New Health Insurance Guidelines Tybbi 52

8/19/2019 New Health Insurance Guidelines Tybbi 52

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RESEARCH METHODOLOGY

Objectives of the Research:

∑ To provide an outline of design features of various health insurance schemesCurrently being implemented in the country

∑ To document the institutional and organizational challenges of various schemes

∑ To identify gaps in regulatory frameworks

∑ To understand the pattern of moral hazard, adverse selection & fraud and

Mechanisms deployed to control imperfections in the market

∑ To examine the equity and efficiency of the existing health insurance models in

India

Secondary data:The secondary data has been collected from different journals, magazines, sites and

published data from various reports of International Monetary Fund, Planning

commission, Indian Budget, Insurance Regulatory Development Authority as well as

various reports by different insurance companies.

∑ Central Government Health Scheme (CGHS);

∑ Employees’ State Insurance Scheme (ESIS);

∑ Rashtriya Swasthya Bima Yojna (RSBY), a centrally sponsored scheme

being implemented in 24 states in India.

Limitations of research:Problems of selection of right information available from various sources.

Scope of Research:The central objective of this study is to specify the guidelines provided by IRDA and the

latest amendments under it, how it will affect the Health Insurance sector and to

generate evidence in relation to different models of health insurance schemes in the

country. In effect, we plan to conduct a comprehensive review and critical evaluation ofthe existing health insurance schemes. Through this overall goal, this project will

produce a road map for future health insurance programs in India, particularly inrelation to the goals of scalability, sustainability, equity and financial risk protection

measures.


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INTRODUCTION

The concept of Health Insurance was proposed in the year 1694 by Hugh the elderChamberlen from Peter Chamberlen family. In 19

thCentury “Accident Assurance”

began to be available which operated much like modern disability insurance. Thispayment model continued until the start of 20th century. During the middle to late 20th

century traditional disability insurance evolved in to modern health insuranceprogrammes. Today, most comprehensive health insurance programmes cover the costof routine, preventive and emergency health care procedures and also mostprescription drugs. But this is not always the case.

Healthcare in India is in a state of enormous transition: increased income and health

consciousness among the majority of the classes, price liberalization, reduction in

bureaucracy, and the introduction of private healthcare financing drive the change.

Over the last 50 years, India has achieved a lot in terms of health insurance. Beforeindependence, the health structure was in dismal condition i.e. high morbidity and high

mortality and prevalence of infectious diseases. Since independence, emphasis has

been put on primary health care and we made considerable progress in improving the

health status of the country. But still, India is way behind many fast developing

countries such as China, Vietnam and Sri Lanka in health indicators.

Health insurance, which remains highly underdeveloped and less significant segment of

the product portfolios, is now emerging as a tool to manage financial needs of people to

seek health services.

The new economic policy and liberalization process followed by Government of India

since 1991 paved the way for privatization of insurance sector in the country. The

Insurance Regulatory and Development Authority (IRDA) bill, passed in Indian

parliament, is the important beginning of changes having significant implications for the

health sector.

Health Insurance is more complex than other segments of insurance business because

of serious conflicts arising out of adverse selection, moral hazard, unavailability of data

and information gap problems. Health sector policy formulation, assessment and

implementation are an extremely complex task, especially, in changing epidemiological,

institutional, technological and political scenario. Proper understanding of Indian Healthsituation and application of principles of insurance, keeping in view the social realities

and national objectives, are important.

Over the last 50 years India has achieved a lot in terms of health improvement. But stillIndia is way behind many fast developing countries such as China, Vietnam and SriLanka in health indicators. In case of government funded health care system, thequality and access of services has always remained major concern. A very rapidlygrowing private health market has developed in India. This private sector bridges mostof the gaps between what government offers and what people need. However, withproliferation of various health care technologies and general price rise, the cost of care


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has also become very expensive and unaffordable to large segment of population. Thegovernment and people have started exploring various health financing options tomanage problems arising out of growing set of complexities of private sector growth,increasing cost of care and changing epidemiological pattern of diseases.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 significantsegment of the product portfolios of the nationalized insurance companies in India, isnow poised for a fundamental change in its approach and management. The InsuranceRegulatory and Development Authority (IRDA) Bill, recently passed in the IndianParliament, is important beginning of changes having significant implications for thehealth sector.The privatization of insurance and constitution IRDA envisage to improve theperformance of the state insurance sector in the country by increasing benefits fromcompetition 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. The recent policy changes will have been far reaching and wouldhave major implications for the growth and development of the health sector. There areseveral contentious issues pertaining to development in this sector and these needcritical examination. These also highlight the critical need for policy formulation andassessment. Unless privatization and development of health insurance is managed wellit may have negative impact of health care especially to a large segment of populationin the country. If it is well managed then it can improve access to care and health statusin the country very rapidly.Health insurance as it is different from other segments of insurance business is morecomplex because of serious conflicts arising out of adverse selection, moral hazard,and information gap problems. For example, experiences from other countries suggestthat the entry of private firms into the health insurance sector, if not properly regulated,does have adverse consequences for the costs of care, equity, consumer satisfaction,fraud and ethical standards. The IRDA would have a significant role in the regulation ofthis sector and responsibility to minimise the unintended consequences of this change.

Health sector policy formulation, assessment and implementation is an extremelycomplex task especially in a changing epidemiological, institutional, technological, andpolitical scenario. Further, given the institutional complexity of our health sectorprogrammes and the pluralistic character of health care providers, health sector reformstrategies in the context of health


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insurance that have evolved elsewhere may have very little suitability to our countrysituation. Proper understanding of the Indian health situation and application of theprinciples of insurance keeping in view the social realities and national objective areimportant.

This paper presents review of health insurance situation in India - the opportunities itprovides, the challenges it faces and the concerns it raises. A discussion of theimplications of privatization of insurance on health sector from various perspectives andhow it will shape the character of our health care system is also attempted. The paperfollowing areas:

• Economic policy context

• Health financing in India

• Health insurance scenario in India

• Health insurance for the poor• Consumer perspective on health insurance

• Models of health insurance in other countries

Health insurance as a tool to finance health care has very recently gained popularity inIndia. While health insurance has a long history, the upsurge in breadth of coveragecan be explained by a serious effort by the Government to introduce health insurancefor the poor in last four years. This marks a major milestone in the financing of healthcare in the country, Various forms of insurance: mandatory, voluntary and communityhealth insurance cover approximately one-fourth of India’s population. There is,however, considerable variation across states in coverage. Whether insurance isoffered through employment, purchased voluntarily or sponsored by the government forselect populations, all potentially contribute towards the health systems goal ofproviding financial risk protection and reducing the financial barriers to quality health

care. By pooling funds, insurance offers the opportunity to spread costs across differentStakeholders. This chapter provides a description of the various health insuranceprograms currently available in India. It reviews these in terms of different functions ofrevenue generation, pooling, purchasing and provision.

During the last 50 years India has developed a large government health infrastructurewith more than 150 medical colleges, 450 district hospitals, 3000 Community HealthCenters, 20,000 Primary Health Care centers and 130,000 Sub-Health Centers. On topof this there are large number of private and NGO health facilities and practitionersscatters though out the country. Over the past 50 ears India has made considerableprogress in improving its health status. Death


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rate has reduced from 40 to 9 per thousand, infant mortality rate reduced from 161 to 71 perthousand live births and life expectancy increased from 31 to 63 years. However, manychallenges remain and these are: life expectancy 4 years below world average, highincidence of communicable diseases, increasing incidence of non- communicable diseases,neglect of women's health, considerable regional variation and threat from environmentdegradation. It is estimated that at any given point of time 40 to 50 million people are onmedication 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 foroutpatient treatment while 60 % use government providers for in-door treatment. Theaverage 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 is75% or 4.25% of GDP and most of the rest (1.75%) is government funding. At present, theinsurance coverage is negligible. Most of the public funding is for preventive, promotive andprimary care programmes while private expenditure is largely for curative care. Over theperiod the private health care expenditure has grown at the rate of 12.84% per annum andfor each one percent increase in per capital income the private health care expenditure hasincreased by 1.47%. Number of private doctors and private clinical facilities are alsoexpanding 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. HealthInsurance is considered one of the financing mechanisms to over come some of theproblems of our system.


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HEALTH INSURANCE SCENARIO IN INDIA

Health is a human right. It’s accessibility and affordability has to be ensured. The escalating cost of

medical treatment is beyond the reach of common man. While well to do segment of the population

both in Rural and Urban areas have accessibility and affordability towards medical care, the same

cannot be said about the people who belong to the poor segment of the society.

Health care has always been a problem area for India, a nation with a large population and larger

percentage of this population living in urban slums and in rural area, below the poverty line. The

government and people have started exploring various health financing options to manage problem

arising out of increasing cost of care and changing epidemiological pattern of diseases.

The control of government expenditure to manage fiscal deficits in early 1990s has let to severe

resource constraints in the health sector. Under this situation, one of the ways for the government

to reduce under funding and augment the resources in the health sector was to encourage the

development of health insurance.

In the light of escalating health care costs, coupled with demand for health care services, lack ofeasy access of people from low income group to quality health care, health insurance is emerging

as an alternative mechanism for financing health care.

Indian health financing scene raises number of challenges, which are:

Increase in health care costs

High financial burden on poor eroding their incomes

Need for long term and nursing care for senior citizens because of increasing nuclear family

system

Increasing burden of new diseases and health risks

Due to under funding of government health care, preventive and primary care and public

health functions have been neglected

In the above scenario, exploring health financing options became critical. Naturally, health

insurance has emerged as one of the financing options to overcome some of the problems of our

system.

In simple terms, health insurance can be defined as a contract where an individual or group

purchases in advance health coverage by paying a fee called “premium”. Health insurance refers to

a wide variety of policies. These range from policies that cover the cost of doctors and hospitals to

those that meet a specific need, such as paying for long term care. Even disability insurance, whichreplaces lost income if you cannot work because of illness or accident, is considered health

insurance, even though it is not specifically for medical expenses.

Health insurance is very well established in many countries, but in India it still remains an untapped

market. Less than 15% of India’s 1.1 billion people are covered through health insurance. And most

of it covers only government employees. At any given point of time, 40 to 50 million people are on

medication for major sickness and share of public financing in total health care is just about 1% of

GDP. Over 80% of health financing is private financing, much of which is out of pocket payments

and not by any pre-payment schemes. Given the health financing and demand scenario, health

insurance has a wider scope in present day situation in India. However, it requires careful and

significant efforts to tap Indian health insurance market with proper understanding and training.


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Institutional Structure of Rashtriya Swasthaya Bima Yojana (RSBY)

Institutional framework of Rajiv Aarogyasri Scheme (AP)


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VARIOUS HEALTH INSURANCE PRODUCTS AVAILABLE IN INDIA

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

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

2. Mandatory health insurance schemes or government run schemes (namely ESIS, CGHS)

3. Insurance offered by NGOs/Community based health insurance4. 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

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.

9 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 privatepractitioners. The ESIS is financed by three way contributions from employers, employees and

the state government.

9 Even though the scheme is formulated well there are problem areas in managing this

scheme. Some of the problems are :-


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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.

9 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 companiesprovided for a floater clause that made any member of family eligible as against mediclaim

policy which is for an individual member. In spite of all these, the scheme was not successful.

9 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


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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.

9 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.

æ 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.

GENERAL INSURANCE VS. LIFE INSURANCE

Several life insurance companies have of late plunged into the health segment, which till recentlywas 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?

A comparison between Health Insurance offered by a Life and General Insurer

Nature of Life Insurer General Insurer

the contractContracts are usually, though notinvariably, made for a short period

Period of Contracts are usually made for a of one year or less and at the end

coverage long period.of that period are renewable by

mutual consent of the insurer and

the insured.

At each renewal there is an onusOnce the contract has been made on the insured to observe utmost

the insured is generally under no good faith in informing the insurer

Obligation of obligation to report any changes of any changes in circumstancesof circumstances affecting the risk which may affect assessment of thethe insured

insured unless a change in the cost of the risk borne by the

actual nature of the contract is insurer.

requested by the insured.


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The premiums for a life assurance The premiums may vary at eachPremiums contract remain fixed over the renewal to reflect changes in

term of the contract individual circumstances

Pays a lump sum, irrespective of Pays claims according to theBenefit whether thepolicyholder has hospital expenses that a person

payout incurred those expenses on hisincurs, depending, of course, ontheamount of cover that a

hospital stay policyholder has taken.

A stochastic approach (with

A deterministic approach (the lifestatistical models more complicated

Valuation of than the life and morbidity table)

& morbidity table) may be has to be considered for generalLiabilities adequate for the valuation of life insurance

assurance liabilities

Portion of premium paid in

respect of health insurance Premium paid in respect of health

Taxation covering the assessee as well as insurance policies is deducted fromany mem er o t e ami y istaxable income under section 80Ddeducted from taxable income

under section 80D

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 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.


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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” familysystem 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 forchronically 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.

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 hugepublic 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 aroad 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 developedeconomies (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.


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MODELS OF LONG TERM CARE IN OTHER COUNTRIES

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 definedbenefits 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 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 smallfinancial 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.

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.


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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.

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.

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 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 ifthe 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


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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

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.

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.

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


16/49Page | 16

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.

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.

HEALTH RATIOS

Source: 2007 WHO fact sheet based on 2004 data

Figure 1

Total Expenditure On Health As % Of Gross Domestic Product

16 . 0 0 %

14 . 0 0 %

12 . 0 0 %

10 . 0 0 %

% 8 . 0 0 %

6 . 0 0 %

4 . 0 0 %

2 . 0 0 %

0 . 0 0 %

15 .4 0 %

10 .6 0 %

7 .8 0 % 8 .10 %

4 .7 0 % 5 .0 0 %

J A P A N GER M A N Y C H I N A I N D I A U N I TED U S A

K I N D OM

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).


17/49Page | 17

Figure 2

9 0 . 0 0 %

8 0 . 0 0 %

7 0 . 0 0 %

6 0 . 0 0 %

5 0 . 0 0 %

%

4 0 . 0 0 %

3 0 . 0 0 %

2 0 . 0 0 %

10 . 0 0 %

0 . 0 0 %

General Government Expenditure On Health As % Of total expenditure on health

8 1.3 0 %

8 6 .3 0 %

7 6 .9 0 %

3 8 .0 0 %4 4 .7 0 %

17 .3 0 %


K I N D OM

Figure 3

General Government Expenditure on health as % of total government

expenditure

2 0 . 0 0 %

18 . 0 0 %

16 . 0 0 %

14 . 0 0 %

12 . 0 0 %

% 10 . 0 0 %

8 . 0 0 %

6 . 0 0 %

4 . 0 0 %

2 . 0 0 %

0 . 0 0 %

17 .2 0 % 17 .3 0 %18 .9 0 %

15 .9 0 %

10 .10 %

2 .9 0 %

J A P A N GER M A N Y C H I N A I N D I A U N I T ED U S A

K I N D OM

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

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.


18/49Page | 18

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

Figure 4

9 0 . 0 0 %

8 0 . 0 0 %

7 0 . 0 0 %

6 0 . 0 0 %

5 0 . 0 0 %

%

4 0 . 0 0 %

3 0 . 0 0 %

2 0 . 0 0 %

10 . 0 0 %

0 . 0 0 %

Social Security Expenditure on health as % of General government

expenditure on health

8 7 .0 0 %

8 0 .0 0 %

5 5 .2 0 %

2 8 .0 0 %

5 .6 0 %

0 .0 0 %

J A P A N GER M A N Y C H I N A I N D I A U N I T ED U S A

K I N D OM

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.

Figure 5

Private Prepaid Plans as % of Private Expenditure On Health

7 0 . 0 0 %

6 0 . 0 0 %

5 0 . 0 0 %

4 0 . 0 0 %

%

3 0 . 0 0%

2 0 . 0 0 %

10 . 0 0 %

0 . 0 0 %

6 6 .4 0 %

3 9 .10 %

5 .5 0 %8 .2 0 %

1.9 0 %0 .8 0 %


K I N D OM

o This can be justified keeping in view the nascent stage of insurance industry in India whichis steadily yet confidently picking up.

o However, rural awareness and utilization of these schemes are still disappointing.


19/49Page | 19

Health Expenditure Ratios

100.00%

86.30%

81.30%

76.90%

82.70%

80.00%77.57%

62.00%

60.00%53.63%

55.30%

%44.70%

38.00%

40.00%

18.70%23.10%

17.30%

20.00%17.75%

13.28% 13.70% 12.58% 13.16%

0.00%

JAPAN GERMANY CHINA INDIA UNITED KINDOM USA

General government expenditure on health as % of total expenditure on health

Private expenditure on health as % of total expenditure on health

Private Out-of-pocket expenditure as % of expenditure on health

o Over 80% of health financing is private financing, much of which is out of pocket paymentsand not by any pre-payment schemes.

o With insurance industry opening up and non-life sector being detariffed, we can hope to seean influx of many competitive products in the near future.

o Given the health financing and demand scenario, health insurance has a wider scope inpresent day situation in India. However, it requires careful and significant efforts to tap

Indian health insurance market with proper understanding and training

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


20/49Page | 20

of private health insurance claim that 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.

ROLE OF REGULATOR

The government has established Insurance Regulatory and Development Authority (IRDA) which isthe 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 veryearly phase, the role of IRDA will be very crucial. They have to ensure that the sector developsrapidly and the benefit of the insurance goes to the consumers. But it has to guard against the illeffects 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 checkingincrease 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 andin the process neglect a major section of India's population. They must ensure that companiesdevelop 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 productsfor the poor and lower middle class as they have done in the past.

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

As Health Insurance is in its very early phase, the role of IRDA will be very crucial. It has to ensure

that this sector develops rapidly and benefit of insurance goes to the consumers. It has to guard

against the ill effects of privatization. Unless privatization and development of health insurance is

managed well it may have negative impact of health care, especially to a large segment of rural

population in the country. If it is well managed then it can improve access to care and health status

in the country rapidly. Experience from other countries suggest that the entry of private firms into

the health insurance sectors, if not properly regulated , does have adverse consequences for the

cost of care, equity, consumer satisfaction, fraud and ethical standards. Some of the areas ofconcern which the regulator has to look into are:

ÿ Many times the insurance claims are rejected due to small technical reasons. This

leads to disputes


21/49Page | 21

ÿ Various conditions included in the insurance policy contract is not negotiable and

these are binding on consumer

ÿ There no analysis on what is fair practice and what is unfair practice

ÿ The most important area of dispute and unfair treatment is the knowledge and

implications of pre-existing conditions.

ÿ The main danger in the health insurance business 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

relatively disadvantage as they will, in future, have to pay more for the private care.

IRDA has stipulated regulations for both life and non-life insurance companies in many aspects of

business but the same is lacking in respect of health insurance business. Given the health insurance

is assuming greater significance, it is time for the regulator to etch a frame work for operating the

health schemes.

IRDA will have to evolve mechanism so that the 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.

In a view to ensure that the rural and less-developed areas do not fall prey to a step-motherly

treatment in penetration of health business, the Regulator may ensure, in line with its rules jotted

down for private life and non-life insurers, that minimum annual targets are given to the benefit

providers so that at any given point in time, a decent portfolio of health coverage’s represent the

rural sector

IRDA should ensure and encourage different organizations and private insurers to develop products

for the poorer segment of the community and if possible build an element of cross subsidy for

them.

The IRDA will have a significant role in regulating the health insurance sector and safe guarding the

interests of the policy holders by minimizing the unintended consequences.


22/49

Page | 22

HEALTH INSURANCE FOR POOR BY NGOS

With 70 per cent of population in India living in rural areas and 95 per cent of work-forceworking in unorganized sectors, and disproportionately large percentage of these populations

living below poverty line, there is strong need to develop social security mechanisms for thissegment of population. This need for security is further increased because the poor are the mostvulnerable for ill health, accidents, death, desertion, social disruptions such as riots, loss ofhousing, job and other means of livelihood. There are some efforts in this direction of providingsocial security to the poor by a few NGOs. The most prominent among them is that of Self-Employed Women's Association (SEWA). The other scheme by government insurancecompanies developed to focus on poor is called Jan Arogya Bima Policy which was introducedin 1995 and covers expenditure up to Rs. 5000 for a premium of Rs. 70 per annum.

It is estimated that about 5 million people are covered under various NGO insurance schemes.The experience from other countries suggest that in developed countries such as USA, UK, the

health insurance have grown out of small non-profit schemes. A large share of health insurancemarket in USA is in not-for-profit sector. There is need in India to promote these schemes asthey address the needs of the poor. Over the last few years in India small and big NGO's likeTribhuvandas, SEW A, ACCORD etc. have implemented the insurance schemes. Many of these

schemes are designed to meet the needs of the poorer segments of the community. They have

developed several innovations such as

mechanism of monitoring the performance, pricing of various services, integration of various risks in one single product, linking of insurance schemes with savings,

coverage of many services not included in market based schemes such as maternity services,transportation, coverage of risks such as from riots, floods etc.

Some NGOs have developed special linkages with public health systems, private facilities andalso accessed resources through insurance companies.

SEWA's Health Insurance and Social Security Schemes for the Poor

Poor women are the most vulnerable sections of a developing society. SEW A - a membership based women workers' trade union, has developed an initiative to protect the poor women fromfinancial burdens arising out of high medical costs and other risks. Each member has option to join the programme by paying Rs. 60 per annum and it provides limited cover for risks arisingout of sickness, maternity needs, accidents, floods and riots, widowhood etc. The scheme is alsolinked with saving scheme. Members have the option to either deposit Rs. 500 in SEW A Bankand interest on this deposit will cover the annual premium or pay annual premium of Rs. 60. Thescheme has 30,000 members and is expected to grow to 50000.

In the beginning the SEW A started this programme with the support of one of the public sectorinsurance companies. The experience of SEW A has been that the insurance companies are not


23/49

Page | 23

well equipped to handle the present day complexities of health insurance particularly in contextof lower income group needs. Given the bureaucratic rigidities in settling the claims, procedures,which one has to follow, and poor monitoring mechanisms make it difficult for the poor tocontinue with these schemes. For example, the patients belonging to lower income groups optingfor the schemes would need systems which are simple, flexible, prompt, relevant, having less paper work and have fewer tiers. The design of the product including what it covers, scope ofcoverage and at what premium are important considerations for people belonging to lowerincome groups.SEWA experience suggests that the design of the insurance products have to be integrated withseveral add-ons that may be priced differently. For example, health risk coverage should includesickness as well as maternity aspects. SEW A experience illustrates that other aspects of riskwhich need coverage include natural and accidental death of women and her husband,disablement, loss because of riots/flood/fire/ theft etc. The overall premium has to be low. Therehas been lot of emphasis and education in the community on understanding the concept ofinsurance. This awareness is growing. The linkage with the providers has been critical aspect inkeeping this cost of scheme down. At the same time the member has complete choice inselecting the provider but the reimbursement is limited. It has been observed that costs in private

are more than 5 times than what they are in public sector hence developing linkages with the public facilities are therefore critical. This also depends on quality of care at public facilities.The overall experience of SEW A's health insurance has been encouraging. Women have startedto seek health care and have been asking to enlarge the scope of the scheme. The scheme hastried to address the special needs of women health by allowing the other systems of medicine,which is quite popular in various places and paying for maternity related expenses which are not

covered by Mediclaim scheme. The scaling up of the scheme and increasing the coverage is themost important management and organizational challenge. Recent study of the members of the

SEWA scheme by Gumber and Kulkarni (2000) also indicate its usefulness.

Other NGO health insurance schemes

Over the last several year there has been efforts to develop health insurance by various small NGOs. Some of the prominent among them have been ACCORD in Karnataka, Tribhuvandasfoundation, Aga Khan Health Services, India (AKHSI) and Nav-sarjan in Gujarat, andSewagram medical college Maharashtra. ACCORD works with tribal population in forestedareas ofKarnataka, AKHSI works with Ismaili population in North Gujarat, TribhuvandasFoundation works in villages of Kheda district where there are strong milk producing unions ofAmul Dairy Cooperative, Nav-sarjan works with schedule castes in 2000 villages of Gujarat.Ranson (1999) has reviewed NGO efforts in India in this field. There are some common featuresof NGO schemes. The coverage of these schemes vary and most use their own health workers to provide primary care and have tied up with a hospital to provide secondary care. Premiums are

low, generally fixed and not related to risk. Most schemes have limited coverage and some also provide wider services besides health and treatment. All these organizations had good trackrecord of services in the community and then added on health insurance on their existingactivities hence they did not have to establish credibility with the community. The key featureamong them was low premium and low coverage. These NGOs have shown that it is possible todevelop a model of health insurance for the poor without much subsidy. The experience alsosuggests that if a credible NGO exists then it is not difficult to develop health insurance as anadd on benefit. What is unclear and need to be researched is that what amount of total healthexpenditure does these scheme covers for the poor given that their coverage is limited.


24/49Page | 24

Governance and Regulation of Health Insurance Models

Introduction

Health insurance can be used as a tool to improve access to healthcare and reducecatastrophic expenditures only if the objectives of the insurance program are clearlydefined and backed by a well thought out plan of implementation. This requires seriousthinking and planning on all aspects of a health insurance program including – targetcommunity, provision of care, governance of insurance, management of risk, andconstant monitoring to improve the whole process.The first question that needs to be answered is regarding the objectives. This is at theheart of any health insurance program guiding all other aspects. The objectives couldbe multifarious – solving the problem of access to care, reducing impoverishment due tocatastrophic health expenditures, providing better quality of care or the need for thestate to offer a health insurance program. If the objectives are not clearly defined and

understood, the probabilities of failure increase manifold.

Once the objectives are defined, one can focus on other aspects like governance of theinsurance program. The general rules for good governance can be simply put togetheras, align incentives and make information available, transparent and accountable.However, the implementation of these rules is not so simple. It requires making choicesin the five dimensions of governance - decision making structures, stakeholderparticipation, transparency and information, supervision and regulation, and consistencyand stability, and ensuring that these choices are aligned with each other andappropriate to the context. (World Bank, 2008)

The context, in which most government sponsored/subsidised health insuranceschemes have been proliferating in India in the recent past, is the government’s concernfor social security of vulnerable populations; access to healthcare and its financingbeing a major concern. With the high economic growth rates for last couple of decades,the government’s confidence in being able to provide the desired social security to themost needy has increased fervently.

As a result, in the last decade many state governments, central government and privateorganisations introduced demand side health financing mechanisms to providenecessary protection to the vulnerable populations, in states and nationally. Apart fromsome exceptions most schemes have failed owing to their poor design, lack of

accountability at the state level, missing efforts towards sustenance, poor monitoring,lack of clarity among stakeholders regarding their responsibilities and poor uptake of thescheme by its beneficiaries (RSBY, 2010).


25/49Page | 25


26/49Page | 26

Decision making structures

The Central Government Health Scheme (CGHS) is operated by the Director CGHS, who isdirectly appointed under the Ministry of Health. The funds of CGHS are allocated from theMinistry of Health and Family Welfare, and are shown under the budget of the Department of

Health. There is no separate autonomous fund manager for CGHS, which is a key feature of anyself-sustaining health insurance scheme. Details of inflow and outflow of funds at all levels is notavailable and that raises questions about the planning process of the department in the absenceof such basic data. A quick look at the following Expenditure summary for last five years showsthat 17-22% of total expenditure is on Administration (Salaries and Establishments) which isdefinitely on the higher side highlighting ineffective administration

Expenditure Summary of CGHS

(Rs. in millions)

2005-06 2006-07 2007-08 2008-09 2009-10(RE)

Salaries and1,729 1,918 2,042 3,233 4,285

Establishments

Supplies & Materials 1,503 2,055 2,630 2,264 2,054

PORB + PPSS 2,732 3,501 4,393 5,004 5,463

Expenditure on 2,800 3,200 3,500 3,800 4,000

salaried employees *

Total Expenditure 8,763 10,674 12,565 14,301 15,802

*An estimate; Source: The CGHS Report, 2009-10

As far as ESIS is concerned, a corporate body called the Employees’ StateInsurance Corporation (ESIC), an autonomous agency of the GOI manages allthree important functions of ESIS including the insurance scheme, network ofproviders owned by the corporation and the outsourcing arrangement to privatehospitals for provision of tertiary care. Each state has its own ESI department that looks after themanagement of insurance and provision of care. The administration of ESIS is anexpensive affair with the average cost of administration as high as 16-17 percent

of total expenditure where as the total expenditure on medical care ranges from54-60 percent Table 4.2. The decision-making machinery of ESIS is now evolvingto provide more autonomy to state ESI departments by incorporating them into acorporation on the lines of ESIC. It is a move towards decentralization of powerand may improve efficiency if the competition among states is encouraged andESIC becomes a lean organisation


27/49Page | 27

Income Expenditure Summary, ESIC

(Rs. in million)

2005-06 2006-07 2007-08 2008-09 2009-10(RE)

Total Income 24,106 31,081 39,893 44,525 47,751

Expenditure Summary

Medical Benefits 72,41 7,798 9,248 11,232 22,361

Total Benefits 9,990 10,545 12,142 15,039 26,982

Administration 2,110 2,214 2,480 4,127 5,457

Total Expenditure 12,780 13,501 15,488 20,662 33,990

Source: ESIC, various Annual Reports

The profit margin of ESIC has increased from 36 percent of total revenue in2001-02 (Gupta et al., 2004) to 54 percent in 2008-09. But unlike the self-sustaining commercial insurers the scheme has not employed any experts toprovide guidance on risk management or investment strategies. As can beseen from Investment status of ESIC provided below, all the surplus funds arekept with either the Nationalised banks as fixed deposits or as special depositswith the central Government. There is a need for change in regulation to makethis scheme more efficient in financial affairs.


28/49Page | 28

Summary of ESIC funds investment

(Rs. in million)

Reserve Fund 2004-05 2005-06 2006-07 2007-08 2008-09

Fixed deposits with 55,174 64,985 80,961 103,883 124,779 public sector banks

Special deposit with52,226 56,404 60,916 65,789 71,053

Central Government

Total Funds 107,400 121,389 141,877 169,673 195,832

Source: ESIC, various Annual Reports

!

On the other hand, the Rajiv Aarogyasri scheme is owned and managed by the

Aarogyasri Health Care Trust under the chairmanship of chief minister of Andhra Pradesh. The trust includes representatives from various governmentagencies and professional organisations. The following Chart 4.1 summarizesthe key decision makers and their responsibilities. It is interesting to note thatall the decision making from financial management to monitoring of thescheme is done by the Trust with some power shared by the InsuranceCompany. The two other stakeholders are more of implementers and there isno external oversight. The chief minister is a part of the Trust and there is noregulatory body subjecting the Trust and providers to any insurance specificregulation. The only regulation is through the Insurance Company (Star HealthInsurance Company) that is registered with IRDA.

In the absence of any financial data it is difficult to comment on the riskmanagement and financial planning strategies of Aarogyasri. But since theTrust and not the Insurer is responsible for the financial planning and riskmanagement, there is a need for capacity building in the Trust. Also, anexternal regulatory body that not only regulates the Insurer but also the Trustand conduct of Aarogyasri network hospitals is required to check for anycollusion or corruption activities.


29/49Page | 29

Decision makers and their responsibilities under Rajiv Aarogyasri Scheme

Oversight FinancialPackage of

Selecting MonitoringDecision of the Managemen providers and

servicesmaker scheme t/Planning of care EvaluationAarogyasri

✔ ✔ ✔ ✔ ✔Trust

Insurer ✔ ✔

Health care

providers

Aarogyamit

-hras

Contract Awareness Claims

DecisionPrice setting Enrolment

processingwith of the

maker andInsurer scheme payment

Aarogyasri✔ ✔ ✔

Trust

Insurer ✔ ✔ ✔ ✔

Health care✔ ✔

providers

Aarogyami-✔ ✔

thrasSource: Results for Development Institute, Bergkvist S., “Moving towards Universal Health Coverage: Aarogyasri Case Study”,

2010

The Rashtriya Swasthya Bima Yojana (RSBY) appears to have made a goodstart with clearly defined objectives. The scheme has also incorporated simplerules for good governance by aligning incentives and making informationavailable and transparent at all levels. There are six decision makers in thescheme - The Central Government, State Government, State Nodal Agency,Insurance Company, Network Hospitals and NGOs. The decisions made byeach one of them are presented in the accompanying Chart 4.2. It isnoteworthy that though the Central Government is involved in most decisions itis not alone. The state nodal agency or the state government takes active partin decision making in most aspects. The state nodal agency is empoweredenough to take important decisions like the choice of providers of care andselection of insurers.


30/49Page | 30

Decision makers and their responsibilities under RSBY

Oversight Financial Package Selecting MonitoringDecision maker of the Management of providers and

scheme /Planning services of care EvaluationCentral✔ ✔ ✔ ✔

Government

State✔

Government

State Nodal✔ ✔ ✔

Agency

Insurer/TPA ✔ ✔

NGOs/Other Partners

Providers of

CareContract Awarenes

Claims

Actuarial processingDecision maker with s of the Enrolment

Analysis andInsurer scheme

payment

CentralGovernment

State

Government

State Nodal✔ ✔ ✔

Agency

Insurer/TPA ✔ ✔ ✔ ✔

NGOs/Other ✔ ✔

Partners

Providers of

CareSource: Swarup A, Jain N, “RSBY – A case study from India”, Oct 2010

In the case of Yeshasvini scheme which is owned by the Yeshasvini Co-operative Farmers Health Care Trust, it is governed by a board of twelvetrustees - six from the Department of Co-operation including its PrincipalSecretary who acts as chair of the Trust, the Director of the Karnataka HealthDepartment, and five additional appointed trustees who usually are from themedical profession. Although the co-operative department facilitates thecontact with the cooperative sector, it is worth pointing out that the cooperativesocieties have the main load. It might therefore be advisable to replacetrustees from the government by elected representatives of the cooperatives.The board of trustees governs the scheme and approves claims, charts thedevelopment of the scheme, sets growth targets, and approves inclusion ofnew hospitals without external oversight. As is the case with other schemes,the board’s capacity for risk management is very limited and there is no insurerinvolvement. This seriously mars


31/49Page | 31

the scheme’s ability to do risk management. It is not surprising that the claimsratio for the scheme was as high as 157 percent in 2005-06 (USAID, 2008).But for the subsidy from state government, the scheme cannot sustain itself.The good aspect of the scheme that can be replicated is related to marketing,which is achieved through the Karnataka Department of Co-operation and the

Co-operative infrastructure. The partnership with department that enrolsmembers saves huge costs of marketing and enrolment both.

Stakeholder participation

ESIC has adequate representation from all stakeholders including membersrepresenting employers and employees (beneficiaries), the centralgovernment, state governments, the medical profession and Parliament,administering the scheme. A Standing Committee constituted from among themembers of the corporation acts as the executive body for the administrationof the scheme. There is also a medical benefit council to advise the

corporation on matters connected with the provision of medical benefits.On the other hand, all stakeholders including the insurer, the Arogyamithrasand the providers of care seem to be under the influence of the AarogyasriTrust. This seriously restricts their freedom to act with independence. TheTrust should appoint independent Technical Experts who will not only bringtheir expertise but also the missing independence and integrity to the scheme’simplementation and design.

Right from the design of the scheme to its implementation, RSBY has followeda partnership model. The conceptual framework of RSBY was developed withsupport from many experts and agencies like World Bank and GTZ. The role of

each of the stakeholders is clearly defined and that is both the strength andchallenge for the scheme. The challenge for RSBY is to maintain thepartnership model without the various stakeholders infringing into each other’sboundaries, as the scheme evolves and incentives become more lucrative.

Transparency and information

Although the Central Government Health Scheme collects information oncoverage, infrastructure and utilisation of its dispensaries but it does notpublish the same. It neither reportsfinancial nor any other type of performancepublicly. An official at CGHS points out the lack of capacity at regional level to

collate and present relevant


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information, as reason for non availability of data. This raises questions abouttheir performance as well as transparency.In order for CGHS to get efficient and more transparent it is important that itcollects, processes and reports relevant information regularly. There is everyneed for CGHS to strengthen its capacity building program at regional levels.

The under progress computerisation, and outsourcing of several processesincluding claims settlement with hospitals, can also help improve thetransparency and information aspect. At the other end of the spectrum, ESIC publishes Annual Reports andstatistical abstracts that provide detailed information of enrolment,infrastructure, human resource, utlilisation, policy decisions, income &expenditure summary and investments of ESIC. Although, the financialdecisions are not characterised by the modern day efficiency but ESIC is verywell organised and transparent in reporting its financialperformance. It is anachievement to be consistent in reporting for last many decades even thoughcollection, analysis and dissemination of information have so far been manual.

The Aarogyasri scheme is managed through a contract with the privatecompany Star Health and Allied Insurance, for which the government ofKarnataka was criticised for lack of transparency in the negotiation process. Although the Trust allows access to utilization data, it does not provide anydetails of financial performance. It is hard to get information on the flow offunds, financial reserves, salaries and wages and other such details.Yeshasvini is more transparent than other schemes of its league. It providesinformation including enrolment statistics, utilization and financial performanceof the scheme publicly on its website.

RSBY provides more information than any other existing scheme, as it has

been designed to do so. So far, most information regarding the scheme isbeing collected as the scheme is relatively new in most states but ultimatelythe board will need to curtail data collection to manage costs. The RSBY dataof insurance companies can be used by IRDA in effective regulation of healthinsurance companies. Assuming that RSBY is the future of health insurance inIndia, Central government, IRDA and Independent research organizationsneed to take active part in early detection and remedy of all issues before thescheme expands to sections of the society other than the poorest.


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Supervision and Regulation

The legislation concerning health insurance in India is fairly comprehensive interms of licensing regulations, auditing, investment guidelines and financialcontrols. There is much less regulatory focus on the consumer of insurance

products and the overall goals of health policy in the form of regulation thatcurbs risk selection, protects consumers, promotes health insurancecompanies and health products etc. The Insurance Regulatory andDevelopment Authority (IRDA) bill was passed in December 1999 and the billcreated a regulatory Authority to govern the insurance industry in India. It alsoenabled provisions for foreign players to enter the Indian market with de-tariffing and de-regulation occurring in 2000, which significantly opened up themarket. The entire insurance industry including the health insurance segmentis governed by the IRDA which has presented certain challenges andlimitations with regard to streamlining a) establishing key controls ofgovernance in terms of standardizing provider practice variations b)

establishing pricing guidelines for hospitals services and procedures c)establishing standards for health insurers to track and report on claims dataand utilization trends which can drive more effective underwriting processes forthe industry.

The two main functions of the IRDA have been to a) establish marketstandards for operation (including consumer protection) and to b) overseesolvency and financial regulation matters. Overall, the IRDA protects theinterests of the policyholders, promotes efficiency in the conduct of insurance,regulates the rates and terms and conditions of the policies offered by insurersand directs the maintenance of solvency margins.

The Government regularly reviews the performance of the CGHS. A committeeof secretaries has been regularly reviewing the functioning of the CGHS sinceDecember 2008 and has been giving directions to the Ministry of Health &Family Welfare for making it beneficiary friendly and effective. Some of therecent initiatives are - Computerization of important functions, Introduction ofPlastic cards, Accreditation of hospitals with National Accreditation Board forhospitals and health care providers (NABH) and labs with National Accreditation Board for Testing and Calibration Laboratories (NABL), andMedical Audit of Hospital Bills by a TPA. The attempts are being made towardsgreater transparency and efficiency, but it will be long before the resultsbecome visible. Although ESI hospitals follow Central Health Servicesguidelines and have SOPs, Hospital committees for death audits, infectioncontrol


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committees etc, the compliance is poor. There are reported cases of poorinfrastructure, shortage of medicines and substandard quality of availabledrugs at ESI hospitals.It is noteworthy that most of the state sponsored or subsidized healthinsurance schemes are self-regulating. Their performance relies heavily on the

performance of insurance companies who are partners in most cases. It isimportant for the government and IRDA to realize that in the absence of anyspecific regulations for the Trusts offering health insurance, the insurancecompanies and providers need to be stringently regulated to avoid cases ofcollusion and corruption at all levels including the topmost. Simultaneously,there is a need to encourage the development of an alternate for profitmaximising insurance company, to act as intermediaries. Amendments can bemade to the current regulations to facilitate the development of non-profithealth insurance bodies. If the solvency margins are lowered, even hospitalscan act as providers of insurance. Integrating financing with serviceprovisioning is considered one of the most cost effective options and would

perhaps be suitable for India (Rao, 2004). The reduction of barriers to entry inthe insurance arena could also lead to reorganisation of existing insurancecompanies and providers of care making them more efficient.RSBY on the other hand, is an example of a scheme that is benefitting fromsupervision at multiple levels. The central government in association with thestate nodal agency and Insurance companies regularly collects and processesthe relevant information. The centralised server collects data on daily basisand the central government is quick to respond to any observed abnormalities.Concurrent evaluations are also being undertaken by a skilled group of peopleat the World Bank in association with GTZ.

Insurers and Providers

Apart from the five aspects of governance, another critical factor in the designof health insurance schemes is – the number of insurers and the relationshipbetween insurers and providers. RSBY that follows a business model seems tobe making good use of competition among the Insurance companiesparticipating in the bidding process across states. The decision to restrict toone Insurer per district is also good as it avoids formation of severalunsustainable pools struggling for enrolments in the long run.

The providers of care are the backbone of implementation and no good designcan succeed without cooperation from providers. Rajiv Aarogyasri scheme in Andhra


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Pradesh has been successful because it has proven effective in timelyreimbursements that built trust with the private providers and increased theirwillingness to participate in the scheme (Mallipeddi et al., 2009). The providersof care and insurance company under RSBY are encouraged to see eachother as partners in business.

Summing

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