Background/Need for Health Insurance
The health of its citizens is one of the top priorities of a Nation. A Nation with healthy people would be able to pursue its agenda with dexterity and execute those with finesse.
Total healthcare boosts economic growth, reduces poverty and lowers mortality rates. The saga of success of many Countries lies in their special effort to cover the entire population with a scheme of health insurance that keeps them protected against unforeseen health hazards through insurance coupled with a wellness program.
The moral imperative to have in place health insurance coverage is well-established straightaway. In India as also in many other Countries with low per capita income, the burden of having to pay for unplanned and hefty expenditure for medical treatment is very acutely affecting a large population. World Bank data suggests that even one hospitalization would be estimated to account for 58% of per capita annual spending driving 2.2% of the population below the poverty line. Insurance schemes are designed to be commercially viable and therefore, do not reach all sections of people.
Financing healthcare thus becomes a major concern for any society. In many countries, the Government does major healthcare funding. Unfortunately, the spending by the Government in India is well below par for which the burden falls on private households and employers and a portion of it is passed on to Insurance Companies.
The total health expenditure in India is around 5% of the Gross Domestic Product (GDP) in which bulk funding comes from private households as mentioned above. Broadly the composition is as follows :
Central, State and
Municipal Governments 20%
External Donors 1%
Private Insurance and employer payment 4%
Private Households 75%
(Source: Health Insurance Reports)
In a scenario like this and with resource constraints faced by the Government, it is unlikely there will be any significant increase in Government spending for which private spending should remain strikingly dominant. It would be interesting to increase the base with suitable insurance coverage by converting the major private households’ “out of pocket” expenditure to appropriate insurance schemes. This write-up will examine the present status and the initiatives taken by all the stakeholders to make health insurance a viable solution.
Present Scenario
Let us have a close look at the various health insurance products that are in use covering, no doubt, a large section of the population in India.
1. Health Insurance Scheme run by the State-owned Employees’ State Insurance Corporation up to a certain income level. Coverage is restricted as per the Scheme.
2. Central Government Health Insurance Scheme (CGHS) applicable to the Government of India employees at all levels including retired employees. The facility is available in selected cities/centers subject to certain limits, hence restrictive in coverage.
3. Health Insurance Schemes offered by the Public Sector General Insurance Companies, popularly known as “Mediclaim” Policies launched through the erstwhile General Insurance Corporation of India (GIC). A host of those available are as under:
‘Mediclaim’ introduced in 1986 – for individuals and groups.
‘Bhavishya Arogya’ introduced in 1990 – a retirement plan with early entry.
‘Jan Arogya’ introduced in 1996 – a low-cost limited benefits plan.
‘Overseas Mediclaim’ Policy introduced in 1984 – for people traveling abroad.
Some special policies like Cancer Insurance extended benefits of hospitalization under Personal Accident Policies, extended benefits for people outside the scope of Workmen’s Compensation Policy, etc.
4. Some State Governments have taken Health Insurance policies for weaker sections under various names on the pattern of Universal Health Insurance Scheme Launched by the Central Government, with limited liability upon specific critical illnesses. The Government has also launched Rashtriya Swastha Bima Plan and Janshree Bima plans (peoples’ Health Insurances) to cover BPL families.
5. Consequent upon the opening of the Insurance Sector, the private companies are also selling Health insurance policies specially designed and marketed with appropriate underwriting guidelines.
Incidentally, most of the products of General Insurance Companies – Public and Private, have undergone fine-tuning and upgrading following redesigning of the terms and conditions. The market has also seen quite a few Life Insurance Companies launch policies with health insurance add-ons that were introduced by LIC of India long back which is very popular in the market. All these have helped to develop and expand the market.
The potentiality of the market
India is about 1.2 billion population and granting that not all may not be insurable for various reasons, it makes a strong case for the potentiality of at least 50 crore plus people to be under some health insurance schemes apart from Government-sponsored schemes for the weaker sections.
Unfortunately, even after the opening of the market, the penetration has been poor and roughly only about 3.5 crore people are covered under various schemes as mentioned above, making the market quite big, only being scratched at the surface without being properly tapped. However, since the last 2/3 years, Health Insurance has picked up with aggressive selling coupled with awareness making it the second-largest portfolio after Auto Insurance.
In absolute terms, the premium is INR 6626 crores in 2008-09 up from INR 761 crores in 202-03 thus showing a compound growth of 37%. It is important to note here that growth in health portfolio is limited to some key players stealing the show with their good marketing strategy while others are not so serious. An all-out effort to spread the base is possible with a huge premium prospect of at least INR 18,000 crores by 2012-13 not mentioning the figure given by some studies putting it at INR 28,000 crores plus by even 2015-16.
Composition of present market share is as under as per 2007-8 results :
Public Sector Cos
New India 24%
United India 14%
National Insurance 13%
Oriental Insurance 11%
Total of 62%
Private Sector Cos
ICICI Lombard 17%
Reliance General 5%
Bajaj Allianz 5%
Star Health Insurance 3%
All others 8%
Total of 38%
Incidentally, Star Health was the only Health Insurance Company in 2007-08 while others are writing all forms of general insurance products and Health is just one portfolio, Market has grown further in 2008-09 with Health & PA recording 7000 CRS and Apollo DKV (now Apollo-Munich) operating as a Stand-alone Health Insurance Company.
Shortcomings of Insurance Products
The existing products lack versatility in the absence of a dynamic marketing strategy and approach. Moreover, the products are having certain features that are hampering the progress not to mention the unaffordable premium level because of adverse claim experience. Let us take a look at the features as under.
Policies are indemnity based and reimbursement oriented as cash-less tie-ups with Hospitals are beset with some road-blocks.
Maximum Sum Insured is determined with little or less flexibility.
Treatment is restricted to hospitals/nursing homes with limited domiciliary hospitalization as per defined terms.
The versatility of products is lacking with a lot of exclusions and limitations.
Pre-existing diseases are excluded, offered with some limitations.
No major plan for preventive treatment or measures of a wellness program.
The cost of treatment is prohibitive for average middle-class people as per their requirement and not affordable by the lower-income group and far less by the weaker sections.
No cover granted normally beyond 60 years of age by some Companies and selectively by some others with exclusions in coverage and high loading.
Important features of the market
The health insurance schemes marketed by Insurance Companies face some other challenges worth-noting, for example:
The limited Government funding of healthcare programs.
Lack of propagation of health insurance as a scheme of insurance among masses.
Rising medical costs and imbalance in cost structure among service providers.
Servicing through Third Party Administrators (TPAs) introduced with ‘cashless’ entry to hospitals meeting with limited success.
Absence of Accreditation of providers and a rationalized cost structure.
Adverse claims experience/high loss ratio.
High moral hazard at various levels of service.
Non-regulated market and no control through State machinery.
Customer expectation
The above shortcomings are driving the customers more demanding to force the Companies to fine-tune their products. Changes made in products are mostly marginal and not an overhaul in their scope and coverage. However, some companies have introduced a preventive model in their products. Broadly the Customer expectations are as follows :
Flexible and wide-ranging products without too many restrictions.
All pre-existing diseases to be covered.
Domiciliary (non-hospitalization) treatment to be paid for.
Meeting all demands of society including catering to the poor.
Premium should be affordable, renewals guaranteed and premium should not be loaded for claims experience.
Nobody should be denied insurance cover irrespective of the age of entry.
Medical costs should be kept under control and excessive billing to be monitored.
Preventive treatment for better health should be covered /rewarded as claim management.
Easy access to healthcare facilities and treatment through providers.
In the face of this scenario, the Stakeholders have a role to play. Government machinery, the Insurance Regulator and the Insurers have to play their part in driving a healthcare plan that is acceptable and at the same time affordable.
Role of the Regulator
Unlike other Regulatory bodies in most countries, India’s Insurance Sector is both a Regulator and a developer of the market to be called the Insurance Regulatory and Development Authority (IRDA). As mentioned above, apart from promoting and developing the market overall including Health Insurance, the Regulator has some concerns that need to be addressed. The examples are :
Creating a positive business environment for health insurance products are health insurance companies.
Clarifying the legislation and regulation of health insurance.
Providing information to consumers on health insurance.
Creating an environment for the standardization of data.
Co-ordinating health insurance with Government machinery to broaden the base.
The Chairman, IRDA, has gone on record to confirm that the Authority is seized of the entire matter and shall implement some of the recommendations of various Committees formed by them earlier and also take up with the Government the issues that need their acceptance and support.
Future outlook
Health Insurance has to expand fully with the flexibility suggested and all the players, especially the Private Sector players, have to be involved in writing and developing the business with the seriousness it deserves. Personal lines insurance was expected to get a boost after the market was opened to competition, which has not happened.
The level of penetration is skin deep, so to say, and health insurance being an important segment of the Personal lines insurance and there being a vast potentiality of this segment growing exponentially, the new players will have to take a giant step. Dedicated health insures with undivided attention should also hold the sway. Government spending, primary healthcare facilities, have to go up which has started happening. Many State Governments have declared attractive health insurance benefit packages at very low rates for the people coupled with Central Government’s initiatives to launch schemes for BPL classes.
The void between those who are insured and those uninsured/uninsurable has to be filled by a funding scheme as in some countries, to make health insurance an umbrella cover over the entire population. Over a period, however, health maintenance concepts, lifestyle changes, and wellness programs should gain importance in managing health. Health education and disease prevention programs should be propagated to balance large spending and pave the way for a managed healthcare environment slowly but surely.
By Mr. B. D. Banerjee, Published in The Insurance Times, March 2010
