receives money from households, enterprises and donors. • Pooling is accumulation and management of revenues in such a way as to ensure that the risk of having to pay for health care is borne by all members of the pool and not by any individual contributor. • The reduction or elimination of the uncertain risk of loss for the individual or household by combining a larger number of similarly exposed individuals or households who are included in a common fund that makes good the loss caused to any one member (ILO).

11. UNDERLYING PRINCIPLES AND VALUES IN HEALTH INSURANCE Insurance is important due to UNPREDICTABILITY of the need of health care SOLIDARITY: Social well being at a small cost RISK POOLING / SHARING: Law of Large Number EQUITY: If properly designed, health insurance is more equitable and can be as progressive as tax based financing. PARTICIPATION/EMPOWERMENT: Health insurance, by its contributory nature, can allow people to express their concerns to the health services. Unlike user fees, where the interaction between the patient and the health services is on an individual basis, in health insurance there can be collective negotiation. Optimal health insurance should cover both prevention and treatment

12. ELEMENTS OF A HEALTH INSURANCE • COMMUNITY • PROVIDERS • ORGANISER • PREMIUM • Risk rated premium • Community rated premium-more equitable • Income rated premiums-SHI • BENEFIT PACKAGE: Return for the contribution. Usually a benefit package contains events that are of low probability but high cost e.g. hospitalisation. However, events that are of high probability and low cost are also covered in some cases, e.g. outpatient visits. • PAYMENTS: Cashless (Third party payment), Payment and reimbursed • RISK MANAGEMENT: Many risks to manage e.g. moral hazard, adverse selection, fraud and cost escalation. • MONITORING: Health insurance programmes need to be closely monitored. Indicators specific to health insurance e.g. claims ratio, liquidity ratio etc.

13. HEALTH INSURANCE-MARKET FAILURES • ADVERSE SELECTION • Adverse selection occurs when those who anticipate needing health care choose to buy insurance more often than others. • This in turn results in a financial drain on the scheme and may challenge the viability of the scheme • Ways of countering adverse selection are by having a large enrolment unit and making the insurance scheme compulsory. This means that those with low risk cannot opt out of the scheme and will subsidise the high risk. • CREAM SKIMMING: • The opposite of adverse selection is “risk selection” or cream skimming. This happens when insurers (usually private) only select people with low risks and avoid enrolling people with high risks. E.g. Old age people or persons with pre-existing diseases • MORAL HAZARD: • Moral hazard refers to the way in which insurance changes people’s perspectives. • Individuals, once insured, behave in such a way as to increase the likelihood or size of the risk against which they have insured. E.g. smoking, fatty diet etc. This is called consumer moral hazard or demand side moral hazard. • On the other hand, knowing that a third party is paying the medical bills, providers may alter their treatment patterns for insured patients. This is called supplier moral hazard. • Moral hazard is a problem both for financial viability and for public health logic, as it results in cost escalation and excessive medical treatments.

14. ADDRESSING MORAL HAZARD • Consumer moral hazard can be countered by introducing co-payments, so that the patient shares some of the medical costs. • Types of co-payment: • This puts a barrier on unrestrained use of health services. • However, co- payments, if sizable, can act as a barrier to utilization of health services and defeat the objective of health insurance. • Yet another way of countering consumer moral hazard is to introduce a referral system or pre-authorisation or gate-keeper. • Supplier moral hazard is especially occur if the provider is paid on a fee-for-service (FFS) basis. • It can be countered by modifying the way the providers are paid. Payments on a capitation basis or a case basis will remove incentives for the provider to over-treat. • Medical audits / reviews also help in limiting moral hazard.

15. Health Insurance Premiums • COMMUNITY RATING: • This is a system of determining uniform health insurance premia for all individuals in a community, based on the cost of providing medical services to all people in the community, without adjusting for individual risks and medical history. • Equitable- poor people or old age population are at high risk • Should be mandatory otherwise adverse selection • RISK RATING: • This is a system of determining health insurance premium for each individual based on the risk perceived by the insurer, individual’s medical history, occupation, lifestyle and other individual characteristics in the determination of his or her premium. • Need to invest more to address information asymmetry and moral hazard. • INCOME RATING: • This is a system of determining health insurance premium based on the income or wages of the individual • This system is more appropriate for a mandatory model e.g. SHI • EXPERIENCE RATING • Premium is revised based on claim experience • Widely used in India for the Group Mediclaim covers sold by public sector health insurers.

16. TYPES OF HEALTH INSURANCE • SOCIAL HEALTH INSURANCE (SHI): SHI schemes are statutory programmes financed mainly through wage-based contributions and related to level of income. Germany, France etc. In India, the ratio of employee/ employer to government contribution is almost 3:1. • There are many advantages of SHI: • A healthier workforce as they are covered. • SHI produces a stable source of income for healthcare and which is independent of the Ministry of Finance and not subject to budget fluctuations. • A mandatory scheme saves money in marketing the product. • Also a mandatory scheme ensures that there is significant enrolment, minimising some of the inherent problems of health insurance. • SHIs with a large pool can negotiate with providers for better quality of services. • Can achieve economy of scale if the pool is large. • There is considerable pooling between the rich and the poor, between the sick and the healthy and between the young and the old. Thus the young, rich and healthy cross-subsidise those who need more health care. • There is more equity, because of the income rated premiums

17. TYPES OF HEALTH INSURANCE-Contd. • Challenges with SHI • High administrative costs of managing the fund • High transaction costs as services are mostly contracted out. • No General Practitioner (GP) Gatekeeper model • Shift to privatisation hence expensive (Fee-For-Service (FFS)/Provider Payment Service(PPS) • Evidences of cost escalation more than Tax Based Finance system • Evidences of Deadweight Loss (Pushing the general price up) • Does not ensure better quality compared to Tax Based Finance • Not suitable where informal sector is large • Social Costs due to upward shift in the health care services’ price

18. TYPES OF HEALTH INSURANCE-Contd. • PRIVATE HEALTH INSURANCE (PHI): • PHI refers to insurance schemes that are financed through individual private health premiums, • Are often voluntary, • Premium is risk rated. • ‘For-profit’ insurance companies manage the funds. • Being a voluntary health insurance, it has the potential for adverse selection. People who have pre-existing illness may enroll in larger numbers, thus endangering the financial viability. • Most PHIs use risk rated premiums as a measure to overcome this. • In low income countries like India, they provide primary insurance cover i.e. they insure hospitalisations etc. • On the other hand, in high-income countries, they usually provide supplementary secondary insurance cover. E.g. in Belgium private health insurance is used to cover services not provided by the SHI, e.g. a private room or dental services. • In the USA and in some countries in Latin America, the private health insurance is the main actor in financing health care.

19. TYPES OF HEALTH INSURANCE-Contd. • COMMUNITY HEALTH INSURANCE (CHI): • CHI is “any not-for-profit insurance scheme aimed primarily at the informal sector • Formed on the basis of a collective pooling of health risks. • The solidarity element is strongest in CHIs as most of the members know each other and come forward to improve access to health care services and to protect against high medical expenses. • Community health insurance as a movement is quite active in sub-Saharan Africa. Even in Asia, we have examples from India, Philippines, Indonesia, Cambodia, and Bangladesh etc. • Their main strengths are: • Their closeness to the people. This allows people to have a say in the design and management of the health insurance scheme. • Their ability to cover the informal sector–the farmers, the peasants, the self-employed and the landless workers, usually not covered by other forms of health insurance. •  However, some of their weaknesses are: • Their size. Most CHIs are small and do not have significant risk pooling. It is limited to risk sharing between the healthy and the sick. • This small size and the fact that the insured are poor mean that the benefit package is limited in scope and may not cover the entire needs of the community.

20. TYPES OF HEALTH INSURANCE IN INDIA • SOCIAL HEALTH INSURANCE (SHI) • Central Government Health Scheme (CGHS): The CGHS was introduced in 1954 as a contributory health scheme to provide comprehensive medical care to the central government employees and their families. • Currently, there are approximately 5.5 million beneficiaries. • The staff contributes a nominal amount from their salaries. • Besides Central Government employees, the scheme also provides services to MPs, Judges of the Supreme Court and High Court, Freedom Fighters, Central Government Pensioners, Ex-Governors and Ex-Vice-Presidents of India • CGHS Facilities-The benefit package includes both outpatient care and hospitalisation. • Facilities of the government and approved private hospitals to provide inpatient care and reimburses the expenses to the patient. • Inequitable • Demand side moral hazard

21. TYPES OF HEALTH INSURANCE IN INDIA • SOCIAL HEALTH INSURANCE (SHI) • Employees State Insurance Scheme: Established in 1948, the ESIS is an insurance system, which provides both cash and medical benefits. It was conceived as a compulsory social security benefit for workers in the formal sector. • The Employees‟ State Insurance Corporation (ESIC) manages the scheme and is a corporate semi government body headed by the Labour Ministry • Number of insured persons covered under the Scheme reached 2.1 crores persons/family units with beneficiaries of 8.3 crores in 2018-19. • The Act compulsorily covers: (a) all power-using non-seasonal factories employing 10 or more persons; (b) all non-power-using factories employing 20 or more employees; (c) other establishment's viz. Road Transport, Hotels, Restaurants, Cinemas, Newspaper, Shops, and Educational/Medical Institutions • Employees of the aforesaid categories of factories and establishments, drawing wages upto Rs.15,000/- a month, are entitled to cover. ESI Corporation has also decided to enhance wage ceiling for coverage of employees from Rs.15,000/- to Rs.21,000/-. • The ESI Scheme is financed by contributions from employers (4.75% of the wages) and employees (1.75% of the wages). • Employees, earning less than Rs. 137/- a day as daily wages, are exempted from payment of their share of contribution.

22. TYPES OF HEALTH INSURANCE IN INDIA • RASHTRIYA SWASTHYA BIMA YOJNA (RSBY) • Started in April, 2008 and managed by Ministry of Labour and Employment • Centre contributes 75% of the premium and rest 25% is covered by the state government • Total sum Insured of Rs 30,000 per BPL family of five on a family floater basis. • State government can top-up the amount beyond Rs. 30,000 • Pre-existing diseases covered. No age limit to enrol. • Coverage of hospitalization related health services and certain procedures provided on a day-care basis • Cashless coverage for hospitalization. • Provision of Smart Card which is portable and can also be split. • Provision of pre and post hospitalization expenses. • Transport allowance @Rs.100 per visit up to a ceiling of Rs. 1000 as part of the benefits. • Though almost all cases of hospitalization are covered, package rates have been fixed for around 1,100 procedures  • Benefit also includes one day pre‐ and five day post‐hospitalization expenses • Out-patient services are not covered • The scheme has won plaudits from the World Bank, the UN and the ILO as one of the worlds best health insurance schemes.

23. TYPES OF HEALTH INSURANCE IN INDIA • AYUSHMAAN BHARAT (NATIONAL HEALTH PROTECTION SCHEME) • Started in September, 2018 and managed by Ministry of Health and Family Welfare • Aim to cover 10 crore poor families (approximately 50 crore beneficiaries) providing coverage upto 5 lakh rupees/family/year for secondary and tertiary care hospitalization. • No restriction of family size • Subsumed the on-going centrally sponsored schemes –RSBY and the Senior Citizen Health Insurance Scheme (SCHIS). • Benefits of the scheme are portable across the country • This will be an entitlement based scheme with entitlement decided on the basis of deprivation criteria in the SECC database. • The beneficiaries can avail benefits in both public and empanelled private facilities. • To control costs, the payments for treatment will be done on package rate (to be defined by the Government in advance) basis. • Flexibility to states-through an insurance company or directly through the Trust/ Society or use an integrated model. • States would need to have State Health Agency (SHA) to implement the scheme. • Robust IT platform will be made operational which will entail a paperless, cashless transaction.

24. TYPES OF HEALTH INSURANCE IN INDIA • COMMUNITY BASED HEALTH INSURANCE (CBHI) • Yeshasvini: • Organized by the Yeshasvini Trust, Karnataka • Eligibility – Cooperative farmers and their families • Premium – Rs 120 + 30 per person per year • Benefit – any surgery up to Rs 1 lakh per hospitalization and 2 lakh per patient per year • Providers – Empanelled hospital > 300 • Administration by TPAs • Karuna Trust: • Initiated in September 2002. Organized by Karuna Trust, Karnataka • Eligibility – BPL families in talukas where Karuna trust works • Premium – Rs 20 per person per year • Benefit – hospitalization expenses upto Rs 2500; loss of wages upto Rs 1500; payment to the doctors upto Rs 1500 • Providers – Only government hospitals • First year > 60,000 members, now around 100,000.

25. A FEW HEALTH INSURANCE POLICY TERMS Mediclaim-Reimbursement or cashless benefit upto the sum insured. If exp. is less then actual exp. If it is more then upto the coverage Individual Cover vs. Family Floater Fixed Benefit Plans-When event occurs then fixed money is paid irrespective of the amount spent. Critical Illness Plan-Similar to Fixed Benefit Plan but only for the specified diseases which are covered Premium:This is the cost you pay each month/year for insurance. Pre-Existing Illnesses: If insured has undergone treatment for an ailment within 48 months before the policy was issued, the illness will not be covered Waiting Period:Pre-existing illnesses will be covered only after a waiting period of 1-4 years No-Claim Period:  Claims other than those related to accidents cannot be made during the first 30 days of the health policy  Sub-Limits: Caps are placed by insurers on hospital room rent, surgeons charges, specific diseases, even if the total claim does not exhaust the limit No claim bonus or discount Re-insurance: Insuring the Insurance Companies beyond a certain level of pay-out. Stop-Loss coverage. the reinsurance company takes over when the threshold amount is reached.

26. HEALTH INSURANCE REGULATION IN INDIA • GENERAL INSURANCE CORPORATION (GIC) • The GIC was set up by the government in 1973 as a public sector organisation after nationalisation. • To control and market a range of insurance services, including hospitalisation cover. • It introduced the standard ‘Mediclaim’ health insurance scheme • Before the GIC came into existence, a number of private insurance companies were engaged in offering group health insurance cover to most corporate bodies. • With the formation of the GIC these companies (107) were merged into 4 of its subsidiaries: the National Insurance Corporation (Calcutta), New India Assurance Company (Bombay), Oriental Insurance Company (New Delhi) and United Insurance Company (Madras). • One purpose of the merger of all the insurance companies was to standardise the coverage and various medical benefits. • All that is offered is reimbursement insurance. • GIC and its subsidiaries had a monopoly on the general insurance business in India until the landmark IRDA Act of 1999 came into effect on April 2000. • In November 2000, GIC was notified as India's Re-insurer, but its supervisory role over its subsidiaries was ended. • As a result of these reforms, GIC became the sole Re-Insurer in India, and is now called GIC Re. • Indian insurance companies are required by law to cede 5% of every policy value to GIC Re w.e.f. 1 April 2013,subject to some limitations and exceptions. • GIC Re has diversified its operations and is now emerging as an important Re-Insurer in SAARC countries, Southeast Asia, Middle East, Africa, Europe and America.

27. REGULATION AND PROMOTION OF HEALTH INSURANCE IN INDIA • INSURANCE REGULATORY DEVELOPMENT AUTHORITY (IRDA) • In 1993, the government set up a committee chaired by former RBI governor R. N. Malhotra to propose recommendations for insurance reform. • The committee submitted its report in 1994, recommending that the private sector and foreign companies be permitted to enter the insurance industry. • Following the recommendations of the Committee, in 1999, the IRDA was constituted to regulate and develop the insurance industry. • The IRDA opened up the market in 2000; FDI was allowed upto 26%. Raised to 49% in 2016 • In December 2000, the subsidiaries of the GIC of India were restructured as independent companies. • The GIC was converted into a national re-insurer. • GIC, which has a dominant 60% market share in re-insurance, has been supporting the Indian market to the hilt, even though primary market prices are low, • Whereas the foreign branches have been cherry-picking for re-insurance — based on the quality and loss experience of business referred to them by Indian insurers. • Third Party Administrator (TPA) is a specialized health service provider, introduced by the IRDA, rendering broad-spectrum services-Networking with hospitals, Facilitating hospitalization processes, Claim processing and settlement • Claim Disputes/Grievances Ombudsman is a special court constituted under IRDA for addressing grievances associated with Insurance claims.

28. CRITICISM OF INSURANCE COMPANIES Modern insurance companies indulging in money-making businesses with little interest in insurance. The purpose of insurance is to spread risk. Reluctance of insurance companies to take on high-risk cases is against the principle of insurance. Insurance policies contain too many exclusion clauses. Most insurance companies now use call centres and staff attempt to answer questions by reading from a script. It is difficult to speak to anybody with expert knowledge.

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