CHAPTER-III

1
2.11. HISTORY OF INSURANCE IN INDIA

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu
( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The
writings talk in terms of pooling of resources that could be re-distributed in times of
calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor
to modern day insurance. Ancient Indian history has preserved the earliest traces of
insurance in the form of marine trade loans and carriers’ contracts. Insurance in India
has evolved over time heavily drawing from other countries, England in particular.

1818 saw the advent of life insurance business in India with the establishment of
the Oriental Life Insurance Company in Calcutta. This Company however failed in
1834. In 1829, the Madras Equitable had begun transacting life insurance business in
the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in
the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental
(1874) and Empire of India (1897) were started in the Bombay Residency. This era,
however, was dominated by foreign insurance offices which did good business in
India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe
Insurance and the Indian offices were up for hard competition from the foreign
companies.

In 1914, the Government of India started publishing returns of Insurance Companies

in India. The Indian Life Assurance Companies Act, 1912 was the first statutory
measure to regulate life business. In 1928, the Indian Insurance Companies Act was
enacted to enable the Government to collect statistical information about both life and
non-life business transacted in India by Indian and foreign insurers including
provident insurance societies. In 1938, with a view to protecting the interest of the
Insurance public, the earlier legislation was consolidated and amended by the
Insurance Act, 1938 with comprehensive provisions for effective control over the
activities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there
were a large number of insurance companies and the level of competition was high.

2
There were also allegations of unfair trade practices. The Government of India,
therefore, decided to nationalize insurance business.

An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance
sector and Life Insurance Corporation came into existence in the same year. The LIC
absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245
Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the
Insurance sector was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the west
and the consequent growth of sea-faring trade and commerce in the 17th century. It
came to India as a legacy of British occupation. General Insurance in India has its
roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in
Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This
was the first company to transact all classes of general insurance business.

1957 saw the formation of the General Insurance Council, a wing of the Insurance
Associaton of India. The General Insurance Council framed a code of conduct for
ensuring fair conduct and sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum
solvency margins. The Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act,
general insurance business was nationalized with effect from 1st January, 1973. 107
insurers were amalgamated and grouped into four companies, namely National
Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental
Insurance Company Ltd and the United India Insurance Company Ltd. The General
Insurance Corporation of India was incorporated as a company in 1971 and it
commence business on January 1sst 1973.

This millennium has seen insurance come a full circle in a journey extending to nearly
200 years. The process of re-opening of the sector had begun in the early 1990s
and the last decade and more has seen it been opened up substantially. In 1993, the

3
Government set up a committee under the chairmanship of RN Malhotra, former
Governor of RBI, to propose recommendations for reforms in the insurance
sector.The objective was to complement the reforms initiated in the financial
sector. The committee submitted its report in 1994 wherein , among other things, it
recommended that the private sector be permitted to enter the insurance industry.
They stated that foreign companies be allowed to enter by floating Indian companies,
preferably a joint venture with Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the

Insurance Regulatory and Development Authority (IRDA) was constituted as an
autonomous body to regulate and develop the insurance industry. The IRDA was
incorporated as a statutory body in April, 2000. The key objectives of the IRDA
include promotion of competition so as to enhance customer satisfaction through
increased consumer choice and lower premiums, while ensuring the financial security
of the insurance market.

The IRDA opened up the market in August 2000 with the invitation for application
for registrations. Foreign companies were allowed ownership of up to 26%. The
Authority has the power to frame regulations under Section 114A of the Insurance
Act, 1938 and has from 2000 onwards framed various regulations ranging from
registration of companies for carrying on insurance business to protection of
policyholders’ interests.

In December, 2000, the subsidiaries of the General Insurance Corporation of India

were restructured as independent companies and at the same time GIC was converted
into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries
from GIC in July, 2002.

Today there are 14 general insurance companies including the ECGC and Agriculture
Insurance Corporation of India and 14 life insurance companies operating in the
country.
The insurance sector is a colossal one and is growing at a speedy rate of 15-20%.
Together with banking services, insurance services add about 7% to the country’s
GDP. A well-developed and evolved insurance sector is a boon for economic

4
development as it provides long- term funds for infrastructure development at the
same time strengthening the risk taking ability of the country.

2.12. MILESTONES IN INDIAN LIFE INSURANCE BUSINESS

 1912: The Indian Life Assurance Companies Act came into force for
regulating the life insurance business.
 1928: The Indian Insurance Companies Act was enacted for enabling the
government to collect statistical information on both life and non-life
insurance businesses.
 1938: The earlier legislation consolidated the Insurance Act with the aim of
safeguarding the interests of the insuring public.
 1956: 245 Indian and foreign insurers and provident societies were taken over
by the central government and they got nationalized. LIC was formed by an
Act of Parliament, viz. LIC Act, 1956. It started off with a capital of Rs. 5
crore and that too from the Government of India.

The history of general insurance business in India can be traced back to Triton
Insurance Company Ltd. (the first general insurance company) which was formed in
the year 1850 in Kolkata by the British.

2.13. IMPORTANT MILESTONES IN THE INDIAN INSURANCE BUSINESS

 1907: The Indian Mercantile Insurance Ltd. was set up which was the first
company of its type to transact all general insurance business.
 1957: General Insurance Council, an arm of the Insurance Association of
India, framed a code of conduct for guaranteeing fair conduct and sound
business patterns.
 1968: The Insurance Act improved for regulating investments and set minimal
solvency levels and the Tariff Advisory Committee was set up.
 1972: The General Insurance Business (Nationalization) Act, 1972
nationalized the general insurance business in India. It was with effect from
1st January 1973.

5
107 insurers integrated and grouped into four companies viz. the National Insurance
Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance
Company Ltd. and the United India Insurance Company Ltd. GIC was incorporated as
a company.

2.14. Economic policy context and imperatives of liberalization of

insurance sector:

There are several imperatives for opening of the insurance and health insurance sector
in India for private investment. Here we review some of these imperatives. Economic
policy reforms started during late eighties and speeded up in nineties are the context
in which liberalization of insurance sector happened in India. It was very obvious that
the liberalization of the real (productive) and financial sector of the economy has to
go hand in hand. It is imperative that these sectors are consistent with policies of each
other and unless both function efficiently and are in equilibrium, it would be difficult
to ensure appropriate economic growth. Given these facts liberalization of both
sectors has to proceed simultaneously.Indian economic system has been developed on
paradigm of mixed economy in which public and private enterprises co-exist. The
past strategies of development based on socialistic thinking were focusing on the
premise of restrictions, regulations and control and less on incentives and market
driven forces. This affected the development process in the country in serious way.
After the economic liberalization the paradigm changed from central planning,
command and control to market driven development. Deregulation, decontrol,
privatization, delicensing, globalization became the key strategies to implement the
new framework and encourage competition. The
social sectors did not remain unaffected by this change. The control of government
expenditure, which became a key tool to manage fiscal deficits in early 1990s,
affected the social sector spending in major way. The unintended consequences of
controlling the fiscal deficits have been reduction in capital expenditure and non-
salary component of many social sector programmes.This has led to severe resource
constraints in the health sector in respect of non-salary expenditure and this has
affected the capacity and credibility of the government health care system to deliver
good quality care over the years. Given the increasing salaries, lack of effective
monitoring and lack of incentives to provide good quality services the provides in the

6
government sector became indifferent to the clients. Clients also did not demand good
quality and better access, as government services were free of cost.

Under this situation more and more clients turned to the private sector health
providers and thus the private sector healthcare has expanded. Given the socialistic
political thinking and populist policy it has been generally difficult for any
government to introduce cost recovery in public health sector. Given that government
is unable to provide more resources for health care, and institute cost recovery, one of
the ways to reduce the under-funding and augment the resources in the health sector
was to encourage the development health insurance.

Another imperative for liberalization of the insurance sector was the need for long-
term financial resources on sustainable basis for the development of infrastructure
sector such as roads, transports etc. It was realized that during the course of economic
liberalization, the funds to development the infrastructure also became a major
constraint. Country certainly needed infrastructure development. For this the finances
are major constraint. In these investments the benefits are more social than private.
The major concern was how these finances can be made available at low costs. In past
the development of social sector were financed using government channeled funds
through various semi-government financial institutions. Under the liberalized
economy this may not be possible. One hope is that if the insurance sector develops
rapidly under privatization then it can provide long-term finance to the infrastructure
sector.

The financial sector, which consists of banks, financial institutions, insurance

companies,
provident funds schemes, mutual funds were all under government control. There was
less competition across these units. As a result these institutions remained
significantly less developed in their approach and management. Insurance sector has
been most affected by the government controls. Government had significant control
on the policies these insurance companies could offer and utilization of the resources
mobilized by insurance companies. One can see that most of the insurance products
(e.g., life insurance products) were promoted as mechanisms to improve the savings
and tax shelters rather as risk coverage instruments. Other segments of the insurance

7
products grew because of the statutory obligations (e.g., Motor Vehicle, Marine and
Fire) under various acts. The management and organization of insurance sector
companies remained less developed and they neglected new product development and
marketing. Thus one of the hopes in opening of the insurance sector was that the
private and foreign companies would rapidly develop the sector and improve
coverage of the population with insurance using new products and better
management.

Last imperative for opening of the insurance sector was signing the WTO India. After
this there was little choice but to open the entire financial sector - including insurance
sector to private and foreign investors. (Dholakia 1999).

2.15. LIST OF INSURANCE COMPANIES IN INDIA:

LIFE INSURERS Websites

Public Sector

Life Insurance Corporation of India www.licindia.com

Private Sector

Allianz Bajaj Life Insurance Company Limited www.allianzbajaj.co.in

Birla Sun-Life Insurance Company Limited www.birlasunlife.com

HDFC Standard Life Insurance Co. Limited www.hdfcinsurance.com

ICICI Prudential Life Insurance Co. Limited www.iciciprulife.com

ING Vysya Life Insurance Company Limited www.ingvysayalife.com

Max New York Life Insurance Co. Limited www.maxnewyorklife.com

MetLife Insurance Company Limited www.metlife.com

Om Kotak Mahindra Life Insurance Co. Ltd. www.omkotakmahnidra.com

SBI Life Insurance Company Limited www.sbilife.co.in

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TATA AIG Life Insurance Company Limited www.tata-aig.com

AMP Sanmar Assurance Company Limited www.ampsanmar.com

Dabur CGU Life Insurance Co. Pvt. Limited www.avivaindia.com

GENERAL INSURERS

Public Sector

National Insurance Company Limited www.nationalinsuranceindia.com

New India Assurance Company Limited www.niacl.com

Oriental Insurance Company Limited www.orientalinsurance.nic.in

United India Insurance Company Limited www.uiic.co.in

Private Sector

Bajaj Allianz General Insurance Co. Limited www.bajajallianz.co.in

ICICI Lombard General Insurance Co. Ltd. www.icicilombard.com

IFFCO-Tokio General Insurance Co. Ltd. www.itgi.co.in

Reliance General Insurance Co. Limited www.ril.com

Royal Sundaram Alliance Insurance Co. Ltd. www.royalsun.com

TATA AIG General Insurance Co. Limited www.tata-aig.com

Cholamandalam General Insurance Co. Ltd. www.cholainsurance.com

Export Credit Guarantee Corporation www.ecgcindia.com

HDFC Chubb General Insurance Co. Ltd.

REINSURER

General Insurance Corporation of India www.gicindia.com

2.16. CONCEPT AND FUNCTIONS OF INSURANCE

Insured, are you? The functions of Insurance will give you an idea on how to go
ahead with the approach of insurance and what type of insurance to choose. In a

9
layman's words, insurance means, ‘a guard against pecuniary loss arising on the
happening of an unforeseen event’. In developing economies, the insurance sector still
holds a lot of potential which can be tapped. Majority of the people in the developing
countries remains unaware of the functions and benefits of insurance and it is for this
reason that the insurance sector is still to grow.

Tangible or intangible – an individual can insure anything! Be it a house, car, factory,

or the voice of a singer, leg of a footballer, and the hand of an author.....etc. It is
possible to insure all these as they have the possibility of becoming non functional by
any disaster or an accident.

BASIC FUNCTIONS OF INSURANCE:

1. 1.Primary Functions
2. 2.Secondary Functions
3. 3.Other Functions

Primary functions of insurance

 Providing protection – The elementary purpose of insurance is to allow

security against future risk, accidents and uncertainty. Insurance cannot arrest
the risk from taking place, but can for sure allow for the losses arising with the
risk. Insurance is in reality a protective cover against economic loss, by
apportioning the risk with others.
 Collective risk bearing – Insurance is an instrument to share the financial
loss. It is a medium through which few losses are divided among larger
number of people. All the insured add the premiums towards a fund and out of
which the persons facing a specific risk is paid.
 Evaluating risk – Insurance fixes the likely volume of risk by assessing
diverse factors that give rise to risk. Risk is the basis for ascertaining the
premium rate as well.
 Provide Certainty – Insurance is a device, which assists in changing
uncertainty to certainty.

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Secondary functions of insurance

 Preventing losses – Insurance warns individuals and businessmen to embrace

appropriate device to prevent unfortunate aftermaths of risk by observing
safety instructions; installation of automatic sparkler or alarm systems, etc.
 Covering larger risks with small capital – Insurance assuages the
businessmen from security investments. This is done by paying small amount
of premium against larger risks and dubiety.
 Helps in the development of larger industries – Insurance provides an
opportunity to develop to those larger industries which have more risks in their
setting up.

Other functions of insurance

 Is a savings and investment tool – Insurance is the best savings and

investment option, restricting unnecessary expenses by the insured. Also to
take the benefit of income tax exemptions, people take up insurance as a good
investment option.
 Medium of earning foreign exchange – Being an international business, any
country can earn foreign exchange by way of issue of marine insurance
policies and a different other ways.
 Risk Free trade – Insurance boosts exports insurance, making foreign trade
risk free with the help of different types of policies under marine insurance
cover.

Insurance provides indemnity, or reimbursement, in the event of an unanticipated loss

or disaster. There are different types of insurance policies under the sun cover almost
anything that one might think of. There are loads of companies who are providing
such customized insurance policies.

2.17. CHALLENGES FACING INSURANCE INDUSTRY:

 Threat of New Entrants: The insurance industry has been budding with new
entrants every other day. Therefore the companies should carve out niche

11
 areas such that the threat of new entrants might not be a hindrance. There is
also a chance that the big players might squeeze the small new entrants.
 Power of Suppliers: Those who are supplying the capital are not that big a
threat. For instance, if someone as a very talented insurance underwriter is
presently working for a small insurance company, there exists a chance that
any big player willing to enter the insurance industry might entice that person
off.
 Power of Buyers: No individual is a big threat to the insurance industry and
big corporate houses have a lot more negotiating capability with the insurance
companies. Big corporate clients like airlines and pharmaceutical companies
pay millions of dollars every year in premiums.
 Availability of Substitutes: There exist a lot of substitutes in the insurance
industry. Majorly, the large insurance companies provide similar kinds of
services – be it auto, home, commercial, health or life insurance.

How to choose an insurance company?

There are many factors to probe into when an investor chose an insurance company.

 The consumers as well as the investors should only focus on the insurer's
financial strength and capability to meet ongoing responsibilities to its
policyholders.
 The fundamentals of the insurance company should be strong and should not
indicate a poor investment opportunity as this might also deter growth.

2.18. TOP INSURANCE COMPANIES IN INDIA:

Life Insurance Corporation of India -

The Life Insurance Corporation of India (LIC) is undoubtedly India's largest life
insurance company. Fully owned by government, LIC is also the largest investor of

12
the country. LIC has an estimated asset of Rs. 8 Trillion. It also funds almost 24.6%
of the expenses of Government of India.

Established in 1956 and headquartered in Mumbai, Life Insurance Corporation of

India has 8 zonal offices, 100 divisional offices, 2,048 branch offices and a vast
network of 10,02,149 agents spread across the country.

Tata AIG Insurance Solutions-

Tata AIG Insurance Solutions, one of the leading insurance providers in India, started
its operation on April 1, 2001. A joint venture between Tata Group (74% stake) and
American International Group, Inc. (AIG) (26% stake), Tata AIG Insurance Solutions
has two different units for life insurance and general insurance. The life insurance unit
is known as Tata AIG Life Insurance Company Limited, whereas the general
insurance unit is known as Tata AIG General Insurance Company Limited.

AVIVA Life Insurance -

AVIVA Life Insurance, one of the popular insurance companies in India, is a joint
venture between the renowned business group, Dabur and the largest insurance group
in the UK, Aviva plc. AVIVA Life Insurance has an extensive network of 208
branches and about 40 Bancassurance partnerships, spread across 3,000 cities and
towns across the country. There are more than 30,000 Financial Planning Advisers
(FPAs) working for AVIAV Life Insurance. It offers various plans like Child,
Retirement, Health, Savings, Protection and Rural.

MetLife Insurance -

MetLife India Insurance Company Limited is another popular player in Indian

insurance sector. A joint venture between the Jammu and Kashmir Bank, M. Pallonji
and Co. Private Limited and other private investors and MetLife International
Holdings, Inc., MetLife Insurance offers a wide range of financial solutions to its
customers including Met Suraksha, Met Suraksha TROP, Met Mortgage Protector and

13
Met Suraksha Plus etc. It has its branches situated over 600 locations across the
country. More than 50,000 Financial Advisors work for MetLife.

ING Vysya Life Insurance -

ING Vysya Life Insurance entered into the Indian insurance industry in September
2001. A joint venture between ING Group, Ambuja Cements, Exide Industries and
Enam Group, ING Vysya Life Insurance uses its two channels, viz. the Alternate
Channel and the Tied Agency Force to distribute its products. The first channel has
branches in 234 cities across the country and has got 366 sales teams. On the other
hand, the later one has more than 60,000 advisors. Currently, ING Vysya Life
Insurance has tie ups with more than 200 cooperative banks.

Birla Sun Life Financial Services -

Birla Sun Life Financial Services is a joint venture between Aditya Birla Group and
Sun Life Financial Inc, Canada. It has got an extensive network of more than 600
branches. More than 1,75,000 empanelled advisors work for Birla Sun Life, which
currently covers over 2 million lives.

MAX New York Life -

Max New York Life Insurance Company Ltd. is one of the top insurance companies
in India. A joint venture between Max India Limited and New York Life International
(a part of the Fortune 100 company - New York Life), Max New York Life Insurance
Company Ltd. started its operation in April 2001. It currently has around 715 offices
located in 389 cities across the country. It also has around 75,832 agent advisors. Max
New York Life offers 39 products, which cover both, life and health insurance.

Bajaj Allianz -

Bajaj Allianz is a joint venture between Bajaj Finserv Limited and Allianz SE, where
Bajaj Finserv Limited holds 74% of the stake, whereas Allianz SE holds the rest 26%

14
stake. Bajaj Allianz has been rated iAAA by ICRA for its ability to pay claims. The
company also achieved a growth of 11% with a premium income of Rs. 2866 crore as
on March 31, 2009.

Bharti AXA Life Insurance -

Bharti AXA Life Insurance, one of the top insurance companies in India, is a joint
venture between Bharti group and world leader AXA. Bharti holds 74% stakes,
whereas AXA holds the rest of 26%. Bharti AXA has its branches located in 12 states
across the country. It offers a range of individual, group and health plans for its
customers. Currently more than 8000 employees work for Bharti AXA Life
Insurance.

15
 2.2. HEALTH
INSURANCE IN
INDIA

16
2.21.HEALTH INSURANCE IN INDIA: CURRENT SCENARIO

Introduction

The health care system in India is characterised by multiple systems of medicine,

mixed ownership patterns and different kinds of delivery structures. Public sector
ownership is divided between central and state governments, municipal and
Panchayat local governments. Public health facilities include teaching hospitals,
secondary level hospitals, first-level referral hospitals (CHCs or rural hospitals),
dispensaries; primary health centres (PHCs), sub-centres, and health posts. Also
included are public facilities for selected occupational groups like organized work
force (ESI), defence, government employees (CGHS), railways, post and telegraph
and mines among others. The private
sector (for profit and not for profit) is the dominant sector with 50 per cent of people
seeking indoor care and around 60 to 70 per cent of those seeking ambulatory care (or
outpatient care) from private health facilities. While India has made significant gains
in terms of health indicators - demographic, infrastructural and epidemiological (See
Tables 1 and 2), it continues to grapple with newer challenges. Not only have
communicable diseases persisted over time but some of them like malaria have also
developed insecticide-resistant vectors while others like tuberculosis are becoming
increasingly drug resistant. HIV / AIDS has of late assumed extremely virulent
proportions. The 1990s have also seen an increase in mortality on account of non-
communicable diseases arising as a result of lifestyle changes. The country is now in
the midst of a dual disease burden of communicable and noncommunicable diseases.
This is coupled with spiralling health costs, high financial burden on the poor and
erosion in their incomes. Around 24% of all people hospitalized in India in a single
year fall below the poverty line due to
hospitalization (World Bank, 2002). An analysis of financing of hospitalization shows
that large proportion of people; especially those in the bottom four-income quintiles
borrow money or sell assets to pay for hospitalization (World Bank, 2002)

This situation exists in a scenario where health care is financed through general tax
revenue, community financing, out of pocket payment and social and private health

17
insurance schemes. India spends about 4.9% of GDP on health (WHR, 2002). The per
capita total expenditure on health in India is US$ 23, of which the per capita
Government expenditure on health is US$ 4. Hence, it is seen that the total health
expenditure is around 5% of GDP, with breakdown of public expenditure (0.9%);
private expenditure (4.0%). The private expenditure can be further classified as out-
of-pocket (OOP) expenditure (3.6%) and employees/community financing (0.4%). It
is thus
evident that public health investment has been comparatively low. In fact as a
percentage of GDP it has declined from 1.3% in 1990 to 0.9% as at present.
Furthermore, the central budgetary allocation for health (as a percentage of the total
Central budget) has been stagnant at 1.3% while in the states it has declined from
7.0% to 5.5%.
Table 1. Socioeconomic indicators
Land area 2% of world area

Burden of disease (%) 21% of global disease burden

Population 16% of world population

Urban : Rural 28:72

Literacy rate (%) 65.38

Sanitation (%) Rural – 9.0; Urban – 49.3

Safe drinking water Rural – 98; Urban – 90.2

supply (%)

Poverty (%) Below poverty line – 26

Rural – 27.09; Urban – 23.62

Poverty line (Rs.) Rural – 327.56; Urban – 454.11

18
Health sector and its financing: present scene and issues for the future
During the last 50 years India has developed a large government health infrastructure
with more than 150 medical colleges, 450 district hospitals, 3000 Community Health
Centers, 20,000 Primary Health Care centers and 130,000 Sub-Health Centers. On top
of this there are large number of private and NGO health facilities and practitioners
scatters though out the country.

Over the past 50 ears India has made considerable progress in improving its health
status. Death rate has reduced from 40 to 9 per thousand, infant mortality rate reduced
from 161 to 71 per thousand live births and life expectancy increased from 31 to 63
years.
However, many challenges remain and these are: life expectancy 4 years below world
average, high incidence of communicable diseases, increasing incidence of non-
communicable diseases, neglect of women's health, considerable regional variation
and threat from environment degradation. It is estimated that at any given point of
time 40 to 50 million people are on medication for major sickness in India. About 200
million workdays are lost annually due to sickness. Survey data indicate that about
60% people use private health providers for outpatient treatment while 60 % use
government providers for in-door treatment. The average expenditure for care is 2-5
times more in private sector than in public sector.

India spends about 6% of GDP on health expenditure. Private health care expenditure
is 75% or 4.25% of GDP and most of the rest (1.75%) is government funding. At
present, the insurance coverage is negligible. Most of the public funding is for
preventive, promotive and primary care programmes while private expenditure is
largely for curative care. Over the period the private health care expenditure has
grown at the rate of 12.84% per annum and for each one percent increase in per
capital income the private health care expenditure has increased by 1.47%. Number of
private doctors and private clinical facilities are also expanding exponentially. Indian
health financing scene raises number of challenges, which are: increasing health care
costs, high financial burden on poor eroding their incomes, increasing burden of new
diseases and health risks and neglect of preventive and primary care and public health
functions due to under funding of the government health care.

19
Given the above scenario exploring health-financing options becomes critical. Health
Insurance is considered one of the financing mechanisms to over come some of the
problems of our system.

2.22. Consumer and social perspective on health insurance

With the liberalization of insurance and entry of private companies in this business it
is very important that specific interventions are developed which focus on increasing
the consumer awareness about insurance products. One of the major challenges after
privatization of insurance would be how to develop such mechanisms, which help
making consumers aware about the various intricacies of insurance plans. As of now
information, knowledge and awareness of existing insurance plans is very limited.
This is also shown by the study of Gumber and Kulkarni (2000) among the members
of SEWA, ESIS and mediclaim schemes. With Consumer Protection Act coming in
force it has become easy for aggrieved consumers to complain and seek redressal for
their problems. Consumer organizations such as CERC of Ahmedabad have been
helping consumers to get due justice in disputes with the insurance companies. Their
experience would be varying valuable in guiding development of health insurance
plans that are transparent and just.

Many a times the insurance claims are rejected due to some small technical reasons.
This leads to disputes. Most of the time the conditions and various points included in
insurance policy contracts is not negotiable and these are binding on consumers.
There is no analysis on what is fair practice and what is unfair practice. Given that
insurance companies are large and almost monopoly setting the consumers is treated
as secondary and they do not have opportunity to negotiate the terms and conditions
of a contract. Many times insurance companies do not strictly follow the conditions in
all cases and this create confusion and disputes. (Shah M 1999)

The most important area of dispute and unfair treatment is the knowledge and
implications of pre-exiting conditions. A number of cases of litigation are
disagreement on these pre-existing conditions. These problems also arise because of
lack of specification of number of areas and properly spelling out the conditions. This
is also because some chronic conditions such as high blood pressure and diabetes can

20
increase the risk of may other disease of organs such as heart, kidney, vascular and
eyes diseases. The patients with these pre-existing conditions are denied claims for
treatment of complications. This is not fair and leads to disputes.

Health insurance is typically annual and has to be renewed yearly. Policy, which is
not renewed in time lapses and a new policy has to be taken out. Medical conditions
detected during the interim period are treated as pre-existing condition for the new
policy, which is not fair. This is seen as major issue as it changes the conditionalities
about what constitutes pre- exiting conditions. Courts, however, have ruled that even
if there is delay in renewing the policies it should be considered as renewed policy. In
case two doctors give different reports one favouring consumer and other insurance
company, the insurance company generally follows the later opinion. There are
several such consumer-related issues, which need to be addressed in health insurance.

One of the planks on which the insurance has been deregulated is the gain in
efficiency and passing on these benefits to the consumers. It is very unrealistic to
assume that insurance companies will be able to gain efficiency, which helps them to
reduce the price of schemes. At least one should not be expecting this thing happening
in the short-run. But providing full information to the consumer and dealing with
claims in a just and expeditious manner is the minimum expected outcome of the
deregulation process. Consumer organizations have to play very active role in future
development of the health insurance sector in India.

There are several social issues such as exclusions of sexually transmitted diseases,
AIDS,
delivery and maternal conditions etc. These are not socially and ethically acceptable.
"Insurance companies much take care of all the risks related to health. The companies
may charge additional premium for certain conditions. Secondly the present
mediclaim policy premiums are high and do not differentiate between people living in
urban and rural areas where the costs of medical care are different. Thus the present
policy is less attractive to poor and rural people. The tax subsidy provided to the
mediclaim is also going largely to the rich who are the taxpayers.

The newer health insurance policies have to improve upon the shortcoming of the

21
existing policies.

2.23. Impact of Health insurance on structure and quality of private

provision

The experiences in liberalizing the private health insurance suggest that it has
undesirable effects on the costs of health care. The costs of care generally go up.
Given the present system of fee for service and current scenario of health
infrastructure in private sector, the development of insurance will need improvements
in quality and change in structure. The new investments to improve quality will result
into high cost and therefore increase in prices of insurance products. There would be
developments in the direction of exploring options of managed care, which would
help in reducing the costs. The developments would be needed in the direction of
strong information base and accreditation system for providers. The structure of the
health sector will have to change from multiple-single doctor hospitals and clinics to
larger hospitals and polyclinics, which provide services of multiple specialities and
can operate at larger scale. This
will allow them to provide high quality professional care at competitive prices. As one
of the responses to these issues Third Party Administrators (TPA) are rapidly
emerging in India. Here we can learn from the models, which have emerged
elsewhere. But their applicability to Indian situation needs to be examined carefully.
These aspects of the health sector will need detailed study.

We lack adequate information base to operate insurance schemes at large scale. The
insurance mechanism prevalent in many developed countries has their history. Health
reforms experiences in many countries are replete with the suggestion that the systems
cannot be replicated easily.

Self-regulation is an important in any market driven system. The regulation from

outside does not work. Implementation of regulation in this sector is difficult. We
significantly lack mechanisms and institutions, which would ensure self- regulation
and continuing education of provides and various stakeholders. The accreditation
systems are hard to implement without mechanisms to self-regulate. For example it

22
took 35 years in US to put the accreditation system effectively in place. For example,
it has been difficult for many States in India to put nursing homes legislation in place.
Given the deterioration on standards in medical education, lack of regulation by
medical council and rising expectations of the community it is difficulty to ensure
quality standards in Indian health care system. Given this situation health insurance
systems will have to deal with this complex issue of quality of care in years to come.

2.24. Role of regulators

The government has established Insurance Regulatory and Development Authority
(IRDA) which is the statutory body for regulation of the whole insurance industry.
They would be granting licenses to private companies and will regulate the insurance
business. As the health insurance is in its very early phase, the role of IRDA will be
very crucial. They have to ensure that the sector develops rapidly and the benefit of
the insurance goes to the consumers. But it has to guard against the ill effects of
private insurance. The main danger in the health insurance business we see is that the
private companies will cover the risk of middle class who can afford to pay high
premiums. Unregulated reimbursement of medical costs by the insurance companies
will push up the prices of private care. So large section of India's population who are
not insured will be at a relative disadvantage as they will, in future, have to pay much
more for the private
care. Thus checking increase in the costs of medical care will be very important role
of the IRDA.

Secondly, IRDA will need to evolve mechanisms by which it puts some kind of statue
in place that private insurance companies do not skim the market by focusing on rich
and upper- class clients and in the process neglect a major section of India's
population. They must ensure that companies develop products for such poorer
segments of the community and possibly build an element of cross-subsidy for them.
Government companies can take the lead in this matter and catalyze new products for
the poor and lower middle class as they have done in the past.

Thirdly the regulators should also encourage NGOs, Co-operatives and other

23
collectives to inter into the health insurance business and develop products for the
poor as well as for the middle class employed in the services sector such as education,
transportation, retailing etc and the self employed. This could be run as no-profit-no
loss basis similar to the scheme pioneered by Indian Medical Association for its
members. Special licenses will have to be given to NGO for this purpose without
insisting on the minimum capital norms, which are for commercial insurance
companies.

2.25. VARIOUS HEALTH INSURANCE PRODUCTS AVAILABLE IN INDIA

The existing health insurance schemes available in India can be broadly categorized
as:

Voluntary health insurance schemes or private-for-profit schemes Mandatory health

insurance schemes or government run schemes (namely ESIS, CGHS) Insurance
offered by NGOs/Community based health insurance Employer based schemes

1. Voluntary health insurance schemes or private-for-profit schemes:

In private insurance, buyers are willing to pay premium to an insurance company that
pools similar risks and insures them for health related expenses. The main distinction
is that the premiums are set at a level, which are based on assessment of risk status of
the consumer (or of the group of employees) and the level of benefits provided, rather
than as a proportion of consumer’s income.

In the public sector, the General Insurance Corporation (GIC) and its four subsidiary
companies (National Insurance Corporation, New India Assurance Company, Oriental
Insurance Company and United Insurance Company) provide voluntary insurance
schemes.

The most popular health insurance cover offered by GIC is Mediclaim policy

Mediclaim policy: - It was introduced in 1986. It reimburses the hospitalization

expenses

24
owing to illness or injury suffered by the insured, whether the hospitalization is
domiciliary or otherwise. It does not cover outpatient treatments. Government has
exempted the premium paid by individuals from their taxable income.
Because of high premiums it has remained limited to middle class, urban tax payer
segment of population.

Some of the various other voluntary health insurance schemes available in the market
are :- Asha deep plan II , Jeevan Asha plan II, Jan Arogya policy, Raja Rajeswari
policy, Overseas Mediclaim policy, Cancer Insurance policy, Bhavishya Arogya
policy, Dreaded disease policy, Health Guard, Critical illness policy, Group Health
insurance policy, Shakti Shield etc. At present Health insurance is provided mainly in
the form of riders. There are very few pure health insurance policies under voluntary
health insurance schemes.

2. Mandatory health insurance schemes or government run schemes (namely

ESIS,
CGHS)

Employer State Insurance Scheme (ESI):- Enacted in 1948, the employers’ state
insurance (ESI) Act was the first major legislation on social security in India. The
scheme applies to power using factories employing 10 persons or more and non-
power & other specified establishments employing 20 persons or more. It covers
employees and the dependents against loss of wages due to sickness, maternity,
disability and death due to employment injury. It also covers funeral expenses and
rehabilitation allowance. Medical care comprises outpatient care, hospitalization,
medicines and specialist care. These services are provided through network of ESIS
facilities, public care centers, non-governmental organizations (NGOs) and
empanelled private practitioners. The ESIS is financed by three way contributions
from employers, employees and the state government.

Even though the scheme is formulated well there are problem areas in managing this
scheme. Some of the problems are :-

25
  Large numbers of posts of medical staff remain vacant due to high turnover
and low remuneration compared to corporate hospitals.
 Rising costs and technological advancement in super specialty treatment.
Management information is not satisfactory.
 The patients are not satisfied with the services they get Low utilization of the
hospitals.

In rural areas, the access to services is also a problem.All these problems indicate an
urgent need for reforms in the ESIS Scheme.

Central Government Health Insurance Scheme (CGHS):- Established in 1954, the

CGHS covers employees and retirees of the central government and certain
autonomous and semi autonomous and semi-government organizations. It also covers
Members of Parliament, Governors, accredited journalists and members of general
public in some specified areas.
Benefits under the scheme include medical care, home visits/care, free medicines and
diagnostic services. These services are provided through public facilities with some
specialized treatment (with reimbursement ceilings) being permissible at private
facilities. Most of the expenditure is met by the central government as only 12% is the
share of contribution.

The CGHS has been criticized from the point of view of quality and accessibility.
Subscribers have complained of high out of pocket expenses due to slow
reimbursement and incomplete coverage for private health care (as only 80% of the
cost is reimbursed if referral is made to private facility, when such facilities are not
available with the CGHS).

Universal Health Insurance Scheme (UHIS):- For providing financial risk

protection to the poor, the government announced UHIS in 2003. Under this scheme,
for a premium of Rs. 165 per year per person, Rs.248 for a family of five and Rs.330
for a family of seven , health care for sum assured of Rs. 30000/- was provided. This
scheme has been made eligible for below poverty line families only. To make the
scheme more saleable, the insurance companies provided for a floater clause that
made any member of family eligible as against mediclaim policy which is for an

26
individual member. In spite of all these, the scheme was not successful.

The reasons for failing to attract rural poor are many :-

The public sector companies who where required to implement this scheme find it to
be
potentially loss making and do not invest in propagating it. To meet the target, it is
learnt that several field officers pay the premium under fictious names. Identification
of eligible families is a difficult task Poor find it difficult to pay the entire premium at
one time for future benefit, foregoing current consumption needs. Paper work
required to settle the claims is cumbersome Deficit in availability of service providers
Set back due to health insurance companies refusing to renew the previous year’s
policies.

In 2004, the government also provided an insurance product to the Self Help Group
(SHG) for a premium of Rs.120 and sum assured of Rs.10000/-. However, the intake
is negligible. The reasons for poor intake are similar to those cited above.

3. Insurance offered by NGOs/Community based health insurance

Community based schemes are typically targeted at poorer population living in

communities. Such schemes are generally run by charitable trusts or non-
governmental organizations (NGOs). In these schemes the members prepay a set
amount each year for specified services. The premia are usually flat rate (not income
related) and therefore not progressive. The benefits offered are mainly in terms of
preventive care, though ambulatory and inpatient care is also covered. Such schemes
tend to be financed through patient collection, government grants and donations.
Increasingly in India, CBHI schemes are negotiating with for profit insurers for the
purchase of custom designed group insurance policies.

CBHI schemes suffer from poor design and management. Often there is a problem of
adverse selection as premiums are not based on assessment of individual risk status.
These schemes fail to include the poorest of the poor. They have low membership and
require extensive financial support. Other issues relate to sustainability and replication
of such schemes.

27
Some of the popular Community Based Health Insurance schemes are: - Self-
Employed
Women’s Association (SEWA), Tribuvandas Foundation (TF), The Mullur Milk Co-
operative, Sewagram, Action for Community Organization, Rehabilitation and
Development (ACCORD), Voluntary Health Services (VHS) etc.

4. Employer based schemes

Employers in both public and private sector offers employer based insurance schemes
through their own employer. These facilities are by way of lump sum payments,
reimbursement of employees’ health expenditure for out patient care and
hospitalization, fixed medical allowance or covering them under the group health
insurance schemes.

The Railways, Defense and Security forces, Plantation sector and Mining sector run
their own health services for employees and their families.

2.26.GENERAL INSURANCE VS. LIFE INSURANCE

Several life insurance companies have of late plunged into the health segment, which
till recently was dominated by general insurance companies. Among others, ICICI
Prudential has launched Hospital Care and Crisis Cover and Bajaj Allianz, the Care
First plan. Life Insurance Corporation, too, plans to roll out products soon. But, are
these products any different from those offered by the general insurance companies,
popular as mediclaim policies?

Advantages of Health insurance offered by Life insurer: Because of the long term
nature of the plans, the policy holder can plan in advance his future medical/care
expenses. But it is not so under General insurance. Since, the general insurance
policies are subject to renewal every year, if the policy holder has been making
several claims and is considered a risk, the general insurance company may deny

28
renewal or renew it for a much higher premium.

Advantages of Health insurance offered by General insurer: Though a lump sum

amount is paid by life insurers and is of long term nature, this comes with a cost. They
charge bigger premiums compare with the General insurers. In addition, most general
insurance companies offer medical charges up to 30 days before a person is
hospitalized and pay the claims if a person has been undergoing treatment at home -
also called domiciliary hospitalization. The life insurers seem to lack this facility at
this point in time.
2.27. HEALTH INSURANCE FOR SENIOR CITIZENS

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.

29
LONG TERM CARE

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.

Various countries have different insurance systems to cover LTC. India is acquainted
with short- term health schemes provided by non-life insurers and the government.
The need of the hour in India, keeping in view the increasing tendency to opt for
nuclear family system and increased longevity, is a comprehensive long term health
care facility for all. If we look at most developed economies (a microcosm of which is
discussed here below), we see that most of these nations have a working and workable
LTC system for the benefit of its citizens, primarily the senior citizens.

Experiences from other countries need to be studied, so that we can develop a model
based on good innovations from various countries while keeping the realities of
Indian health system.

30
2.28. MODELS OF LONG TERM CARE IN OTHER COUNTRIES

1) GERMANY

Mandatory long-term care (LTC) insurance was introduced throughout Germany at

the beginning of 1995. Up to that date, long-term care had not been a public concern
like pensions and health care. According to German law, children are obliged to
support their parents in old age, to the degree
that their own resources are sufficient. Only if family income and wealth has proved
to be
insufficient can the elderly may apply for income support.

Financing

The German insurance is a Pay as you go (PAYG) system where risks are pooled and
benefits are independent of earlier contributions. ‘Pay as You Go’ in which current
contributors pay for current recipients of care.

One peculiarity of the LTC insurance component is that it has defined contributions
and defined benefits at the same time. This means that total benefits and total
contributions must match on average, and so far this requirement seems to have been
met. All employees as well as individuals with some other kind of income have to be
insured. In
addition, voluntary insurance is offered to some groups. Employers and employees
pay the same percentage of the wage. Retired people also contribute to the insurance.
Civil servants since they are not part of the social health insurance programme are
obliged to take up private insurance, and get part of the contribution paid by their
employer.

For people dependent on income support, the local authority concerned may choose

31
between paying the contributions on behalf of the individuals concerned and taking
the risk of having to pay for their care.

Because it is a PAYG system, the LTC insurance has not been able to build up more
than a small financial balance. According to the law, the balance must be sufficient to
continue to make payments for 1.5 months; at the moment it is sufficient to cover
three.

Benefits

It takes five years to qualify for benefits. Apart from that, the only qualifying
requirement is the need for care, so benefits are paid independent of age. Three kinds
of benefits are offered: professional domiciliary care, institutional care, and benefits
in cash. Different kinds of benefits may also be combined. Benefits are not dependent
on the income of the individual. People applying for benefits are examined by a
doctor and then divided into three groups. The critical factors are the person’s ability
to perform activities of daily living (ADL), together with the time that these activities
are estimated to consume. Mental impairments are not taken into account.

2) JAPAN

Since Japan became industrialized quite late, it also developed social security systems
slightly later than most other developed countries. Family patterns changed as
traditional caring arrangements based on three-generation households and obligations
on children to look after elderly parents showed signs of breaking down. In 1997,
following a long discussion, a mandatory long-term care insurance was passed in the
Japanese parliament.

Financing

The LTC insurance is financed by 50 % from taxes and by 50 % from insurance

premiums. The tax revenues are collected by 50 % from national taxes, and local and
regional taxes contribute with 25 % each. Premiums are collected from people aged
40 years and over. Family members are automatically covered.

32
For the elderly, premiums are deducted from pensions. These premiums are also
income-
Related The LTC insurance is administered by municipalities.

Benefits

Eligibility for benefits from the LTC insurance is solely based on need. Thus, the
financial position and family structure of the insured are not taken into account. The
LTC insurance covers institutional as well as home-based care, and clients in all
categories except the least needy may choose between them.

There are three kinds of institutions: former social service nursing homes, formerly
health- insurance financed homes for elderly and medical nursing care facilities.
Home care services included are nursing care, rehabilitation, medical advice and
various community services.

Unlike the German system there are no cash benefits provided in the scheme.
When the private LTC insurance was introduced, several large for-profit corporations
made huge investments in home services in the anticipation of increased demand due
to the increased freedom to choose providers. However, recipients have proved to be
more conservative than expected, and stayed with their former providers. This has
incurred some losses on private corporations offering home care.

3) UNITED STATES

The United States had a quite ambitious social welfare programme for elderly already
around the turn of the twentieth century. At this time, more than one quarter of federal
expenditure was dedicated to pensions for Civil War veterans and their families.
Long-term care makes up a small but increasing part of public spending in the United
States.

Financing

In the United States, funds for health and long-term care for elderly is provided from

33
public as well as private sources. Public funding is based on Medicaid and Medicare
programmes, whilst the private element consists of private insurance as well as out of-
pocket payments

Medicaid is a tax-based programme designed for low-income earners. It covers

hospital care as well as home care. Even if the Medicaid programme was not
originally designed to concentrate on help for the elderly, it has evolved into an
important pillar for long-term care financing

Medicare is a national social insurance programme. Contributions are paid either as

‘Medicare tax’ while working, or by continuing to pay premiums after retirement.
Medicare compensates nursing home costs if the insured has been treated in a hospital
for at least three days. Medicare only reimburses costs for doctors’ and nurses’
services. Home care is only provided if the client needs skilled nursing care and is
homebound. However, for clients meeting the requirements, personal care services
may be provided as well. Medicare home services are provided for free

In recent years, a private market for long-term care insurance has emerged in the
United
States. Private insurance companies – there are more than 100 of them – offer
complementary insurance for costs related to long-term care. The insurance products
are designed for cases where benefits from Medicare have been exhausted, and where
the insured is not entitled to Medicaid benefits. Insurance is voluntary, and has
normally been taken out individually.

Before signing up, the policyholder goes through a medical examination. The
insurance
company also requests information regarding the customer’s consumption of medical
services, his or her lifestyle and physical or mental disabilities, if any. Contributions
are based on these data, and sometimes they become prohibitively high. Estimates
show that as much as 20 % of the elderly population would be refused long term care
insurance.

Benefits

34
Benefits offered by private long-term insurance policies vary. Some only include
nursing home care, whereas others only cover home care. Typically, only care given
by nurses or doctors is covered. Normally, policies offer a fixed per diem
compensation if care is needed. Benefits are paid for a limited time; e.g. five years or
remaining life years

The financing of LTC is a very topical issue in the United States. Weaknesses in the
existing system have received particular attention, and there is widespread concern
that LTC may become more problematic under the burden of ageing.

4) United Kingdom

The main principle of the British LTC system as it evolved during the post-war era
was that local authorities provided care in residential homes, whereas the NHS took
care of particularly frail people.

Financing

In the UK there are two main sources of LTC funding (apart from consumers
themselves), namely local authorities and the NHS. Local authorities are responsible
for the bulk of public spending on LTC, and their share has increased in the last few
years.
Local authorities have two main sources of funding - government grants and council
taxes. Government grants are decided annually by the central government and then
distributed to the individual authorities according to a resource allocation formula.

Since 1991, there is also a market for private LTC insurance that is growing slowly
The first private insurance policies for LTC costs were introduced in 1991 and there is
now a
wide variety of policies offered on the market. There are two main types of insurance
on offer.

35
The first one is pre-funded plans that are purchased by healthy people to protect them
against future costs of LTC. The other type is ‘immediate needs’ plans that are
purchased by people that are already disabled to insure the risk of uncertain survival
duration. The payment of pre- funded benefits is normally conditioned on failure of a
certain number of ADL:s and not on personal circumstances – such as whether the
client lives at home or in an institution. Maximum benefits are normally limited.

Benefits

State financing covers residential as well as domiciliary care. Local authorities are
obliged to provide assessment of need by a case manager. The case manager suggests
a package of services appropriate for the client in question.
The majority of care is provided in the person’s own home. Home care is defined as
services which assist the client to function as independently as possible and/or
continue to live in their own home. Services may involve routine household tasks
within or outside the home, personal care of the client or respite care in support of the
client’s regular careers.

Institutional care is provided in several different kinds of homes. The predominant

ones are nursing homes and residential homes. Residential homes provide board and
personal care only, whereas nursing homes also provide daily nursing care and thus
are more targeted at people with severe disability. In the last decade, there has been a
steady increase in the number of dual homes, providing both residential and nursing
care.

The system for financing and provision in the United Kingdom has been criticized on
several grounds. For example, it has been accused of offering poor co-ordination
between different financing bodies and thus providing incentives for cost shifting.

Furthermore, there has been broad agreement that the system is unfair since it
penalizes savers and fails to offer comprehensive coverage despite the fact that public
financing is universal through the tax system.

36
From figure 1 it can be seen that the expenditure on health as a % of GDP is only 5%
in India which is much lower than that of developed countries but is comparable with
China.

Considering that India is one of the rapidly growing economies, the share of Health in
GDP is quite low. This may be attributed to lack of awareness in general population
of health schemes and not understanding the significance of health protection.

Industry sources estimate that health care spending in India will increase by around
12%
annually over today’s value of US$23 billion (roughly 5.2% of GDP).

From figures 2 & 3 it can be seen that general government expenditure on health as %
of total expenditure on health and as a % of total government expenditure is much
lower than even China.

This shows that in India, Private health Expenditure dominates Government

expenditure.
The government funds allocated to health care sector have always been low in relation
to the population of the country.

We see that Government of India has earmarked a meager 3% of total expenses on

Health
This may be understandable considering that we have very less social-security
schemes in
place. This is another sad observation considering that India’s is second most
populated country in the world with the maximum of people below the poverty line.
More focus on infrastructure development during the recent times may be the reason.
Alternatively, indirect support coming from private schemes can be a reason too. A
more active penetration into the rural areas can improve the percentage over time

37
Social security expenditure is also much lower compared to other countries except
UK
This Chart can be interpreted in conjunction with Figure 2 above.This may be due the
bottlenecks we discussed above on Government Schemes.

This can be justified keeping in view the nascent stage of insurance industry in India
which is steadily yet confidently picking up. However, rural awareness and utilization
of these schemes are still disappointing.

Over 80% of health financing is private financing, much of which is out of pocket
payments and not by any pre-payment schemes. With insurance industry opening up
and non-life sector being detariffed, we can hope to see an influx of many competitive
products in the near future.

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 training

2.29.IMPLICATIONS OF PRIVATIZATION ON HEALTH INSURANCE

The privatization of insurance sector and constitution of IRDA envisage improving

the performance of state insurance sector in the country by increasing benefits from
competition in terms of lowered costs and increased level of consumer satisfaction.
However, the implications of the entry of private insurance companies in health sector
are not very clear. There are several contentious issues pertaining to development in
this sector and these need critical examination. Role of private insurance varies
depending on the economic, social and institutional settings in a country or a region.

Critics of private insurance argue that privatization will divert scarce resources away
form the pool, escalate health costs, allow cream skimming and adverse selection.
According to this view, private health insurance largely neglects the social aspect of
health protection. In the contrast, supporters of private health insurance claim that

38
private insurance can bridge financing gaps by offering consumers value for money
and help them avoid waiting lines, low quality care and under the table payments-
problems often observed when households can use public health facilities for free or
participate in mandatory social insurance schemes. Both the arguments are correct in
the sense, private health insurance can be valuable tool to compliment or supplement
existing health financing options only if they are carefully managed and adapted to
local needs and preferences.

India, with relatively developed economy and a strong middle class population, offers
most promising environment for private health insurance development. Currently,
private health insurance plays only a marginal role in health care systems but it is
gradually gaining importance.

Private health insurance is certainly not the only alternative or the ultimate solution to
address alarming health care challenges in India. However, it is an option that
warrants- and already receives-growing consideration by policy makers in the
country. Thus the question is not if this tool will be used in the future but whether it
will be applied to the best of its potential to serve the needs of the country’s health
care system.

CHAPTER III: RESEARCH METHODOLOGY

3.1. REASEARCH PROCESS

3.2. LITRATURE STUDY

3.3. HOW TO FIND RIGHT LITRATURE

3.4. SOURCES OF DATA

39
 CHAPTER IV:
ANALYSIS OF DATA

40
4.1. Health Insurance in India Opportunities, Challenges and Concerns
Health Insurance
Health insurance in a narrow sense would be ‘an individual or group purchasing
health care coverage in advance by paying a fee called premium.’ In its broader sense,
it would be any arrangement that helps to defer, delay, reduce or altogether avoid
payment for health care incurred by individuals and households. Given the
appropriateness of this definition in the Indian context, this is the definition, we would
adopt. The health insurance market in India is very limited covering about 10% of the
total population. The existing schemes can be categorized as:
 Voluntary health insurance schemes or private-for-profit schemes;
 Employer-based schemes;
 Insurance offered by NGOs / community based health insurance, and
 Mandatory health insurance schemes or government run schemes (namely
ESIS, CGHS).

4.2. Voluntary health insurance schemes or private-for-profit schemes

In private insurance, buyers are willing to pay premium to an insurance company that
pools people with similar risks and insures them for health expenses. The key
distinction is that the premiums are set at a level, which provides a profit to third party
and provider institutions. Premiums are based on an assessment of the risk status of
the consumer (or of the group of employees) and the level of benefits provided, rather
than as a proportion of the consumer’s income.

In the public sector, the General Insurance Corporation (GIC) and its four subsidiary
companies (National Insurance Corporation, New India Assurance Company, Oriental
Insurance Company and United Insurance Company) and the Life Insurance
Corporation (LIC) of India provide voluntary insurance schemes. The Life Insurance
Corporation offers Ashadeep Plan II and Jeevan Asha Plan II. The General Insurance
Corporation offers Personal Accident policy, Jan Arogya policy, Raj Rajeshwari
policy, Mediclaim policy, Overseas Mediclaim policy, Cancer Insurance policy,
Bhavishya Arogya policy
and Dreaded Disease policy (Srivastava 1999 as quoted in Bhat R & Malvankar D,
2000)

41
Of the various schemes offered, Mediclaim is the main product of the GIC. The
Medical Insurance Scheme or Mediclaim was introduced in November 1986 and it
covers individuals and groups with persons aged 5 – 80 yrs. Children (3 months – 5
yrs) are covered with their parents. This scheme provides for reimbursement of
medical expenses (now offers cashless scheme) by an individual towards
hospitalization and domiciliary hospitalization as per the sum insured. There are
exclusions and pre-existing disease clauses. Premiums are calculated based on age
and the sum insured, which in turn varies from Rs 15 000 to Rs 5 00 000. In 1995/96
about half a million Mediclaim policies were issued with about 1.8 million
beneficiaries (Krause Patrick 2000). The coverage for the year 2000-01 was around
7.2 million.

Another scheme, namely the Jan Arogya Bima policy specifically targets the poor
population groups. It also covers reimbursement of hospitalization costs up to Rs 5
000 annually for an individual premium of Rs 100 a year. The same exclusion
mechanisms apply for this scheme as those under the Mediclaim policy. A family
discount of 30% is granted, but there is no group discount or agent commission.
However, like the Mediclaim, this policy too has had only limited success. The Jan
Arogya Bima Scheme had only covered 400 000 individuals by 1997.

The year 1999 marked the beginning of a new era for health insurance in the Indian
context. With the passing of the Insurance Regulatory Development Authority Bill
(IRDA) the insurance sector was opened to private and foreign participation, thereby
paving the way for the entry of private health insurance companies. The Bill also
facilitated the establishment of an authority to protect the interests of the insurance
holders by regulating, promoting and ensuring orderly growth of the insurance
industry. The bill allows foreign promoters to hold paid up capital of up to 26 percent
in an Indian company and requires them to have a capital of Rs 100 crore along with a
business plan to begin its operations.Currently, a few companies such as Bajaj
Alliance, ICICI, Royal Sundaram, and Cholamandalam among others are offering
health insurance schemes. The nature of schemes offered by these companies is
described briefly.

42
  Bajaj Allianz: Bajaj Alliance offers three health insurance schemes namely,
Health Guard, Critical Illness Policy and Hospital Cash Daily Allowance
Policy.

- The Health Guard scheme is available to those aged 5 to 75 years (not allowing
entry for those over 55 years of age), with the sum assured ranging from Rs 100 0000
to 500 000. It offers cashless benefit and medical reimbursement for hospitalization
expenses (pre-and post-hospitalization) at various hospitals across India (subject to
exclusions and conditions). In case the member opts for hospitals besides the
empanelled ones, the expenses incurred by him are reimbursed within 14 working
days from submission of all the documents. While pre-existing diseases are excluded
at the time of taking the policy, they are covered from the 5th year onwards if the
policy is continuously renewed for four years and the same has been declared while
taking the policy for the first time. Other discounts and benefits like tax exemption,
health check-up at end of four claims free year, etc. can be availed of by the insured.

- The Critical Illness policy pays benefits in case the insured is diagnosed as suffering
from any of the listed critical events and survives for minimum of 30 days from the
date of diagnosis. The illnesses covered include: first heart attack; Coronary artery
disease
requiring surgery: stroke; cancer; kidney failure; major organ transplantation; multiple
sclerosis; surgery on aorta; primary pulmonary arterial hypertension, and paralysis.
While exclusion clauses apply, premium rates are competitive and high-sum
insurance
can be opted for by the insured.

- The Hospital Cash Daily Allowance Policy provides cash benefit for each and every
completed day of hospitalization, due to sickness or accident. The amount payable per
day is dependant on the selected scheme. Dependant spouse and children (aged 3
months – 21years) can also be covered under the Policy. The benefits payable to the
dependants are linked to that of insured. The Policy pays for a maximum single
hospitalization period of 30 days and an overall hospitalization period of 30/60
completed days per policy period per person regardless of the number of
confinements to hospital/nursing home per policy period.

43
 ICICI Lombard: ICICI Lombard offers Group Health Insurance Policy. This
policy is available to those aged 5 – 80 years, (with children being covered
with their parents) and is given to corporate bodies, institutions, and
associations. The sum insured is minimum Rs 15 000/- and a maximum of Rs
500 000/-. The premium chargeable depends upon the age of the person and
the sum insured selected. A slab wise group discount is admissible if the group
size exceeds 100. The policy covers reimbursement of hospitalization
expenses incurred for diseases contracted or injuries sustained in India.
Medical expenses up to 30 days for Pre-hospitalization and up to 60 days for
post-hospitalization are also admissible. Exclusion clauses apply. Moreover,
favourable claims experience is recognized by discount and conversely,
unfavourable claims experience attracts loading on renewal premium. On
payment of additional premium, the policy can be extended to cover maternity
benefits, pre-existing diseases, and reimbursement of cost of health check-up
after four consecutive claims-free years.

 Max New York Life Insurance: The leading private life insurance company -
Max New York Life Insurance Company Ltd. has launched 'lifeline' - a health
insurance product on Wednesday, 5th March 2008, across India. Now, the
company can boast of offering complete health and life insurance products
across ll regions in India. This newly launched health insurance product of
Max New York Life Insurance Company offers three groups of heath
insurance solutions.

The Director Marketing Product Management and Corporate Affairs of Max

New York Life Insurance said that these three distinct heath insurance
products are meant to cover eventualities like hospitalization, surgery and
critical illness of the insured. He points out that these plans have been
structured with features like coverage for a wide range of ailments, no claim
discount on revised premium for a healthy life, a fixed premium for a five-year
term, free second opinion from the best health care institutions of India on
detection of illness. Further, it also has provision for a free telephonic medical

44
helpline across India.

The hospitalization - is covered by "Medicash plan", which is meant to

provide a fixed amount of cash benefit on a day-to-day basis during the entire
period of hospitalization of the insured. The Medicash plan would also cover
expenses for admission in ICU, lump sum benefits against an unlimited
number of surgeries and recuperation benefits.

The second plan of the newly launched health insurance of Max New York
Life Insurance, is the "Wellness Plan", which is a more attractive one and
covers 'critical illness' like cancer, alzheimers, heart ailments, liver disease,
deafness, permanent disability, etc. The Wellness plan covers thirty eight
critical illnesses, which is the highest number of illness covered under one
insurance plan in India by any insurance company.

The third health insurance policy of Max New York Life Insurance is a term
plus health protection plan known as "Safety Net". This provides coverage to
the insured person for any losses incurred by him/her in eventualities like
critical illness, accident, disability and death.

With 21 lakh life insurance policies and with an assured sum of Rs 62,000
crores in its kitty Max Life Insurance wishes to achieve business at least five
percent higher than it did in the last financial year. The company also
announced that it would go for an expansion drive and would also increase the
number of branch offices in Tamil Nadu within the fiscal year 2008-2009.
Max New York Life Insurance Company is one of the fastest growing life
insurance companies in India and is the first life insurance company of India
to be awarded with ISO 9001:2000 certification. This Rs 907.4 crores
insurance company is one of the most respected companies in India. After
making strong inroads into the Indian life insurance market with a strong
product portfolio the company is expected to do well with its new product line
in the Indian health insurance sector as well.

45
 Royal Sundaram Group: The Shakthi Health Shield policy offered by the
Royal Sundaram group can be availed by members of the women’s group,
their spouses and dependent children. No age limits apply. The premium for
adults aged up to 45 years is Rs 125 per year, for those aged more than 45
years is Rs 175 per year. Children are covered at Rs 65 per year. Under this
policy, hospital benefits up to Rs 7 000 per annum can be availed, with a limit
per claim of Rs 5 000. Other benefits include maternity benefit of Rs 3 000
subject to waiting period of nine months after first enrolment and for first two
children only. Exclusion clauses apply (Ranson K & Jowett M, 2003)

 Cholamandalam General Insurance: The benefits offered (in association

with the Paramount Health Care, a re-insurer) in case of an illness or accident
resulting in hospitalization, are cash-free hospitalization in more than 1 400
hospitals across India, reimbursement of the expenses during pre-
hospitalization (60 days prior to hospitalization) and post- hospitalization (90
days after discharge) stages of treatment. Over 130 minor surgeries that
require less than 24 hours hospitalization under day care procedure are also
covered. Extra health covers like general health and eye examination, local
ambulance service, hospital daily allowance, and 24 hours assistance can be
availed of.Exclusion clauses apply.

 Employer-based schemes:Employers in both the public and private sector

offers employer-based insurance schemes through their own employer-
managed facilities by way of lump sum payments, reimbursement of
employee’s health expenditure for outpatient care and hospitalization, fixed
medical allowance, monthly or annual irrespective of actual expenses, or
covering them under the group health insurance policy. The railways, defence
and security forces, plantations sector and mining sector provide medical
services and / or benefits to its own employees. The population coverage
under these schemes is minimal, about 30-50 million people.

46
4.3. Insurance offered by NGOs / community-based health insurance

Community-based funds refer to schemes where members prepay a set amount each
year for specified services. The premia are usually flat rate (not income-related) and
therefore not progressive. Making profit is not the purpose of these funds, but rather
improving access to services. Often there is a problem with adverse selection because
of a large number of high-risk members, since premiums are not based on assessment
of individual risk status. Exemptions may be adopted as a means of assisting the poor,
but this will also have adverse effect on the ability of the insurance fund to meet the
cost of benefits.

Community-based schemes are typically targeted at poorer populations living in

communities, in which they are involved in defining contribution level and collecting
mechanisms, defining the content of the benefit package, and / or allocating the
schemes, financial resources (International Labour Office Universities Programme
2002 as quoted in Ranson K & Acharya A, 2003). Such schemes are generally run by
trust hospitals or nongovernmental organizations (NGOs). The benefits offered are
mainly in terms of preventive care, though ambulatory and in-patient care is also
covered. Such schemes tend to be financed through patient collection, government
grants and donations. Increasingly in India, CBHI schemes are negotiating with the
for- profit insurers for the purchase of custom designed group insurance policies.
However, the coverage of such schemes is low, covering about 30-50 million (Bhat,
1999). A review by Bennett, Cresse et al. (as quoted in Ranson K & Acharya A, 2003)
indicates that many community-based insurance schemes suffer from poor design and
management, fail to include the poorest-of-the- poor, have low membership and
require extensive financial support. Other issues relate to sustainability and replication
of such schemes.

47
Some examples of community-based health insurance schemes are discussed
herein.

 Self-Employed Women’s Association (SEWA), Gujarat: This scheme

established in 1992, provides health, life and assets insurance to women
working in the informal sector and their families. The enrolment in the year
2002 was 93 000. This scheme operates in collaboration with the National
Insurance Company (NIC). Under SEWA’s most popular policy, a premium of
Rs 85 per individual is paid by the woman for life, health and assets insurance.
At an additional payment of Rs 55, her husband too can be covered. Rs 20 per
member is then paid to the National Insurance Company (NIC) which
provides coverage to a maximum of Rs 2 000 per person per year for
hospitalization. After being hospitalized at a hospital of one’s choice (public
or private), the insurance claim is submitted to SEWA. The responsibility for
enrolment of members, for processing and approving of claims rests with
SEWA. NIC in turn receives premiums from SEWA annually and pays them a
lumpsum on a monthly basis for all claims reimbursed. (Ranson K & Acharya
A, 2003).

 Another CBHI scheme located in Gujarat, is that run by the Tribhuvandas

Foundation (TF), Anand. This was established in 2001,with the membership
being restricted to members of the AMUL Dairy Cooperatives. Since then,
over 1 00 000 households have been enrolled under this scheme, with the TF
functioning as a third party insurer.

 The Mallur Milk Cooperative in Karnataka established a CBHI scheme in

1973. It covers 7 000 people in three villages and outpatient and inpatient
health care are directly provided.

 A similar scheme was established in 1972 at Sewagram, Wardha in

Maharashtra. This scheme covers about 14 390 people in 12 villages and
members are provided with outpatient and inpatient care directly by
Sewagram.

48
  The Action for Community Organization, Rehabilitation and
Development (ACCORD), Nilgiris, Tamil Nadu was established in 1991.
Around 13 000 Adivasis (tribals) are covered under a group policy purchased
from New India Assurance.

 Another scheme located in Tamil Nadu is Kadamalai Kalanjia Vattara

Sangam (KKVS), Madurai. This was established in 2000 and covers members
of women’s self-help groups and their families. Its enrolment in 2002 was
around 5 710, with the KKVS functioning as a third party insurer.

 The Voluntary Health Services (VHS), Chennai, Tamil Nadu was

established in 1963. It offers sliding premium with free care to the poorest.
The benefits include discounted rates on both outpatient and inpatient care,
with the VHS functioning as both insurer and health care provider. In 1995, its
membership was 124 715. However, this scheme suffers from low levels of
cost recovery due to problems of adverse selection.

 Raigarh Ambikapur Health Association (RAHA), Chhatisgarh was

established in 1972, and functions as a third party administrator. Its
membership in the year 1993 was 72 000.

4.4. Social Insurance or mandatory health insurance schemes or government

run schemes (namely the ESIS, CGHS)
Social insurance is an earmarked fund set up by government with explicit benefits in
return for payment. It is usually compulsory for certain groups in the population and
the premiums are determined by income (and hence ability to pay) rather than related
to health risk. The benefit packages are standardized and contributions are earmarked
for spending on health services The government-run schemes include the Central
Government Health Scheme (CGHS) and the Employees State Insurance Scheme
(ESIS).

49
  Central Government Health Scheme (CGHS)
Since 1954, all employees of the Central Government (present and retired); some
autonomous and semi-government organizations, MPs, judges, freedom fighters and
journalists are covered under the Central Government Health Scheme (CGHS). This
scheme was designed to replace the cumbersome and expensive system of
reimbursements (GOI, 1994). It aims at providing comprehensive medical care to the
Central Government employees and the benefits offered include all outpatient
facilities, and preventive and promotive care in dispensaries. Inpatient facilities in
government hospitals and approved private hospitals are also covered. This scheme is
mainly funded through Central Government funds, with premiums ranging from Rs
15 to Rs 150 per
month based on salary scales. The coverage of this scheme has grown substantially
with provision for the non-allopathic systems of medicine as well as for allopathy.
Beneficiaries at this moment are around 432 000, spread across 22 cities.

The CGHS has been criticized from the point of view of quality and accessibility.
Subscribers have complained of high out-of-pocket expenses due to slow
reimbursement and incomplete coverage for private health care (as only 80% of cost
is reimbursed if referral is made to private facility when such facilities are not
available with the CGHS).

 Employee and State Insurance Scheme (ESIS)

The enactment of the Employees State Insurance Act in 1948 led to formulation of the
Employees State Insurance Scheme. This scheme provides protection to employees
against loss of wages due to inability to work due to sickness, maternity, disability
and death due to employment injury. It offers medical and cash benefits, preventive
and promotive care and health education. Medical care is also provided to employees
and their family members without fee for service. Originally, the ESIS scheme
covered all
power-using non-seasonal factories employing 10 or more people. Later, it was
extended to cover employees working in all non-power using factories with 20 or
more persons. While persons working in mines and plantations, or an organization
offering health benefits as good as or better than ESIS, are specifically excluded.
Service establishments like shops, hotels, restaurants, cinema houses, road transport

50
and news papers printing are now covered. The monthly wage limit for enrolment in
the ESIS is Rs. 6 500, with a prepayment contribution in the form of a payroll tax of
1.75% by employees, 4.75% of employees' wages to be paid by the employers, and
12.5% of the
total expenses are borne by the state governments. The number of beneficiaries is over
33 million spread over 620 ESI centres across states. Under the ESIS, there were 125
hospitals, 42 annexes and 1 450 dispensaries with over 23 000 beds facilities. The
scheme is managed and financed by the Employees State Insurance Corporation (a
public undertaking) through the state governments, with total expenditure of Rs 3 300
million or Rs 400/- per capita insured person.

The ESIS programme has attracted considerable criticism. A report based on patient
surveys conducted in Gujarat (Shariff, 1994 as quoted in Ellis R et a, 2000) found that
over half of those covered did not seek care from ESIS facilities. Unsatisfactory
nature of ESIS services, low quality drugs, long waiting periods, impudent behaviour
of personnel, lack of interest or low interest on part of employees and low awareness
of ESI procedures, were some of the reasons cited.

 Other Government Initiatives

Apart from the government-run schemes, social security benefits for the
disadvantaged groups can be availed of, under the provisions of the Maternity Benefit
(Amendment) Act 1995, Workmen’s Compensation (Amendment) Act 1984,
Plantation Labour Act 1951, Mine Mines Labour Welfare Fund Act 1946, Beedi
Workers Welfare Fund Act 1976 and Building and other Construction Workers
(Regulation of Employment and Conditions of Service) Act, 1996.

The Government of India has also undertaken initiatives to address issues relating to
access to public health systems especially for the vulnerable sections of the society.
The National Health Policy 2002 acknowledges this and aims to evolve a policy
structure, which reduces such inequities and allows the disadvantaged sections of the
population a fairer access to public health services. Ensuring more equitable access to
health services across the social and geographical expanse of the country is the main
objective of the policy. It also seeks to increase the aggregate public health investment
through increased contribution from the Central as well as state governments and

51
encourages the setting up of private insurance instruments for increasing the scope of
coverage of the secondary and tertiary sector under private health insurance packages.
The government envisages an increase in health expenditure as a % of GDP from
existing 0.9% to 2.0 % by 2010 and an increase in the share of central grants from the
existing 15% to constitute at least 25% of total public health spending by 2010. The
State government spending for health in turn would increase from 5.5% to 7% of the
budget by 2005, to be further increased to 8% by 2010.

The National Population Policy (NPP) 2000, envisages the establishment of a family
welfare-linked health insurance plan. As per this plan, couples living below the
poverty line who undergo sterilization with not more than two living children would
be eligible for insurance. Under this scheme, the couple along with their children
would be covered for hospitalization not exceeding Rs 5 000 and a personal accident
insurance cover for the spouse undergoing sterilization. The Institute of Health
Systems (IHS), Hyderabad has been entrusted the responsibility of operationalizing
the mandate of the NPP 2000. The initial scheme proposed by the HIS was discussed
at a workshop in June 2003. The consensus at the meeting was that the scheme,
needed further improvement prior to its implementation even as a pilot project.

In keeping with the recommendations of the Tenth Five Year Plan and the National
Health Policy (NHP) 2002, the Department of Family Welfare is also proposing to
commission studies in eight states covering eight districts, to generate district-specific
data, which is essential for conceptualization of a reasonable and financially viable
insurance scheme.

The current plan – the Tenth Five Year Plan (2002-07) - also focuses on exploring
alternative systems of health care financing including health insurance so that
essential, need-based and affordable health care is available to all. The urgent need to
evolve, implement and evaluate an appropriate scheme for health financing for
different income groups is acknowledged. In the past, the government has tried to
ensure that the poor get access to private health facilities through subsidy in the form
of duty exemptions and other such benefits. Social health insurance for families living
below the poverty line has been suggested as a mechanism for reducing the adverse
economic consequences of hospitalization and treatment for chronic ailments

52
requiring expensive and continuous care.

In the budget for the year 2002-2003, an insurance scheme called Janraskha was
introduced, with the aim of providing protection to the needy population. With a
premium of Re 1/- per day, it ensured indoor treatment up to Rs 3 000 per year at
selected and designated hospitals and outpatient treatment up to Rs 2 000 per year at
designated clinics, including civil hospitals, medical colleges, private trust hospitals
and other NGO-run institutions. A few states have started implementing this scheme
under pilot phase.
In the budget for the period 2003-2004, another initiative of community-based health
insurance has been announced. This scheme aims to enable easy access of less
advantaged citizens to good health services, and to offer health protection to them.
This policy covers people between the age of three months to 65 years. Under this
scheme, a premium equivalent to Re 1 per day (or Rs 365 per year) for an individual,
Rs 1.50 per day for a family of five (or Rs 548 per year), and Rs 2 per day for a
family of seven (or Rs 730 per year), would entitle them to get reimbursement of
medical expenses up to
Rs 30 000 towards hospitalization, a cover for death due to accident for Rs 25000 and
compensation due to loss of earning at the rate of Rs 50 per day up to a maximum of
15 days. The government would contribute Rs 100 per year towards the annual
premium, so as to ensure the affordability of the scheme to families living below the
poverty line. The implementation of this scheme rests with the four public sector
insurance companies.
The government also offers assistance by way of Illness Assistance Funds, which
have been set up by the Ministry of Health and Family Welfare at the national level
and in a few states. State Illness Assistance Funds exist in Andhra Pradesh, Bihar,
Goa, Gujarat, Himachal Pradesh, Jammu and Kashmir, Karnataka, Kerala, Madhya
Pradesh, Maharashtra, Mizoram, Rajasthan, Sikkim, Tamil Nadu, Tripura, West
Bengal, NCT of Delhi and UT of Pondicherry. A National Illness Assistance Fund
(NIAF) was set up in 1997, with the scheme being reviewed in January 1998.
Through this, three Central
Government hospitals and three national-level institutes have been sanctioned
Rs 10 00 000 each at a time from the NIAF to provide immediate financial assistance
to the extent of Rs 25 000 per case to poor patients living below the poverty line and

53
who are undergoing treatment in these hospitals / institutions. Thereafter the scheme
has been extended to few other institutes across the country and provides Rs 25 000 –
Rs 50 000 per case.

4.5. Health insurance initiatives by State Governments

In the recent past, various state governments have begun health insurance initiatives.
For instance, the Andhra Pradesh government is implementing the Aarogya Raksha
Scheme since 2000, with a view to increase the utilization of permanent methods of
family planning by covering the health risks of the acceptors. All people living below
the poverty line and those who accept permanent methods of family planning are
eligible to be covered under this scheme. The Government of Andhra Pradesh pays a
premium of Rs 75 per acceptor. The benefits to be availed of, include hospitalization
costs up to Rs.
4000 per year for the acceptor and for his / her two children for a total period of five
years from date of the family planning operation. The coverage is for common
illnesses and accident insurance benefits are also offered. The hospital bill is directly
reimbursed by the Insurance Company, namely the New India Assurance Company.

The Government of Goa along with the New India Assurance Company in 1988
developed a medical reimbursement mechanism. This scheme can be availed by all
permanent residents of Goa with an income below Rs 50 000 per annum for
hospitalization care, which is not available within the government system. The non-
availability of services requires certification from the hospital Dean or Director
Health Services. The overall limit is Rs 30 000 for the insured person for a period of
one year.
A pilot project on health insurance was launched by the Government of Karnataka
and the UNDP in two blocks since October 2002. The aim of the project was to
develop and test a model of community health financing suited for rural community,
thereby increasing the access to medical care of the poor. The beneficiaries include
the entire population of these blocks. The premium is Rs 30 per person per year, with
the Government of Karnataka subsidizing the premium of those below poverty line
and those belonging to Scheduled Castes/ Scheduled Tribes. This premium entitles
them to hospitalization coverage in the government hospitals up to a maximum of Rs
2 500 per year, including hospitalization for common illnesses, ambulance charges,

54
loss of wages at Rs. 50 per day as well as drug expenses at Rs 50 per day.
Reimbursements are made to an insurance fund which has been set up by the NGO /
PRI with the support of UNDP.
The Government of Kerala is planning to launch a pilot project of health insurance for
the 30% families living below the poverty line. The scheme would be associated with
a government insurance company. Currently, negotiations are under way with the IRA
to seek service tax exemption. The proposed premium is Rs 250 plus 5% tax. The
maximum benefit per family would be Rs 20 000. The amount for the premium would
be recovered from the drug budget (Rs 100), the PRI (Rs 100) and from the
beneficiary (Rs 62.50) while the benefits available would include cover for
hospitalization, deliveries
involving surgical procedures (either to the mother or the newborn). Instead of
payment by the beneficiary, Smart Card facility would be offered. This scheme would
be applicable in 216 government hospitals.

55
CHAPTER V: SUMMARY AND CONCLUSION
The preceding sections of this paper present the health insurance scenario in India.
Given the situation, there are few issues of concern or barriers towards implementing
a social health insurance scheme in India. These are enumerated below along with the
possible way ahead.

India is a low-income country with 26% population living below the poverty line, and
35% illiterate population with skewed health risks. Insurance is limited to only a small
proportion of people in the organized sector covering less than 10% of the total
population. Currently, there no mechanism or infrastructure for collecting mandatory
premium among the large informal sector. Even in terms of the existing schemes,
there is insufficient and inadequate information about the various schemes. Data gaps
also prevail. Much of the focus of the existing schemes is on hospital expenses. There
continues to be lack of awareness among people about health insurance. In spite of
existing regulation in some States, the private sector continues to operate in an almost
unhindered manner. The growth of health insurance increases the need for licensing
and regulating private health providers and developing specific criteria to decide upon
appropriate services and fees.Health insurance per se, suffers from problems like
adverse selection, moral hazard, cream-skimming and high administrative costs. This
is coupled with the fact that in the absence of any costing mechanisms, there is
difficulty in calculating the premium. There is also a need to evolve criteria to be used
for deciding upon target groups, who would avail of the SHI scheme/s and also to
address issues relating to whether indirect costs would be included in health
insurance. Health insurance can improve access to good quality health care only if it
is able to provide for health care institutions with adequate facilities and skilled
personnel at affordable cost.

Given this scenario, the challenge, then, for Indian policy-makers is to find ways to
improve upon the existing situation in the health sector and to make equitable,
affordable and quality health care accessible to the population, especially the poor and
the vulnerable sections of the society. It is in a way inevitable that the state reforms its
public health delivery system and explores other social security options like health
insurance. Implementing regulations would be one, but by no means the best

56
mechanism to contain provider behaviour and costs. This can only be done by
developing mechanisms where government and households can together pool their
funds. This could be one way of controlling provider behaviour.

There is an urgent need to document global and Indian experiences in social health
insurance. Different financing options would need to be developed for different target
groups. The wide differentials in the demographic, epidemiological status and the
delivery capacity of health systems are a serious constraint to a nationally mandated
health insurance system. Given the heterogeneity of different regions in India and the
regional specifications, one would need to undertake pilot projects to gather more
information about the population to be targeted under an insurance scheme and
develop options for different population groups. Health policy-makers and health
systems research institutions, in collaboration with economic policy study institutes,
need to gather information about the prevailing disease burden at various
geographical regions; to develop standard treatment guidelines, to undertake costing
of health services for evolving benefit packages to determine the premium to be
levied and subsidies to be given; and to map health care facilities available and the
institutional mechanisms which need to be in place, for implementing health
insurance schemes. Skill- building for the personnel involved, and capacity-building
of all the stakeholders involved, would be a critical component for ensuring the
success of any health insurance programme.

The success of any social insurance scheme would depend on its design,the
implementation and monitoring mechanisms which would be set in place and it would
also call for restructuring and reforming the health system, and developing the
necessary prerequisites to ensure its success.

57
CHAPTER VI: SUGGESTIONS AND RECCOMENDATIONS

Health insurance is like a knife. In the surgeon’s hand it can save the patient, while in
the hands of the quack, it can kill. Health insurance is going to develop rapidly in
future. The main challenge is to see that it benefits the poor and the weak in terms of
better coverage and health services at lower costs without negative aspects of cost
increase and overuse of procedures and technology in provision of health care.

In India has limited experience of health insurance. Given that government has
liberalized the insurance industry, health insurance is going to develop rapidly in
future. The challenge is to see that it benefits the poor and the weak in terms of better
coverage and health services at lower costs without the negative aspects of cost
increase and over use of procedures and technology in provision of health care. The
experience from other places suggest that ifhealth insurance is left to the private
market it will only cover those which have substantial ability to pay leaving out the
poor and making them more vulnerable. Hence India should proactively make efforts
to develop Social Health Insurance patterned after the German model where there is
universal coverage, equal access to all and cost controlling measures such as
prospective per capita payment to
providers. Given that India does not have large organized sector employment the only
option for such social health insurance is to develop it through co-operatives,
associations and unions. The existing health insurance programmes such as ESIS and
Mediclaim also need substantial reforms to make them more efficient and socially
useful. Government should catalyze and guide development of such social health
insurance in India. Researchers and donors should support such development.

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