INDIAN HEALTH INSURANCE IxNDUSTRY: A NEW PARADIGM

CONTRIBUTED TO THE NATIONAL CONFERENCE

ON

INNOVATION AND MANAGEMENT STRATEGIES

By

Mrs.R.Sunitha Shree, Asst professor

& Mr.Yeshwant Kumar.P, II MBA

G.R.Damodaran Academy of Management

Coimbatore-62.
 Indian health insurance industry: A new paradigm

Abstract
India is the second most populous country in the world. India is on her way to achieve
double digit growth of being the fastest-growing economy in the world within the next four
years. There are certain challenges which India must meet, before the dream of becoming a
power into reality. Over the last 50 years India has achieved a lot in terms of health
improvement. But still India is way behind many fast developing countries such as China,
Vietnam and Sri Lanka in health care.
The new economic policy and liberalization process followed by the Government of India
since 1991 paved the way for privatization of insurance sector in the country. Health insurance,
which remained highly underdeveloped and a less significant segment of the product portfolios
of the nationalized insurance companies in India, is now into a fundamental change in its
approach and management. Privatization of insurance sector in India can improve the
performance of insurance sector by increasing benefits from competition in terms of lowered
costs and increased level of consumer satisfaction. Health insurance as it is different from other
segments of insurance business is more complex because of serious conflicts arising out of
adverse selection, moral hazard, and information gap problems. The IRDA would have a
significant role in the regulation of this sector and responsibility to minimize the unintended
consequences of this change.
Proper understanding of the Indian health situation and application of the principles of
insurance is essential to avoid future consequences. This paper presents the review of health
insurance sector in India in various aspects like
a) Present Health care situation in India.
b) Health care financing
c) Consumer perspective on health insurance
d) Essential and innovative measures for the growth of health insurance market in India.

e) Health insurance in other countries.

The growth of health insurance industry in India can be smoother and faster, if there is healthy
coordination between government and private sector. Government should catalyze and guide
development of such social health insurance in India.

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 Indian health insurance industry: A new paradigm
Introduction
India is the fastest growing economy and to achieve proper economic development India
has to concentrate on health insurance industry. Fast creeping lifestyle ailments and the
increasing gap between professional and affordable healthcare, make health a costly affair and
insurance a pertinent need. Most people have certain notions pertaining to health insurance
policies, that keep them from investing in such policies. The Government needs to bring the idea
of ‘Healthcare for All’ at the centre of its political commitment and should promote small and
medium hospitals’ growth in India. This way the Health Insurance portfolio will become very
large in India and Health Insurers will innovate products to cater the diverse requirements of the
masses. IRDA can also set up a sub-regulatory body to keep check on Healthcare Providers for
insurance purpose only. Most health insurance products are push marketing type, rather than the
pull marketing type. Most of the Insurance products are sold, but are rarely bought. The growth
of the Health Insurance industry can be smoother and faster, if necessary steps were taken in full
measure and there is a healthy Government-private coordination. There is a need to undertake
serious initiatives and bring about a reform in the way health insurance is handled in India.

Present health care situation in India:

Health insurance is very well established in many countries. But in India it is a new
concept except for the organized sector employees. In India the healthcare industry is dominated
by private capital and its growth spiral is almost unregulated. On the other hand, 65 per cent of
our population does not have access to modern medicine. It is even worse if one looks at the
rural/urban divide: about 80 per cent of doctors, 75 per cent of dispensaries and 60 per cent of
hospitals are located in urban areas.
Some essential facts also need to be considered as such where; India has the largest
number of medical colleges in the world and produces largest numbers of doctors in the
developing world. These doctors are exported to many other countries, and are considered
among the best in the world. This country gets ‘Medical tourists’ from many developed countries
reflecting the high standard of medical skill and expertise here. They seek care in its state-of-the-
art, high-tech hospitals which compare with the best in the world. Turning to medicines, we find
that this country is the fourth largest producer of drugs by volume in the world and is among the
largest exporter of drugs in the world. Despite all these resources, the majority of citizens has
very limited access to quality Healthcare, and has poor health indicators.
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

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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.

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.

Health care financing:

The current political economy of healthcare in India makes India the most privatized
health sector in the world. Out of pocket expenditures are the main mechanism of financing
healthcare and in the context of large-scale poverty in India this not only contributes to
widespread inequities but is also unsustainable. Public investments and expenditure on
healthcare have been declining.
The limited social insurance coverage, which exists mostly for the middle classes in
India, is witnessing declining trends and also experiencing privatization. World Bank and other
multilateral and bilateral agencies are promoting private insurance as an option for classes who
can afford to pay premiums.
The phenomenal growth of the private health sector has also coincided with the decline
and collapse of the public health sector during the same period. This is partly due to the
worsening fiscal crises. In India Tax: GDP ratios are down to a mere 12 per cent as against most
developed countries where such ratios are close to 30 per cent. With current fiscal policies
directed at further reductions in tax revenues, the states’ resource pool will shrink further and
social expenditures like healthcare are the first to come under pressure.
The worse is that the private health sector is completely unregulated; lack of ethics in
medical practice and no standards of care are followed. In such an environment health insurance
does not stand a chance and it is precisely this factor that has prevented health insurance of any
kind from playing any significant role in financing healthcare in the country.
Hence the little health insurance that exists in India, whether social or private, is
restricted to classes who have the capacity anyway to buy the best healthcare from the market.
And the poor and subsistence level populations who actually need the protection of insurance are
burdened with out of pocket expenditures given the fact that public health services are not
adequately accessible.
For health insurance to become a reality public finance has to take a dominant position
for financing healthcare. For this to be made possible the entire health care system in the country,
public and private, needs to be organized into a defined system which functions according to
rules and regulations, uses standardized protocols for treatment and care, is subject to price

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regulation and is financed through pooling of all available resources under an independent and
autonomous authority which is a public monopoly and accountable to all stakeholders.
To facilitate an organized and publicly financed healthcare system, a very large
proportion of the work force will have to be included under a contributory scheme through the
social insurance route. About half the country’s population has the potential to be part of a social
insurance mechanism. The other half of the population can be supported through tax revenues
and other publicly raised revenues, like sin taxes on alcohol, tobacco, paan masalas, private
vehicles etc. The enhanced social insurance mechanism has the potential to raise an additional 2
per cent of the GDP for the public health sector. This is highly feasible in India but will need the
appropriate political will to make it a reality.

Consumer 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. With Consumer Protection Act coming in force it has
become easy for aggrieved consumers to complain and seek redressal for their problems.
Consumer organizations 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 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 fair
practice is 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.
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 specificatio and properly
spelling out the conditions. This is also because some chronic conditions such as high blood
pressure and diabetes can 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 conditions 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.

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 . 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 must take care of all the risks related to health. The companies may charge additional
premium for certain conditions. Secondly the present med claim 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 existing policies.

Essential and innovative measures for the growth of health insurance market in India.

Innovations are the need for the day in the health insurance market. Nowadays,
empowerment of education and employment provide both advantages and limitations for the
health insurance industry. One essential factor that need to be analyzed now is about the
innovative measures to be done by both government and insurance companies to enhance health
insurance in rural areas. Till date the actual need of the prospects was not into the scene of
proper research or analysis. Awareness about health care insurance and health care financing
need to be catalyzed immediately in the rural segment. Low awareness and lack of understanding
of product features, in addition to perceived apprehension in claims procedures and settlement,
intimidates rural consumers from buying a health cover.
Creative insurance strategies can be framed which focuses on providing clients with
responsible planning and innovative ideas for their life. Creative Insurance Strategies can focus
and offer insight in the various market places Eg.Critical Illness. These would include gaining
insight into buyer behavior, streamlining product development, integrating technology and
adopting a holistic approach to differentiation through tailored services. It is imperative for
insurers to make product innovation a top strategic and operational priority.

Health insurance in other countries

Various developed countries have differing insurance system to cover health risks. It is
useful to contrast the American private health insurance system to German Social health
insurance system. Table gives this comparison.

Key Features American system German System

70 % of population covered, 99.5% of population covered and

Owners of health insurance
access to health care unequal access to every one is equal

Income - % of pay roll. Shared

Premium based on Actuarial risk (Age, sex, disease) equally by employer and
employees

Selection and refusals Do occur Not allowed by law

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Based on costs and per
Reimbursement to providers
cases/procedure basis
Outpatient is on prospective per
capita basis, in-patient per day,
per case basis.

Healthy to sick, high income to

Nature of subsidy (risk pooling) From healthy to sick low income, young to old, small
families to big families

Yes - but being restricted in HMO

Choice of providers Yes - wide choice
system

Limited to medical care and co- Limited to medical care and co-
Coverage & co- payments
payments high payments high

Not much - recently between

Nature of competition Between companies
sickness funds

Minimal by government, mostly
Nature of regulation
by market forces
Self-regulation by autonomous
bodies under overall framework
of social legislation

.
It is clear from the table that the German system is clearly superior to the American
system. German system is social health insurance based on some key principles of solidarity,
delegation and free choice, while American system is based on private market philosophy
(Reinhard 1999, Stierle 2000). Thus the German system is much more suited to the needs of the
developing countries. But some of the prerequisites of the German system are not present in
India. For example for social health insurance to work the work force has to be organized and
working in formal sector so that their incomes are clear and there is a mechanism for payroll
deduction of the contribution. It also needs a well-developed regulatory framework and culture
of solidarity and self-regulation so that well off section of the community is willing to pay for the
costs of sickness. Universal compulsory social health insurance is not possible in India at this
stage but NGOs and workers in the formal sector can for organizations to try out such social
health insurance in India. Experiences from other countries such as Malaysia and Philippines
needs to be studies (Malaysia 1999, Philippines 1999); so that we can develop a model based on
good innovations from various countries while keeping the realities of Indian health system.

Conclusion
India‘s experience towards health insurance sector is very limited. It is the duty of the
government to establish regulatory bodies exclusively for health care with necessary policies and
provisions. To prove the super power in the future, government of India need to face the
challenges provided by Indian insurance industry. The set up to be made by the regulatory bodies
need to suit the changing needs of both rural and urban people. India should proactively make
efforts to develop Social Health Insurance patterned after the German model where there is
universal coverage. Government should catalyze and guide development of such social health
insurance in India. Researchers and donors should support such development.
References
IIMA 2000. Indian Institute of Management, Ahmadabad. Report on Conference on Health
Insurance, March 18-19, 2000 and three Technical Workshops on March 15-17, 2000.

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15 Dec, 2010, The Economic times, Sanjay Tungait, Article on’ Innovation key to health
insurance growth in India,
8 March 2002. Business World Insurance - the road ahead.
13 August 2002. Economic Times .Generation Next.