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Health insurance
in India

Submitted to:

Jagadeesh Chandra T G

Assistant Professor of Law



Reg No-



I feel highly elated to present the project Research on HEALTH INSURANCE IN

INDIA, which owes its very existence to a number of people without thanking
whom, I would fail to do proper justice to its original profounder.

Firstly, I would like to thank the Insurance law Subject Faculty, Jagadeesh Chandra
for showing his belief in me and considering me potent enough to carry out the
research methodology, and thereby assigning the said topic to me. In fact without his
continuous exemplary guidance and worm- view criticism the project could never
have reached its current stature. Thus I extend a sincere heart-felt thanks to My
Preceptor Jagadeesh Chandra - the ever helping Faculty of GUJARAT NATIONAL

Secondly, I would like to extend my sincere acknowledgement towards the Librarian

of GNLU, for making all the reading materials available relevant for my Research
Paper, within such short notice. In fact the GNLU Library came up as an excellent
source for all the requisite data.

Method of Research:
The researcher has adopted a doctrinal as well as non-doctrinal method of research.
The researcher has made extensive use of the library at the Gujarat National Law
University and also the internet sources as well as interacted with the general mass of

Scope and Limitations

The project offers a comprehensive study of the HEALTH INSURANCE IN INDIA.

The research paper does not provide a complete understanding of the all the
provisions of Health Insurance.


I have divided the project into various chapters. Each dealing with different aspects
of the topic. In the initial chapters, I have discussed elaborately, the meaning of Health
Insurance. Further, I have elaborate different provisions and lastly; I have concluded
the topic by summarizing the highlighting aspects of the Health Insurance in India.

Sources of Information

The researcher has relied on secondary sources for the purposes of this project such as
books, articles.

Style of writing

The researcher has adopted a descriptive and analytical style of writing for the
purposes of this research paper.

Mode of citation

A uniform mode of citation has been followed throughout the course of this project.













When health is absent, wisdom cannot reveal itself, art cannot manifest,
strength cannot fight, wealth becomes useless, and intelligence cannot
be applied. Herophilus

It sums up the importance of good health. No nation could progress

without its citizen being healthy. But, ever increasing medical cost has
made health care a distant dream. People are forced to pay out of their
pocket and sometimes due to lack of proper financial assistance even
suffer death or serious health hazard, bringing their or their closed ones
life to a still. In India, particularly such sight is very common. People
do not have adequate economic capacity to avail hi-tech medical
facility because of the expensive medical procedure. Every poor/middle
class/upper middle class in their life time faces such contingencies were
his or his loved one life is at risk and require medical attention but due
to lack of financial resources they are not able to help them, in such a
situation Health Insurance serves as a boon.

Health insurance is insurance against the risk of incurring medical

expenses among individuals. By estimating the overall risk of health
care and health system 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. The benefit is
administered by a central organization such as a government agency,
private business, or not-for-profit entity. According to the Health
Insurance Association of America, health insurance is defined as
"coverage that provides for the payments of benefits as a result of
sickness or injury. Includes insurance for losses from accident, medical
expense, disability, or accidental death and dismemberment"
Brief History of
Health Insurance

The Greek and the Romans have introduced the

concept of Health Insurance and Life Insurance
in 600 AD. They organized the society with the
name of guilds. These societies were open to
all the persons irrespective of their paying
capacity, their class, their work and their status in
the society. Here the member of the society used
to divide the expense coming to the society at an
equal platform. Say for example, there are 10
members in a community and A dies leaving
behind dependents and B incurs certain
medical expense, then the total cost of the
expenses to the dependents and medical expense
will be calculated and will be duly divided
among all members of the community except

Hammurabi code, advocated the concept of

Health Insurance. The modern day health
insurance drives many of its characteristic from
the code of Hammurabi. Rates were set for
different surgeries and successful surgeons were
awarded and in case of failure penalty was
imposed on them.1 It was actually in early
twentieth century that concept of Health
insurance was recognised.
Individual health insurance plans became
available in the United States during the Civil
War. The plans provided coverage for injury
related caused by travelling in railways and
steam boat. Massachusetts Health Insurance of
Boston offered early group policies with a
relatively comprehensive list of benefits as early
as 1847.2

Individual accident insurance proved a

successful venture, so these kinds of early plans
began to evolve into more expansive programs
that covered a broader range of illness and injury,
including early versions of disability coverage by
the end of the nineteenth century. In the early
years of the twentieth century, groups began
developing relationships with health care

Allen D. Spiegel, Hammurabi's Managed Health
Care Circa 1700 B.C. available at
5.hammurabi.shtml (last accessed on 15th February,
2014) 2 See New world Encylopedia, available at
www.newworldencyclopedia.org/entry/Health (last
accessed on 15th February, 2014)
to develop what would become the predecessors
to modern health insurance plans, or fee-based

In Germany, insurance for compulsory accident

and sickness was triggered by Otto Von
Bismarck. After the World War I this policy was
adopted by Soviet Union and Great
Britain. National Health Insurance Act of 1948
provides for compulsory health insurance in
Britain. Cost was bore by the government and
tax authority and only minimal service charge
was to be provided.

3 The History of Health Insurance in

the United States of America. available at
e.htm (last accessed 15th February, 2014)

4ManagingLawrence F. Wolper, Health Care Administration-

Organized Delivery System, 5th Edition, Jones and
Barlett Publishers International, 12th April, 2010
5 ibid
See National Assistance Act 1948 (1948 CHAPTER 29)
available at http://www.legislation.gov.uk/ukpga/Geo6/11-
12/29/enacted (last accessed 15th February, 2014)
Definition of

Health Insurance is a kind of insurance policy

taken by the insured to avail benefit whenever he
faces any medical contingencies. The effect on
health shack of policies to provide everyone
against known high frequency, health care
services such as high risk priority health care.
This is important because many countries
introduce this with two fold objective, to reduce
the catastrophic health care cost and to make its
citizen healthy by providing them with better
medical facilities.

A Health insurance contract of insurance is a

contract either to indemnify a person against a
loss which may arise on happening of certain
events or to pay a sum of money on the
happening of some or any event in agreed
consideration. Health insurance in recent years
has been introduced and felt necessary in
developing countries. So in a lay man manner we
can describe health insurance as a mechanism to
indemnify the insured when he suffers any
medical contingencies by the person who
undertakes to pay the money or assistance
known as insurer.

7 Pablo Enrique Gottret & George Schieber, Health
Financing Revisted; A practioners Guide (World Bank,
8 See Section 2 (9) of Indian Insurance Act, 1938

Health expenditure means health and health

related expenditure. Public health expenditure
consists of recurrent and capital spending from
government (central and local) budgets, external
borrowings and grants (including donations from
international agencies and nongovernmental
organizations), and social (or compulsory) health
insurance funds. It is the sum of public and
private health expenditure. It covers the
provision of health services (preventive and
curative), family planning activities, nutrition
activities, and emergency aid designated for
health but does not include provision of water
and sanitation.

Health-related expenditures include expenditures

on health-related functions such as medical
education and training, and research and
development. In United States of America total
per capita health expenditure amounts to $8,402
(as per 2010). The Health expenditure; total (%
of GDP) in India was last reported at 4.05 in
2010, according to a World Bank report
published in 2012.

Now we can see that health care expenditure

generally involves two parties either the Public
or Private. Public expenditure generally draws
funds from the tax i.e. using central or states
revenue for health which is enshrined in Part IV
of the Indian Constitution. It is the duty of the
state to take care of the health of its people.
Private expense on the health care in India is
generally meted out of pocket i.e. payments to
health care providers for services, sometimes
donations are also channelized and the other
mode is Private Health Insurance. It is the
premium contributions towards the health
support and health insurance provides pool for
future health care. Most

9 India - Health expenditure

Health expenditure, private (% of
GDP) available
dia/health-expenditure (Last
accessed 16 February, 2014)
10 Definition of Health Expenditure available at
ion_0405.pdf (Last accessed on December, 2013)
11 Centre for Disease control and Prevention
available at
(last accessed on 16 February, 2014)
12 Health Expenditure; Total (% Of GDP) in India
countries have mix of private and public role
care of health funding.

Overview of

In United Kingdom, there is a body called

National Health Service. It aims at providing
equal care and protection to every citizen.
Medical care is free and each citizen is entitled
to avail this benefit.

Germany has public corporations which are

entrusted to provide compulsory health
insurance. In Australia life time health insurance
is a government initiative. Health care fund
depends on the age of the person availing such

There are two major types of insurance programs

available in Japan Employees Health
Insurance, and National Health Insurance
National Health insurance is designed for people
who are not eligible to be members of any
employment-based health insurance program.
Although private health insurance is also
available, all Japanese citizens, permanent
residents, and non-Japanese with a visa lasting
one year or longer are required to be enrolled in
either National Health Insurance or Employees
Health Insurance.

Since 1974, New Zealand has had a system of

universal no-fault health insurance for personal
injuries through the Accident Compensation
Corporation (ACC). The ACC scheme covers
most of the costs of related to treatment of
injuries acquired in New Zealand (including
overseas visitors) regardless of how the injury
occurred, and also covers lost income (at 80
percent of the employee's pre-injury income) and
costs related to long-term rehabilitation, such as
home and vehicle modifications for those
seriously injured. Funding from the scheme
comes from a combination of levies on
employers' payroll (for work injuries), levies on
an employee's taxable income (for non-work
injuries to salary earners), levies on vehicle
licensing fees and petrol (for

13 See http://www.nhsdirect.nhs.uk/About

14 Expat guide to Australia: Health Care, The

Telegraph, 21 July, 2013 available at
at-guide-to-Australia-health-care.html (last accessed on
18 February, 2014)
motor vehicle accidents), and funds from the
general taxation pool (for non-work injuries to
children, senior citizens, unemployed people,
overseas visitors, etc.)

The United States health care system relies

heavily on private health insurance, which is the
primary source of coverage for most Americans.
According to the CDC, approximately 58% of
Americans have private health insurance. The
Agency for Healthcare Research and
Quality (AHRQ) found that in 2011, private
insurance was billed for 12.2 million U.S.
inpatient hospital stays and incurred
approximately $112.5 billion in aggregate
inpatient hospital costs (29% of the total national
aggregate costs). Public programs provide the
primary source of coverage for most senior
citizens and for low-income children and
families who meet certain
eligibility requirements. The primary public
programs are Medicare, a federal social
insurance program for seniors and certain
disabled individuals; and Medicaid, funded
jointly by the federal government and states but
administered at the state level, which covers
certain very low income children and their
families. Together, Medicare and Medicaid
accounted for approximately sixty three percent
of the national inpatient hospital costs in 2011.
SCHIP is a federal-state partnership that serves
certain children and families who do not qualify
for Medicaid but who cannot afford private
coverage. Other public programs include military
health benefits provided through TRICARE and
the Veterans Health Administration and benefits
provided through the Indian Health Service.
Some states have additional programs for low-
income individuals.

In India, we do not have any universal health

care policy. It is limited to industrial workers and
their family. Central Government Health Scheme
(1954) and Employees State Insurance scheme
talks about providing insurance to its employees.
It is shocking to know that the country which is
prone to so many fatal diseases and where death
due to lack of proper medical attention is
common, has no policy to cover the medical
contingencies. Almost 80% of Indian do not have
health insurance policy.

15 Centers for Disease Control and Prevention.

CDC.gov (2011-03-06). Retrieved on 2011-10-26.
16 Torio CM, Andrews RM. National Inpatient
Hospital Costs: The Most Expensive Conditions by
Payer, 2011. HCUP Statistical Brief #160. Agency
for Healthcare Research and Quality, Rockville, MD.
August 2013
17 U.S. Census Bureau
18Max India
Source IRDA and annual report of Apollo Hospital and
for 2012-2013.
As per world Health Organization, health
insurance sector is not well organized in India
and almost 86% of health care financing is
through unplanned and non-contributory


Health is a human right. Its accessibility and

affordability has to be ensured. The escalating cost
of medical treatment is beyond the reach of
common man. While well to do segment of the
population both in Rural and Urban areas have
accessibility and affordability towards medical
care, the same cannot be said about the people
who belong to the poor segment of the society.
Health care has always been a problem area for
India, a nation with a large population and larger
percentage of this population living in urban
slums and in rural area, below the poverty line.
The government and people have started
exploring various health financing options to
manage problem arising out of increasing cost of
care and changing epidemiological pattern of

The control of government expenditure to

manage fiscal deficits in early 1990s has let to
severe resource constraints in the health sector.
Under this situation, one of the ways for the
government to reduce under funding and
augment the resources in the health sector was to
encourage the development of health insurance.
In the light of escalating health care costs,
coupled with demand for health care services,
lack of easy access of people from low income
group to quality health care, health insurance is
emerging as an alternative mechanism for
financing health care.

Indian health financing scene raises number of

challenges, which are:

Increase in health care costs

High financial burden on poor eroding their


Need for long term and nursing care for senior

citizens because of increasing nuclear family

Increasing burden of new diseases and health


See http://www.who.int/countries/ind/en/
Due to underfunding of government health
care, preventive and primary care and public
health functions have been neglected

In the above scenario, exploring health financing

options became critical. Naturally, health
Insurance has emerged as one of the financing
options to overcome some of the problems of our
system. In simple terms, health insurance can be
defined as a contract where an individual or
group purchases in advance health coverage by
paying a fee called premium. Health
insurance refers to a wide variety of policies.
These range from policies that cover the cost of
doctors and hospitals to those that meet a
specific need, such as paying for long term care.
Even disability insurance, which replaces lost
income if you cannot work because of illness or
accident, is considered health insurance, even
though it is not specifically for medical
expenses. Health insurance is very well
established in many countries, but in India it still
remains an untapped market. Less than 15% of
Indias 1.1 billion people are covered through
health insurance. And most of it covers only
government employees. At any given point of
time, 40 to 50 million people are on medication
for major sickness and share of public financing
in total health care is just about 1% of GDP.
Over 80% of health financing is private
financing, much of which is out of pocket
payments and not by any pre-payment schemes.
Given the health financing and demand scenario,
health insurance has a wider scope in present day
situation in India. However, it requires careful
and significant efforts to tap Indian health
insurance market with proper understanding and

Ageing health policy questions are now

frequently raised in India. India has not yet
found a clear, fair and adequate system for
financing the growing demand for long-term
care as the population ages. The migration of
population for jobs and livelihood from rural
areas to urban areas and between cities has led
to the breaking down of the age old traditional
joint or extended family system in India.
This system provides a good supporting
structure for the care of older persons by
keeping families together, pooling financial
resources and making family members available
in case of need. This weakening in the
traditional support systems for older people is
expected to lead to a rapid increase in the
demand for formal care provided by institutions
such as nursing and residential homes and also
services provided in the community.

At present, there are no social schemes or

federal or central government mechanisms for
funding of health care for the aging population.
The reliance is currently on private sector,
voluntary organizations and indigenous
programs that deliver 80% of health care (the
remainder is in the form of Government
hospitals and Municipal corporations). The
medical infrastructure to handle substantial
number of older adults is lacking. There is no
provision for organized long term care for
chronically sick, except for the upper middle
class and the rich who can afford to provide
good care at home with some professional help.
Hence, there is a need for innovative, cost
effective health insurance products for senior
citizens which cater effectively to their needs.


This paper focuses primarily on long-term care

as the subject of long-term care (LTC) is
receiving increasing attention both in the
research community and by Government
because of the belief that an ageing population
will greatly swell the demand for long term care
services and
create huge public expense. One of the issues
which need to be determined is by how much
demand will increase; another is to address the
ambiguity over whether long-term care is a
response to a medical condition, a social need or
both. The corollary is to decide how the burden
is to be shared between the individual, the
family and the state.

Before going on to discussing what different

nations are doing, it is essential we first
appreciate the nature and significance of long-
term health care. Long-term care is
administered to people who have reached a
stage in life in which they are dependent on
others for social, personal and medical needs. It
is usually associated with the very old, but, in
fact, could begin at any age depending on the
reasons for their disability perhaps a road
accident, a mental or a congenital condition. An
important social objective for long-term care is
to ensure that people are given the opportunity
to choose where their care is delivered. Given
that older people prefer to remain at home the
availability and affordability of help to support
this is crucial.
Health Insurance, Laws
and guidelines in India

Insurance regulation formally began in India,

after the passing of Life Insurance Companies
Act, 1912 and Provident Fund Act of 1912.
Today insurance sector in India is broadly
governed by Insurance Act, 1938 and Insurance
Regulatory Development Authority Act, 1999
(IRDA Act, 1999). The preamble to the IRDA
Act, 1999 read as follows: An Act to provide
for the establishment of an authority to protect
the interests of holders of Insurance policies, to
regulate, promote and ensure orderly growth of
the insurance industry and for matters connected
therewith or incidental thereto and further to
amend the Insurance Corporation Act 1956 and
the general Insurance Business (Nationalization)
Act 1972. Indian insurance companies like the
United India Insurance Co. Ltd., New India
Assurance co. Ltd. National Insurance Co. Ltd.
keeping in pace with time have initiated some of
the main health policies. There is Central
Government Health schemes which provide
comprehensive medical care to government

As per the guidelines issued by IRDA for

standardization of health insurance, out of the
46 standardized terminologies for health
insurance, the regulator has revised 19 of them.
The guideline was introduced to curb the
ambiguities and to provide better services and
enable customers to interact more effectively
with insurers, third-party administrators and

Under the new norms, an establishment

registered with the local authorities does not
have any minimum in-patient bed requirement.
One of the most significant changes brought by

Guidelines on Standardization in Health Insurance,
available at
%20Health %20Insurance.pdf (Last accessed on 20th
February, 2014)
Anirudh Laskar ,Irda issues guidelines to
standardize health insurance, Live Mint and The Wall
Street Journal, 21 February, 2013
that the health Insurance Policy could be
extended for life time and can be renewed except
the customized one. Insurer is mandated to set
claim within 30 days of application of claim by
the insured. In order to end the confusion
regarding critical illness among the insurer
Guideline 2, of the IRDA health insurance
recommendation have introduced 11
standardized definitions for inclusion in every
health policy in its Annexure II.


Having a health insurance policy is the need of

the hour. By availing such policy the insurer can
avail best medical services without worrying
about the cost of the treatment, he can have
regular health checkups and if diagnosed with
any disease could do away with it at the very
nascent stage but there few factors as well,
which prevent people from opting for the health
insurance policy. Modern insurance companies
are indulging in minting money and are more
concerned about warming their pockets than
providing service. Another demerit is that
insurance policy contains too many exclusion
clauses. The traditional model have focused on
insurer or intermediaries working with the
employment segment only as the front end to one
that allows the flexibility to serve different
segments of the population is an efficient
manner. Health Insurance providers may need to
align themselves to overall health care including
financing, preventive health care and health
outreach in order to grow coverage. Regulations
policy must be designed to encourage this. The
experience of different countries suggests that
private insurance has an important role to play in
overall health care.

Private health Insurance has enhanced access to

timely hospital care. In U.K. waiting time
reduction and private health insurance coverage
has led to vicious cycle. Private health insurance
increases choice for the individual. In Australia,
it offers the option of access to spare capacity
and elective care in non-public institutions. Thus
we see that it has led to expansion of health
coverage and expenditure in other countries.
However, regulation as well the role of public
health expenditure cannot be ignored.

Healthcare delivery would certainly be improved

tremendously with all these measures.

Websites Referred :-