Health Insurance

Lecture-10: Health Insurance

What is Health Insurance?

Health insurance, like other forms of insurance, is a form of collectivism by means of which people collectively pool their risk, in this case the risk of incurring medical expenses.

Importance of Health Insurance (EFKMPRRSU)

• Rising medical costs

• Sharing of health related risk

• Uncertain hospital bills

• Expensive/quality health care services

• Money value – Sick Vs Healthy: costliness for the client/patient

• Family health insurance

• Productivity of workforce

• Removes some of the burden from the state

• Keeping pace with the customer needs while achieving profitability

***How to improve the access to health care and financial protection of the poor?

Answer

The most obvious solution will be to improve the health insurance penetration.

How to Improve Health Insurance Penetration?

• Regulator/Government– Enhance customer awareness– Enhance client confidence - real value benefits in the event of a claim– Effective supervision– Compulsory percentage of total business towards health– Compulsory savings towards health– Tax incentives to employers for promoting group health coverage

• Insurer– Clients confidence - warrantable claim will be paid out in a

reasonable time frame– New clients have to be reached– Design products as per clients needs– Product transparency– Cost efficiency– affordability– Wellness programmes

Initiatives of IDRA (Insurance Development & Regulatory Authority)

• Committee to formulate regulations

• Pure health insurance products

• Allowing the formation of an stand alone health insurance company

• Promoting the Standalone health insurance companies

• Renewability

• Senior citizens

Impediments in Health Insurance(CCDGLLMMMNU)

• Lack of Data

• Moral Hazard/Adverse Selection (Misrepresentation of information)

• Complex nature of the product

• Medical Inflation (medical treatments are becoming more costly day by day)

• New treatments

• Unnecessary treatments (Bangladesh scenario: Unethical behavior of doctors)

• Difficulty in pricing

• Government provision of health care

• Long term Nature (Medical services for Cancer)

• Changing life style (Changing environments coupled with changing habits, preferences)

• Mis-selling/fraud

Mitigation of Impediments

• Insurer(C,D,E,E,E,H,N,P,T)– Designing a less complex products– Transparency in the product features– Clarity in policy terms, conditions & exclusions– Efficient back-office support for underwriting and claims

processing– Higher Reinsurance– Need for quicker services. E.g. Toll free numbers, quick

response– Expense analysis on a regular basis– Product innovation– Efficient training of sales force

Mitigation of Impediments

• Policyholder– Pay attention to policy conditions– Read the exclusions and limitations very carefully– Compare premium costs, deductibles, co-payments (i.e.,

Medical test to be carried out by prospective policy holder)– Take an informed decision

– Insurer/Insurance Company– Proper infrastructure – Speedy claim settlement process– Less paper work/digitalization

Mitigation of Impediments

• Regulator/Government (C,C,C,C,E,F,G,P)– Come out with health insurance regulations– Centralized data base for health insurance experience statistics– Provide rating to best performing companies– Cap on renewal premiums– Ensure that a decent portfolio of health coverage represent the rural

sector– Guard against ill-effects of privatization– Further tax incentives– Compulsory savings towards health care (Group insurance is

mandatory for govt. officials in Bangladesh)

Types of Health Insurance Plans• Individual health plan

• Family Floater plan

• Senior Citizens’ plan

• Critical illness plan

• Daily hospital cash and

• Unit-linked health plan (ULHP)

Individual Health Plans• Largely, an individual health insurance plan (IHIP), or ‘mediclaim’,

would cover expenses if you are hospitalised for at least 24 hours. In Dhaka University, this plans is in effective for the teachers.

• These plans are indemnity policies, that is, they reimburse the actual expenses incurred up to the amount of the cover that you buy.

• Some of the expenses that are covered are room rent, doctor’s fees, anesthetist's fees, cost of blood and oxygen, and operation theatre charges.

Family Floater Plans• This is a fairly new entrant in the health insurance product portfolio.

It takes advantage of the fact that the possibility of all members of a family falling ill at the same time or within the same year is low.

• Under a family floater (FF) health plan, the entire sum insured can be availed by any or all members and is not restricted to one individual only as is the case in an individual health plan.

• Let’s look at an example. Say, a family of four has individual covers of Rs 1 lakh each. If the cost of treating one person crosses Rs 1 lakh, then the rest has to be borne by the family out of its own money. If, however, the entire family is insured for Rs 4 lakh through a floater policy, then any of the members will be covered for that amount in any year. To the extent of the annual cover, any number of members can avail the money.

Senior Citizens’ Plans

• Insurance is considered as a form of long-term savings for senior citizens.

• This money provides financial stability and also helps them in times of need.

• Medical insurance enables senior citizens to pay for health checkups, emergency medical costs and long-term treatment.

• Medical insurance is provided through several private insurance companies and few public sector general insurance companies.

Critical Illness Plans• A Critical Illness plan means to insure against the risk of serious

illness. It will give the same security of knowing that a guaranteed cash sum will be paid if the unexpected thing happens and one is diagnosed with a critical illness.

• The purpose of a critical illness plan is to let you put aside a small regular amount now, as an insurance against all this happening.

• Bajaj Allianz, in its efforts to provide a customer centric solution is

offering an insurance policy to cover to some of these critical illnesses like Cancer Coronary, Artery bypass surgery, First Heart attack, Kidney Failure, Major organ transplant, Stroke,etc.

Daily Hospital Cash• Expense benefit is paid on per day basis after hospitalization (most

plans mandate at least 48 hours of hospitalization).

• The pre-decided daily benefit amount is paid in full, irrespective of the actual expenses.

• For example, a person buys a DHC plan with a limit of Rs 2,000 per day. He gets hospitalised for 7 days and the total bill is Rs 35,000. He would be reimbursed Rs 14,000 (2,000x7). If the bill is Rs 8,000, he would still be reimbursed Rs 14,000.

Unit-linked health plan (ULHP)

• Unit-linked health plans (ULHPs) provide a unique combination of health insurance and investment. Apart from giving health protection, they help build a corpus/amount that can be used to meet expenses not covered by health policies.

• All ULHPs offer one or more combination of the other benefits.

• LIC, a renowned insurance co. in India, has launched Health Plus plan, a unique long term health insurance plan that combines health insurance covers for the entire family (husband, wife and the children) – Hospital Cash Benefit (HCB) and Major Surgical Benefit (MSB) for the insured members.

Health Insurance in the Sub-continent

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;

– Mandatory health insurance schemes or government run schemes.

– Microinsurance: Insurance offered by NGOs / community based health insurance, and

– Employer-based schemes

Voluntary health insurance 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.

Voluntary health 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 due to illness or injury suffered by the insured, whether the hospitalization is domiciliary or otherwise.

*** Domiciliary Hospitalization is the treatment of the patient taken at home due to lack of accommodation in the hospital/nursing home or the patient’s condition being such that he/she cannot be shifted to the hospital for medical management. Domiciliary hospitalization is made possible, based on the treating physician or doctor’s recommendations based on the merits of each case.

Mandatory health insurance schemes

Employer State Insurance Scheme (ESI)• Enacted in 1948, the employers’ state insurance (ESI) Act was the

first major legislation on social security in Indian subcontinent.

• 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.

Mandatory health insurance schemes

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.

Mandatory health insurance schemes

Universal Health Insurance Scheme (UHIS)• For providing financial risk protection to the poor, the Indian

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 individual member.

Insurance offered by NGOs: Micro-insurance

• Insurance offered by NGOs/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 in patient care is also covered.

• Such schemes tend to be financed through patient collection, government grants and donations.

• Some of the popular Community Based Health Insurance schemes are: - Grameen, Asha, Proshika, TMSS in Bangladesh. Self-Employed Women’s Association (SEWA), Action for Community Organization, Rehabilitation and Development (ACCORD), Voluntary Health Services (VHS) in India.

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.