Health Insurance in India - Trends and Issues

S.P.Subhedar18th August 2006

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Agenda

Healthcare Infrastructure and Spending

Health Insurance- Current Environment- Market Overview

Product Development- Customer Perspective

Provider Perspective- Provider Perspective

Products for Rural Population

Di t ib ti d M k tiDistribution and Marketing

Honouring the Commitment

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Data Build up

Healthcare Infrastructure and Spending

India’s per capita healthcare expenditure low due to billion plus population.p p

In healthcare delivery market - Government share 20 %and private sector share 80 %sector share 80 %.

Government healthcare service structure:- Primary Care: primary healthcare centers - 22,271

sub-centers - 1,37,271- Secondary Care: PSU hospitals - 1200S y C SU p 00

district hospitals - 4,400community healthcare centers - 2,935

T ti C di l ll d h it l 117

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- Tertiary Care: medical colleges and hospitals - 117

Healthcare Infrastructure and Spending

Total public hospitals - 4049.

Private healthcare service structure:- private practitioners- hospitals and nursing homes run on commercial basis- charitable hospitals

In the absence of regulatory structure, no standardization of healthcare services.

Total private hospitals - 11,344.

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Average size of private hospital/nursing homes - 22 beds.

Healthcare Infrastructure and Spending

Size of private hospitals: < 30 beds 84 %30-100 beds 10 %30-100 beds 10 %101-200 beds 5 %> 200 beds 1 %

In the period 1993-94 to 2001-02, aggregate household health services expenditure increased at an annual rate of 9.3 %.

Of total healthcare spending, 64 % is direct household spending.

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Health Insurance - Current Environment

Challenges for health insurance providers:- demographic changes- demographic changes- developments in medical science- increasing costs

Providers respond to these challenges by evolving new products and processes that would facilitate meeting these challenges.

Health insurance industry in India can be said to be in the embryonic stage. y g

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Health Insurance - Current Environment

Health insurance penetration in India is currently woefully low -1 per cent of the population.p p p

Health insurance accounts for mere 1.2 per cent of total healthcare spend of Rs 1000 bnhealthcare spend of Rs 1000 bn.

Need for increase in health insurance offerings to promote health i f l t l i h lth fi iinsurance as a powerful tool in healthcare financing.

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Health Insurance - Market Overview

Health insurance in different forms is generally offered by:- stand alone health insurers- stand alone health insurers- life insurers- general insurers

In India, Employees State Insurance Scheme (ESIS), a State managed scheme, offers:

- sickness benefit- maternity benefit- employment injury benefit- employment injury benefit- medical benefit- funeral benefit

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Health Insurance - Market Overview

Medical benefit provided in the form of treatment at ESIS hospitals and other benefits in cash.p

Initially ESIS covered factory employees. Later extended to shops hotels restaurants cinemas road transport companies andshops, hotels,restaurants, cinemas, road transport companies and newspaper establishments with 20 or more employees.

E l l d th t t ib t t th Employers, employees and the government contribute to the scheme.

However, the focus of this presentation will be the insurers mentioned in the last slide.

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Health Insurance - Market Overview

Only recently, the first stand alone health insurer has been licensed.

Health insurance in India has not grown because of shortcomings in both healthcare sector and health insurance sectorin both healthcare sector and health insurance sector.

Healthcare sector shortcomings:- healthcare sector not regulated- healthcare services not standardized - high order of heterogeneity in pricing practices of g g y p g p

healthcare services.

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Health Insurance - Market Overview

Health insurance sector shortcomings:- inadequate data for pricing- inadequate data for pricing- inadequate actuarial skills in health insurance- high distribution costs- no mechanism to control costs in indemnity products and

consequent high cost ratio - minimum capital requirement of Rs 100 crore.p q

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Health Insurance - Market Overview

No accreditation of healthcare providers - a critical requirement for enabling quality benchmarking of services and healthcare g q y gfacilities.

This does not facilitate standardization of provider charges This does not facilitate standardization of provider charges.

High prevalence of provider moral hazard in healthcare sector, (t d t id ) hi h h l d t hi h tili ti f(tendency to over provide ), which has led to high utilization of health insurance benefits.

In health insurance, consumers tend to over consume and providers tend to over provide.

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Health Insurance - Market Overview

Life insurers currently provide:- critical illness cover as a rider or as a stand alone cover;- critical illness cover as a rider or as a stand alone cover;- surgical assistance and hospital benefit cover - non

indemnity type - disability income cover

Life insurers are not allowed to offer indemnity type products. y yp p

CI cover could be for one or more diseases.

All these products require precise definition of condition to avoid high claim repudiation rate.

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Health Insurance - Market Overview

CII products on offer have their problems from customer perspective.p p

Acceleration of death benefit leads to loss of life cover.

Standalone cover is costly as morbidity is 2.5 - 3 times the mortality .

Globally, insurance industry offers four alternatives :- offer CII and life cover separately;C p y;- offer split benefits on combined product;- offer option to pay higher premium to “buy back” life cover;

i b fi i i t t i iti t l ti f

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- require beneficiaries to consent in writing to acceleration ofdeath benefit.

Health Insurance - Market Overview

General insurers offer medical insurance and standalone critical illness cover.

General insurers write group medical insurance mainly as an accommodation cover for tariff business clientsaccommodation cover for tariff business clients.

This results in inadequate pricing, leading to losses in this line of b ibusiness.

Group business which forms 35 per cent of health insurance business thus adversely impact the health insurance portfolio.

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Product Development - Customer Perspective

Health insurance must become an alternative and acceptable tool of personal finance risk management for individuals.p g

The product options on offer should meet the needs and demands of the customers at every life cycle stageof the customers at every life cycle stage.

Currently, mostly, it is one standard product that is available on “ ff th h lf” b i“off the shelf” basis.

Customers generally like to see various product options at various price points for decision making.

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Product Development - Customer Perspective

One of the offerings could be “Medical Savings Product”.

This could be the first step in creating a financing tool for customers to create a corpus for long term care.

We could design a product like “Medical Savings Account” (MSA) on offer in the US.

In the US, MSA has two components: the high-deductible insurance policy and a custodian for the tax-free savings account that goes with it.

MSA could attract young persons who are indifferent towards

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MSA could attract young persons who are indifferent towards health insurance.

Product Development - Customer Perspective

Insurance could take care of major ailments and savings account could cover other ailments.

Customer groups that have good preventive care facility, can be offered Capitated Health Plansoffered Capitated Health Plans.

The plan allows for one-time payment to a doctor and annual t t t i d ithi th ttreatment is covered within that.

This would help insurers in unbundling healthcare risks.

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Product Development - Insurance Company Perspective

In flat benefit product, underwriting and claim settlement processes are critical.p

In indemnity product, it is also important to control and manage utilization of the features of health insurance products i eutilization of the features of health insurance products, i.e. effectively manage clinical operating risk.

Cli i l ti i k i th i k f i ti i th t Clinical operating risk is the risk of variations in the costs incurred in providing healthcare. It has two components:

- treatment management; and- cost management risk.

Treatment management risk is the risk that the total cost of

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Treatment management risk is the risk that the total cost of treatment will not be as anticipated.

Product Development - Insurance Company Perspective

Cost management risk is driven by variations in the cost of elements of care.

This can be managed in two ways:first the foc s sho ld be on red cing the a erage cost of- first, the focus should be on reducing the average cost of treatment; and

- second, standardize performance of procedures around the average approach to treatment for each high-frequency,high-cost condition.

Different mechanisms have been evolved in other jurisdictions to influence the utilization and cost of health care service.

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Product Development - Insurance Company Perspective

Managed Care is a general description of a variety of mechanisms intended to reverse the incentives to over-claim and over-treat that arise through third-party payments like MI.

Risk unbundling is important for managing health care economics g p g g

It incentivises an associated healthcare provider to deliver healthcare cost-effectively.healthcare cost effectively.

The risk is transferred to the provider closest to the care and with the tightest control on spendingthe tightest control on spending.

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Products for Rural Population

Various schemes developed and launched for rural population have not had desired success.

Universal Health Scheme, launched with Re 1 per day premium, met with limited successmet with limited success.

Some of the reasons for this are:- inadequate logistics management of the distribution and

cost effective premium collection;- product distribution and premium collection on individualp p

basis being unviable;- primary health care units not being properly equipped.

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Products for Rural Population

Health insurance to succeed in rural area would need fundamentally different approach.y pp

Premium collection should be in ‘bulk’ and pre-financed covering of defined populationof defined population.

Part of government spend on health care could be diverted for i iinsurance premium.

Focus on services provided through primary and community healthcare centers.

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Distribution and Marketing

Currently marketing is more product focused. Focus should be on health insurance as a concept.p

Ability of the medical science to help patients exceed the ability of the society to pay for it and here insurance has a rolethe society to pay for it and here insurance has a role.

Health insurance needs to be positioned as a powerful risk t t l i h lthmanagement tool in healthcare.

In addition to creating awareness, strong distribution reach is needed.

Life insurers have a wider distribution reach and they could be

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Life insurers have a wider distribution reach and they could be encouraged to distribute health insurance products.

Honouring the Commitment

Delivering value to the customer important and not only controlling claims.g

Health insurance claim repudiation significantly high.

The product documentation to be very precise to avoid ambiguity.

Claim processing be made simple and transparent to the customer.

This would ensure that all genuine claims are paid.

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This would help popularizing health insurance.

Data Build up

Currently there is hardly any structured data on health insurance experience.p

It is necessary to have a data repository that would facilitate product development and appropriate pricingproduct development and appropriate pricing.

THE Tariff Advisory Committee has been designated as the t di f d t it d ld ll t d b ild d tcustodian of data repository and would collect and build up data

base for industry use.

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Thank you

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