HEALTH INSURANCE

History
1883-84 (Germany):
Compulsory accident and sickness
insurance.
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 highrisk 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 over-prescribe
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 over-consume
healthcare which would not choose if they were directly
paying them. They may not bother to follow healthy lifestyle.
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/
Micro-insurance

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 through Allopathic and AYUSH systems of
medicine.

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 self-referred. 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
High out-of-pocket expenditure

FINANCING
Pay/pension
<3,000
3001-6000
6001-10000
10001-15000
>15000

Contribution

(Rs/month)

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 semi-government 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 periods, impudent behavior of personnel,
lack of interest or low interest on part of employees and low
awareness of ESI procedures.

 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.
Disablement Benefit: In cash, 90% of the wages is given to the
temporary disabled person during the period of disablement.
In case of permanent disablement, the payment is made at
the same rate for the whole of his life in the form of pension.

 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.
Medical Benefit: All member of the worker gets the medical
cover including the Outdoor treatment, domiciliary
treatment facilities by the panel system, specialist services,
ambulance services, and indoor services.

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 BPL population
but, was subsequently expanded to other categories.

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 N-E 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 2015 and the number of Active
smart cards issued is 4,04,30,279.

 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 based model for revamping its own social
security system.

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.
Frame and ensure compliance with Standard Treatment and
Referral Guidelines.

 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
Self-Government 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