Health Insurance in INDIA

Group Members:

Rajkumar Banne 03
Namrata Chavan 07
Shantanu Gaikwad 19
Prakash Giri 22
Priti Kosambia 27
Heema Parekh 39
Pushkaraj Save 46
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 History of Health Insurance
 The concept of health insurance was proposed in 1694 by Hugh
the Elder Chamberlen from the Peter Chamberlen family.

 In the late 19th century, "accident insurance" began to be

available, which operated much like modern disability insurance.

 This payment model continued until the start of the 20th century
in some jurisdictions (like California), where all laws regulating
health insurance actually referred to disability insurance.

 Patients were expected to pay all other health care costs out of
their own pockets, under what is known as the fee-for-service
business model.
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 What is Health Insurance?
 Mediclaim Insurance Policy is a policy that covers the
reimbursement of Hospitalization  or Domiciliary hospitalization
expenses for illness or diseases.

 It covers the expenses on Room Board expenses incurred at

hospital or nursing home, nursing expenses, doctor fees,
diagnostic etc.

 The minimum period of 24 hours of hospitalization is required

under the policy.

 However, in some cases like eye surgery, dental surgery and

other diseases in which the patient is discharged on the same
day, the treatment will be considered to be taken under
hospitalization benefit.
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 What is a Health Insurance
Policy?
 It is a contract between an insurer and an individual or o group

 The insurer agrees to provide specified health insurance at an

agreed-upon price the premium

 Depending on the policy, the premium may be payable either in

a lump sum or in installments.

 It usually provides either direct payment or reimbursements for

expenses associated with illnesses and injuries.

 The cost and range of protection provided by the health

insurance will depend on the insurance provider and the
particular policy purchased.
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 How does it work?
 A health insurance policy is a contract between an insurance
company and an individual.

 The contract can be renewable annually or monthly.

 The type and amount of health care costs that will be covered by
the health plan are specified in advance, in the member contract
or Evidence of Coverage booklet.

 Premium: The amount the policy-holder pays to the health plan

each month to purchase health coverage
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 Why do you need Health
Insurance?
• To reduce the cost of medical care and treatment

• In case of a medical emergency, cost of hospital room, doctor’s

fees, medicines and related health services all add up to a huge
sum. In such times, health insurance provides the much needed
financial relief.

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 Who can avail Health
Insurance?
• It can be availed by people aged between five and seventy five

• The upper and lower age limits may vary slightly depending on
the policy

• The health insurance scheme could either be a personal scheme

or a group scheme sponsored by your employer.

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 What does it cover?
 It covers unexpected events that create the need for medical
goods and services
 It covers hospitalisation charges for :
 Heart Attacks
 Strokes
 Prolonged illnesses
 Loss of Limb, eye or other parts of the body due to accident
 Injuries
 Maternity Expenses
 Medicines

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 Types of Health Policies or schemes
offered by Indian Insurance
Companies
The policies offered by insurance companies are :

• Mediclaim Policy
• Personal Accident – Individual
• Personal Accident – Family
• Group Accident Insurance
• Jan Arogya Bima Policy
• Bhavishya Arogya Policy (Insurance for senior citizens)
• Traffic Accident Policy
• Overseas Mediclaim Policies
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 Health Insurance on Tax Side

 The tax deduction allowed on medical insurance premia is Rs.

20,000 for senior citizens and Rs. 15,000 for other tax payers

 This deduction is available under Section 80D of the Income Tax

Act

 A senior citizen who falls in higher tax bracket, gets a tax benefit
of Rs. 6,000

 The benefits falls to Rs. 4,000 if he falls in the 20% tax bracket

 IRDA has suggested that at least 50% of the service tax on health
insurance should be credited to a health insurance pool
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Health Expenditure in India

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 Essentials of Health Insurance
 The essentials in a health insurance programme are :
 prepayment and
 risk pooling.
 Prepayment -
 The main advantage of a health insurance programme is that of
prepayment.
 Individuals or families pay when they are healthy and are able to
pay
 However, when they are affected by illness, the insurance fund
can be used to finance their healthcare needs
 Thus there is no burden at the time of illness 12
 Essentials of Health Insurance
 Risk Pooling - There are three types of risk pooling :

 Between the sick and the healthy:

 When a group of people contributes towards a health
insurance fund, it is not clear who will fall sick.
 While most will remain healthy, some will fall sick.
 However, the funds from all the contributions are used to
finance the treatment of the sick.

 Between the rich and the poor :

 A group of people, who contribute towards an insurance fund,
should ideally belong to different socio-economic strata.
 So the rich, by paying more, will cross-subsidise the poor.
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The basics elements in a health
insurance programme

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 Types of Health Insurance
• Social Health Insurance –
– A compulsory health insurance, usually for the formal sector.
– Here the employees contribute through payroll deductions and the employers
provide a grant.
– This is used to finance healthcare of the employees, their dependents and, as in
many European countries, the rest of the population.

• Private Health Insurance –

– A voluntary health insurance wherein people can enrol and purchase the
insurance product of their liking, paying a risk-rated premium.
• Community health insurance –
– A voluntary but not-for-profit health insurance scheme and targeting the
informal sector.
– These are usually small schemes and the community is very involved in its
management.

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 Why is Health Insurance important?
Having health insurance is important for several reasons :

– Rising medical costs

– Sharing of health related risk
– uncertain hospital bills
– Expensive/quality health care services
– Money value – Sick Vs Healthy
– Family health insurance
– Tax benefit
– Productivity of workforce
– Removes some of the burden from the state
– Keeping pace with the customer needs while achieving
profitability 16
 Progression of Health Insurance
business in India
Policy Growth Rate

2007-08 2008-09
Health Insurance Policies Procured by lines of business
Standalone 282% 117%
12,000,000 2 ,361
10, 66 Non-life 67% 23%

10,000,000
8,637
,251 Life 110% 124%

8,000,000 Standalone Total 70% 29%

Non-life
,968
6,000,000 5,166
Life

4,000,000

798588
356419
2,000,000 169703 332,541
40,078 153,097

0
2006-07 2007-08 2008-09

% share of Health insurance policies sold

2006-07 2007-08 2008-09

Standalo
ne 0.75% 1.67% 2.82%

Non-life 96.10% 94.43% 90.41%

Life 3.16% 3.90% 6.77%

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Total 100.00% 100.00% 100.00%
 Progression of Health Insurance business in India (cont….)

Premium Growth Rate

Health Insurance Premium Procured by lines of business 2007-08 2008-09

(In lakhs)

Standalone 1297% 243%

700,000.00
609,037

600,000.00
Non-life 55% 23%
496,901

500,000.00 Life 222% 278%

Standalone

400,000.00 319,757 Non-life Total 61% 34%

Life
300,000.00

200,000.00

53,509
15,594 33875
100,000.00 1,116 2788 8968
% share of health Premium
0.00
2006-07 2007-08 2008-09
2006-07 2007-08 2008-09

Standalone .34% 2.99% 7.68%

Non-life 98.79% 95.29% 87.45%

Life .86% 1.72% 4.86%

Total 100% 100% 100%

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 Opportunities in Health Insurance……

Total Expenditure On Health As % Of Gross Dom estic Product

16.00% 15.3 0%

14.00%

12.00% 10.0 0%

10.00% 8.70%
8 .2 0%

% 8.00%

6.00% 4.60%
3 .6 0%
4.00%

2.00%

0.00%
A U S TR A LIA CANADA C HIN A IN D IA U N ITED USA
KIN D OM
Source: 2009 WHO fact sheet based on 2006 data

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 Opportunities in Health Insurance……

Health Expenditure Ratios

100.00%

80.00% 75.00%
70.40%
67.70% 68.55%

59.30%
57.30%
60.00% 54.20%

49.28%
45.80%
%
40.70%
40.00%
32.30%
29.60%
25.00%

18.22%
20.00% 14.50% 12.70% 12.90%
11.65%

0.00%
AUSTRALIA CANADA 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

Source: 2009 WHO fact sheet based on 2006 data

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 Opportunities in Health Insurance……

Private Prepaid Plans as % of Private Expenditure On Health

6 6 .4 0 %
70.00%

60.00%

50.00%
3 9 .10 %

40.00%
%
30.00%

20.00%
8 .2 0 %
5 .5 0 %
10.00% 1.9 0 %
0 .8 0 %

0.00%
AUSTRALIA

CANADA

CHINA

INDIA

KINDOM

USA
UNITED

Source: 2009 WHO fact sheet based on 2006 data

…. 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 .

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 Current Health Insurance Scenario: India

Health Insurance Penetration in India

Uninsure d
8 2 .6 5 %

Indian Railways
0 .5 9 % Pvt. se c tor
ESIS Community
Ente rprise (Se lf
Pvt.He alth 3 .1 9 % Insuranc e
Funde d)
Insuranc e 4 .1 9 %
4 .6 1 %
1 .4 2 % CGHS
3 .3 5 %

Low penetration of Insurance and Low Govt. expenditure in India . . .

Has resulted in high Out-of-Pocket spend

Source: Business World (India) – Oct 2007

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 Recent initiatives of IRDA
 Committee to formulate regulations

 Pure health insurance products

 Allowing the formation of an stand alone health

insurance company

 Standalone health insurance companies

 Renewability

 Senior citizens
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 Challenges in Health Insurance
• Medical advance, both a challenge & also impediment

• Increase in health care cost

• Ageing population

• Acute shortage of trained personnel ranging from

doctors to

health care administrators

• New emergence and resurgence of old diseases

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 Impediments to providing Health
Insurance….
• Lack of Data
• Moral Hazard/Adverse Selection
• Complex nature of the product
• Medical Inflation
• New treatments
• Unnecessary treatments
• Difficulty in pricing
• Government provision of health care
• Long term nature
• Changing life style
• Mis-selling/fraud……

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 How to mitigate/address these
impediments…
• Insurer
– 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. Eg: Toll free no.s, cashless,
quick response
– Expense analysis on a regular basis
– Product innovation
– Efficient training of sales force
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 How to mitigate/address these
impediments…
• Policyholder
– Pay attention to policy conditions
– Read the exclusions and limitations very carefully
– Compare premium costs, deductibles, co-payments
– Take an informed decision

• TPA
– Proper infrastructure
– Speedy claim settlement process
– Less paper work
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 How to mitigate/address these
impediments…
• Regulator/Government
– Come out with health insurance regulations
– Centralized data base for health insurance experience
statistics
– Provider rating
– 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
– Should emphasize the need to employ actuarial
methods in various aspects of life and non-life
businesses

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Health insurance as compared to life insurance
from an actuarial perspective

 Insured event: Definition of the insured event

 Flexibility: Flexibility to the customer regarding the insured event

 Claim amounts: Often large and volatile increases in claim amounts due to medical
advances etc.,

 Claim frequency: Multiple claims in a year and large number of small claims

 Data: lack of credible and adequate data

 Effect of certain rating factors on cost of the claims

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 How Actuarial Principles can mitigate
the risks….
• Health insurer has to cater for many risks
inherent in the portfolio:

» Pricing

» Underwriting

» Business

» Marketing

» Economic….

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Pricing an health product is very difficult and poses a great challenge for obvious
reasons.

• While pricing, it is not just the price of the benefit ….

There are various factors that should go into pricing

– Expected Business volumes
• Target market
• Realistic proportions
– Robust pricing models
• Deviations from assumed should be addressed
• Simulation techniques
– Synergy or Cannibalization
• Correlation with other products
– Experience Analysis
• Analyzing in-house experience
• Credibility approach
• Goodness of fit test to check the distribution of claims
• Analysis by professional

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• Reinsurance arrangements
– Effect on claims size as well as premium flow

• Solvency and regulatory requirements

– Analyzing the effects of various solvency guidelines
– Analyzing Tax regimes
– Effect on overall profitability
– Capital requirement

Investment incomes
– Though non-life is short term, IBNR reserves for health are
long tailed. Hence, time value of money is important for
both life and non-life business.
– Investment structure is an important criterion in choosing
the best price for a product

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• Management outlook

– Risk appetite of the company needs to be considered in pricing

– This aspect needs to be quantified in reinsurance arrangement,
investment profile and capital structure of the company

• Reserving

– Is reserving purely a mathematical exercise?

– An Actuary needs to understand the behaviour of claims and

constantly devise tools/methods for claims reserving purpose

– Employing a professional with required knowledge and experience

is a must

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 In a nut shell, various statistical tools
that are essential for performing the
above functions and many more are…
• Decision theory

• Loss Distributions

• Ruin Theory

• Credibility and Bayesian Statistics

• Markov Chains

• Generalized Linear Models

• Time-series analysis
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In the light of the above, the recent initiative by the Regulator to focus more on risk
based pricing which involves the availability of the strong data base and also various
analysis regarding pricing, to measure the underwriting impact, testing the
profitability of products etc. , emphasizes the need to employ actuarial methods in
various aspects of life and non-life businesses.

In addition, one should bear in mind that the an insurance product is not bought but
sold in many cases. One major reason that can be attributed to this is the lack of
customer awareness (other reasons could be complex nature of the product,
presence of many players in the market, customer’s ignorance etc.,)

Therefore, it is very important to enhance the customer awareness, which is currently

at a low level. To achieve this means, the Government, Insurer and the Regulator has
to play a very important role as discussed above.

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