HEALTH INSURANCE

History
1883-84 (Germany):
sickness insurance.

Compulsory accident and

The same concept was also adopted by Great

Britain, France, Chile, the Soviet Union, and other
nations after World War I.
1946 (Britain): NHI (came into effect in 1948)
- provided the compulsory medical care plan.
- providing free medical attention by participating doctors of
National Health Service.
- The cost was met by the national government.

1958 Canadian Hospital and Diagnosis Act :

- provided full hospital services almost free of charge in public
wards.

 HI, as we know it today, was introduced only in 1912

when the first Insurance Act was passed.
The current version of the Insurance Act was
introduced in 1938.
In 1972 the insurance industry was nationalized and
107 private insurance companies were brought under
the umbrella of the General Insurance Corporation
(GIC).
It was in 1990s that Private and foreign companies
were allowed to enter the market in 1999 with the
passage of the Insurance Regulatory Development
Authority (IRDA) bill.

Definition
Financial mechanism in which people are
protected against catastrophic financial burden
arising from unexpected illness or injury.
The reduction or elimination of the uncertain
risk of loss for the individual or household by
combining a larger number of similarly
exposed individuals or households who are
included in a common fund that makes good
the loss caused to any member.

 In a HI programme, people who have the risk of a

certain event contribute a small amount (premium)
towards a health insurance fund.
This fund is then used to treat patients who
experience
that
particular
event
(eg
hospitalization).
Health is a human right , which has also been
accepted
in
the
constitution
wherein
its
accessibility & affordability has to be insured.

Principles of HI
Prepayment and risk pooling: 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.
Health insurance functions when there are large numbers
enrolled. This is because with large numbers, the chances of
adverse events are reduced and so is the outflow from the
insurance fund .
Solidarity: A successful health insurance programme
requires people to contribute, knowing fully well that their
contribution may not help them directly, but will help others
who require the support.
Equity: This promotes cross-subsidy between equals and
also between unequals .

Functions of HI
To increase access to healthcare
To protect households from high medical expenses at the
time of illness.

Risks in HI Programme
1. Adverse Selection:
Normally we expect that both the healthy and sick would enrol in
a health insurance programme. However, there is a chance that
the sick will enrol in larger numbers as compared to the healthy.
Thus the programme becomes unviable.
Health insurance company has to accurately estimate the level
of risk. But it difficult to have complete information on the risk
status of person.
So premium is set at an average risk level. So policy becomes
expensive for low risk customers, who therefore may choose not
to buy insurance. Hence, best risks select themselves.

 Cream skimming/Cherry picking: This is the

opposite of adverse selection and occurs when
insurance companies selectively choose low-risk
individuals and reject the high-risk individuals.
Solution: Low premium for low risk group and
high for higher risk group.

2. Moral Hazard:
People are less fearful of illness, once they are insured,
which can change the way in which they act.
Insured consumers have an incentive to over-consume
healthcare which they would not choose if they were
directly paying for them.
They may not bother to follow a healthy lifestyle or to
get preventive check-ups.
Doctors too are tempted to over-treat and overprescribe medicines for their patients, knowing that
costs of treatment are covered by insurance.

There are two types of moral hazard:

In the supply side moral hazard, doctors are
tempted to over-treat and over-prescribe
medicines.
In the demand side moral hazard, Insurees overconsume healthcare which would not choose if
they were directly paying them. They may not
bother to follow healthy life-style.
Solution: Co-payments - Part payment by the
consumer on use of insurance to discourage
overuse and carelessness.

Health Insurance Systems

Private

Market &
Employer
based Schemes

Social

Government
or State based
Schemes

Community
based/ Microinsurance

NGO or
Cooperative
based CHI

Social health insurance

(SHI) is a financial protection mechanism for health
care, through health risk sharing and fund pooling
for a larger group of population.

Operation of a Social Health

Insurance
insurer

Govt.
Donations

Health Fund

insured

Health Care Provider

TYPES OF SHI MODELS IN INDIA

SHI
Employment
state
Insurance
Scheme
(ESIS)

Central Govt.
Health
Scheme
(CGHS)

CGHS
The CGHS was introduced in 1954 as a contributory
health scheme to provide comprehensive medical care to
the central government employees and their families.
Currently,
there
are
approximately
5.5
million
beneficiaries. The staff contributes a nominal amount
(ranging from Rs 30 to Rs 300 per month) from their
salaries.
It provides service
systems of medicine.

through

Allopathic

and

AYUSH

Beneficiaries
Besides Central Government employees, the
scheme also provides services to:
Members and Ex-members of Parliament.
Judges of the Supreme Court and High Court
(sitting and retired).
Freedom Fighters.
Central Government Pensioners, Employees of
Autonomous bodies .
Ex-Governors and Ex-Vice-Presidents of India

Facilities
The benefit package includes both outpatient care and
hospitalization. The medical facilities are provided
through Wellness Centres and polyclinics .
248 Allopathic dispensaries
19 polyclinics
78 Ayush dispensary/units
3 Yoga Centres
65 Laboratories
17 Dental Units
Also uses the facilities of the government and approved
private hospitals to provide inpatient care and reimburses
the expenses to the patient.

Problems
Equity: In a country where the government
spends about few % of the GDP on healthcare, it
is unacceptable that a sizable amount of this
goes to the better-off section of the society.
Demand side moral hazard: It is noted that more
than 80% of the hospitalized patients are selfreferred. It appears that most patients prefer to
bypass the dispensaries and directly avail of
specialist services .
Poor quality care: There are regular complaints
about long waiting periods, inadequate supply of
medicines and equipment and unhygienic
conditions

FINANCING

Pay/pension
(Rs/month)
<3,000
3001-6000
6001-10000
10001-15000
>15000

Contribution
15
40
70
100
150

The bulk of resources (85%) come from

general revenues of the Central Government.

O.P.D.
PRIVATE HOSPITAL
SERVICES
LAB. INV.

RADIODIAGNOSIS

FACILITIES

PAEDIATRIC
IMMUNIZATION

I.P.D

OPTICAL &
DENTAL AIDS
A.N.C
P.N.C

ESIS

ESIS
1948/ ESI ACT

1989/ amendment

establishment

Factories/compani
es/organizations
>10 employees
<15,000/- pm

SALIENT FEATURES:
Largest SHI scheme in India
Provide both medical & cash benefits

EMPLOYEE

EMPLOYER

1.75% OF WAGE

4.75% OF WAGE

E.S.I Corp.

Shares 7/8th of medical bill

Shares 1/8th of medical bill
STATE Govt.

TOTAL MEDICAL BILL

Employees getting <100/- per day are exempted

From payment of contribution

MEDICAL
SICKNESS
DISABLEMENT
REHABILITATION

MATERNITY

EMPLOYEES
BENEFITS
IN
ESI SCHEME

FUNERAL

DEPENDANT

 ESIS is an insurance system, which provides both

cash and medical benefits. It was conceived as a
compulsory social security benefit for workers in
the formal sector.
The Employees State Insurance Corporation (ESIC)
manages the scheme and is a corporate semigovernment body headed by the Union Minister of
Labour as Chairman and a Director General as the
chief executive.
Over half of those covered do not seek care from
ESIS facilities because of unsatisfactory nature of
ESIS services, low quality drugs, long waiting

 Under the ESIS, there are 145 hospitals, 42

annexes and 1,398 dispensaries with over 19387
beds facilities; and 1678 empanelled private
practitioners.
Act does not include employees of Indian navy,
military or air force; or whose wages exceed Rs.
15000 or as prescribed by the Central Government
.
To avail of the sickness benefit, the employee has
to have worked for 78 days prior to the sickness.
Similarly, to avail of the maternity benefit, the
woman has to have worked for 70 days prior to the
sickness.

Coverage
Coverage (As on 31st March, 2014)

(in crores)

No. of Insured Person family units

1.95

No. of Employees

1.74

Total No. of Beneficiaries

7.58

No. of Insured women

0.29

No. of Employers, etc

0.06

Contribution
State Governments share 1/8th of expenditure on
medical treatment and 7/8 being borne by the
ESIC.
Employees pay on an average 1.75% of the wages
and employers contribute 4.75% of the wage bill.
The employee who is getting daily wage of less
than Rs. 100 shall be exempted from payment of
contribution.

Benefits
Sickness Benefit: Sickness Benefit in the form
of cash compensation at the rate of 70 per cent of
wages is payable to insured workers during the
periods of certified sickness for a maximum of 91
days in a year. In order to qualify for sickness
benefit the insured worker is required to
contribute for 78 days in a contribution period of
6 months.
Maternity Benefit: At the rate of full wages for
a period of 84 days in case of pregnancy, 6 weeks
in case of miscarriage or MTP, which is
extendable by further 1 month on medical advice
at the rate of full wage subject to contribution for
70 days in the preceding year.

 Dependent Benefit: Widow or adopted child

(up to the age of 18 years or till the daughter
get married) of the diseased person gets the
cash payment may be in the form of pension,
and Rs 1200 for all eligible dependants of a
deceased
person,
through
which
86000
dependants got benefit.
Funeral Benefit: An amount of Rs. 10,000 is
paid to the eldest surviving member for the
funeral purpose.

Problems
Less than half the enrolees use the ESIS facilities
because of the low quality of care
Many of the staff are not aware of the benefits.
The employers also do not disseminate the
information to their staff .
There is duality of control, with both the ESIC
and the State governments trying to establish
superiority
Poor penetration in rural areas

Universal Health Insurance

Scheme:
Universal Health Insurance Scheme Government of
India launched the Universal Health Insurance Scheme
(UHIS) in 2003
Standard Mediclaim product with an annual cover of Rs
30,000 for a family
Scheme marketed by the public sector insurance
companies and was targeted at the BPL population.

Reasons for failure:

Lack of willingness of Insurers/other stake holders
Improper identification system of beneficiaries
Inadequate coverage / benefits

RASHTRIYA SWASTHYA BIMA

YOJNA

 Health insurance until the

Eleventh Plan was
available only to government employees, workers
in the organised sector.
Private health insurance has been in operation for
several years, but its coverage has been limited.
The percentage of the total population estimated
to be covered under these schemes was only 16.
The poor did not have any insurance for in-patient
care.
RSBY introduced in 2007, was designed to meet
the health insurance needs of the poor. It was
launched by MoL&E, GoI in 2008 to provide health
insurance coverage for BPL families.
The coverage of RSBY was initially limited to the

Beneficiaries
RSBY provides for cash-less, smart card based
health insurance cover of `30,000 per annum to
each enrolled family, comprising up to 5
individuals, which includes the head of
household, spouse and up to 3 dependents.
The beneficiary family pays only Rs. 30 per
annum, while Government pays the premium to
the insurer selected by the State Government on
the basis of a competitive bidding.
The scheme covers hospitalisation expenses
(Out-patient expenses are not covered), including
maternity benefit, and pre-existing diseases.

Financing
The premium payable to insurance agencies is
funded by Central and State Governments in a
75:25 ratio, which is relaxed to 90:10 for the NE region and J & K.
The maximum premium by the Central
Government is limited to `750 per insured
family per year.
In the Union Budget for 2012-13, the
government made a total allocation of about
1100 crores towards RSBY.

Facts
RSBY was originally limited to BPL families but was
later extended to building & other construction
workers, MNREGA beneficiaries, street vendors,
beedi workers and domestic workers.
The scheme is currently being implemented in all
36 States/UTs.
Key feature of RSBY is that it provides for private
health service providers to be included in the
system, if they meet certain standards and agree
to provide cash-less treatment which is reimbursed
by the insurance company.
About
1,06,30,269
persons
have
availed
hospitalisation under the scheme till September

 So far 10,666 hospitals have been empanelled,

out of which 6,276 are private hospitals.
National Insurance, Oriental Insurance and
United India Insurance are the 3 major players
with ICICI leading the private insurer group.
Although meant to cover the entire BPL
population,(about 37.2 per cent of the total
Indian population) it had enrolled only around
10 per cent of the Indian population by March
31, 2011.
The scheme has won plaudits from the World
Bank, the UN and the ILO as one of the worlds
best health insurance schemes. Germany has
shown interest in adopting the smart card

Advantages of RSBY:
Empowering the Beneficiary: Freedom of choice to BPL
Policy holder to choose hospitals.
IT intensive: Every beneficiary family is issued a
biometric enabled smart card containing their
photographs and fingerprints. All hospitals empanelled
under RSBY are IT Enabled and connected to the
server at the district level.
Safe and Foolproof: The use of the biometric card and a
key management system makes this scheme safe and
foolproof.

 Portability: A beneficiary will be able to use his/her

smart card in any RSBY empanelled hospital across
India. This is of great help to migrant workers.
Cashless and Paperless transaction: No payment is
to be made by the beneficiary and participating
providers may send online claims to the insurer and
get paid electronically.
Robust Monitoring and Evaluation: An elaborate data
management system is being put in place which can
track any transaction across India and provide
periodic analytical reports.
41

The shortcomings of RSBY:

High
transaction
costs
due
to
insurance
intermediaries
Inability to control provider induced demand
Lack of coverage for primary health and out patient
care.
Fragmentation of different levels of care can lead to
an upward escalation towards the secondary level
of patients who should preferably be handled at the
primary or even preventive stages.
Does not take into account state specific variations
in disease profiles and health needs.

Universal Health
Coverage
Integrating these schemes into a framework of
Universal Health Coverage (UHC), to expand the
package of services under RSBY into an EHP, with
the vision of replacing an insurance based
system with a tax funded UHC system, over a
period of time.
The State Health Society should be empowered
with requisite resources and its capacity built to
administer the coverage.
Prepare the UHC Plan as a part of the District
Health Action Plan of NHM for the pilot districts
and identify the additional items to be covered
for EHP.

 Strengthen
the
State
and
District
programme
management units to implement the EHP.
A robust and effective Health Management Information
System which, in the best case scenario, tracks every
health encounter and would enable assessment of
performance and help in allocating resources to facilities.
Register all resident families in the area covered.
Build an effective community oversight and grievance
redressal system through active involvement of Local SelfGovernment Agencies.
Develop and strengthen Monitoring and Independent
Evaluation Mechanisms.

SCHEMES FOR UN-ORGANIZED SECTOR

Krishi Shramik Samajik Sanstha Yojana

National Social Assistance Programme
National Family Benefit Scheme
National Maternity Benefit Scheme
Health And Group Insurance
Agricultural Workers Central Scheme
Janashree Bima Yojana
State Govt. Welfare Funds
National Illness Assistance Fund
State Illness Funds
Mines Labour Welfare Fund
Beedi Workers Welfare Fund

Limited to organized sectors

To

make it
Equitable
Affordable
Accessible
Qualitative
for the poor
&
vulnerable

CHALLENGES

FOR SHI
In
INDIA

Asymmetric information
regarding schemes

Difference in
Demographic
Epidemiological
Delivery
capacity Of
health system