Health Insurance Sector of India
Content
SECTION IV
Health insurance in India
S
OCIAL SECURITY FOR MEDICAL EMERGENCIES IS NOT NEW TO THE INDIAN ETHOS. It is a common practice for villagers to take a ‘piruvu’ (a collection) to support a household with a sick patient. However, health insurance, as we know it today, was introduced only in 1912 when the first Insurance Act was passed (Devadasan 2004). The current version of the Insurance Act was introduced in 1938. Since then there was little change till 1972 when the insurance industry was nationalized and 107 private insurance companies were brought under the umbrella of the General Insurance Corporation (GIC). Private and foreign entrepreneurs were allowed to enter the market with the enactment of the Insurance Regulatory and Development Act (IRDA) in 1999. The penetration of health insurance in India has been low. It is estimated that only about 3% to 5% of Indians are covered under any form of health insurance. In terms of the market share, the size of the commercial insurance is barely 1% of the total health spending in the country. The Indian health insurance scenario is a mix of mandatory social health insurance (SHI), voluntary private health insurance and community-based health insurance (CBHI). Health insurance is thus really a minor player in the health ecosystem.
Social Health Insurance
Universal coverage has two dimensions: health care coverage (adequate health care) and population coverage (health care for all) and, coupled with the societal values that underpin it, leaves essentially two financing options—general taxation and SHI. The former implies financing care entirely from general revenue; its viability as the single mechanism to finance universal health coverage is necessarily limited in an environment of competing demands on a severely limited tax base. The SHI is based on income-determined contributions from mandatory membership of, in principal, the entire population with the government subsidizing the financially vulnerable sections. While the SHI is an effective risk-pooling mechanism that allocates services according to need and distributes the financial burden according to the ability to pay (thereby ensuring equity in access), such schemes are difficult and expensive to implement where a majority of the workforce is unemployed or employed in the informal sector.
International experience in SHI: Factors that affect the speed of transition
Achieving universal coverage through SHI is not easy. Evidence from 8 countries with SHI schemes for which sufficient information is readily available—Austria, Belgium, Costa Rica, Germany, Israel, Japan, Republic of Korea (ROK) and Luxembourg— shows that the transition period (defined as the number of years between the first law related to health insurance and the latest law enacted to implement universal coverage) is 79 years (Austria), 118 years (Belgium), 20 years (Costa Rica), 127 years (Germany), 84 years (Israel), 36 years (Japan), 26 years (ROK) and 72 years (Luxembourg). These countries embarked on SHI when their economies were still underdeveloped; moreover, coverage is not necessarily a simple linear increase, as some groups are harder to reach than others. For example, moving from 25% to 50% coverage might take less time than moving from 50% to 75% (Carrin and James 2004). International experience suggests the following factors impacting the speed of transition to universal coverage using the SHI financing option: 1. The level of income and structure of the economy (specifically, the relative size of
Financing and Delivery of Health Care Services in India
K. SUJATHA RAO
SECRETARY, NATIONAL COMMISSION ON MACROECONOMICS AND HEALTH, GOVERNMENT OF INDIA, NEW DELHI E-MAIL: [email protected]
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Box 1 The Insurance Regulatory and Development Act (IRDA) 1999
The IRDA was passed in December 1999 by Parliament. The Act allows for the entry of private sector entities in the Indian insurance sector, including health insurance, and envisages the creation of a regulatory authority. The IRDA is supposed to protect the interests of the policyholders, promote efficiency in the conduct of insurance, regulate the rates and terms and conditions of the policies offered by insurers and direct the maintenance of solvency margins. The IRDA provides sufficient protection for capital and solvency margins. There is an entry requirement of a minimum capital of Rs 100 crore. Then there is a minimum lower bound of Rs 50 crore for the solvency margin along with a requirement of 20% of net premiums or 30% of the average of net incurred claims in the 3 preceding years. The IRDA has wide powers for accounting and auditing insurers. The Insurance Act does not allow the insurers to undertake additional business that is not directly linked to insurance. It discusses the liquidation of a company but does not talk of a Guarantee fund. The IRDA specifies a code of conduct for the insurance agents and also allows for a Tariff Advisory Committee to oversee premium rates, insurance plans and to prevent discrimination. However, there is no specific clause for the consumer, who has to use the CPA of 1986 to redress any complaints. The IRDA does not have much to say about the relationship between the insurer and the provider. Though the Tariff Advisory Committee can make recommendations the IRDA also does not have much to say about rating the premium. The IRDA does not also specify the benefit packages. It however allows for the entry of re-insurers in the market. Its main two functions are maintaining market standards, and overseeing solvency and financial regulations. Conclusion: The legislation concerning health insurance in India is fairly comprehensive even in comparison to a model set of regulations when focusing on auditing, financial controls, investment guidelines and licensing regulations. There is much less regulatory focus on the consumer of insurance products and the overall goals of health policy in the form of regulation that curbs risk selection, protects consumers, promotes HMOs, etc. It also cannot involve in the relationship between insurers and providers (which comes under the MRTP Act) or the expansion of ESIS (which is the ESIS Act). In India health insurance is not given much importance. The IRDA itself contains no reference whatsoever to the health sector or to health insurance. Nor is health mentioned in the nearly 175 pages of the Insurance Act of 1938. This broadly reflects the policy environment in India, where health insurance continues to be neglected. Even in GOI’s report on Insurance reforms (1994), there was precisely one reference to health insurance.
Source: Mahal A. Assessing private health insurance in India: Potential impacts and regulatory issues. Economic and Political Weekly 2002:559–71.
mine the capacity of SHI schemes to deliver the benefit package. 3. The administrative structure and solidarity in a country determine its ability to actually implement SHI and with legitimacy. In India, its large rural and informal sector accounting for 90% of the population, lack of cohesion and solidarity, and poor institutional capacity to organize them etc. will be constricting factors for the upscaling of the SHI in the near or medium term. The experience with collecting income tax predicts problems in assessing incomes and collecting premiums from small, unregistered firms, unorganized industries and the rural sector. The consumer redressal mechanism may also not function effectively because of the large illiterate population. The SHI is therefore likely to be restricted to the employed population and largely in urban areas, where collection of premium is easier and administrative costs minimal (Annexure). The existing mandatory health insurance schemes in India— the Employees’ State Insurance Scheme (ESIS) and the Central Government Health Scheme (CGHS)—were first started as pilot projects in 1948 and 1954, respectively in the context of achieving universal coverage via the SHI. Table 1 summarizes the provisions under these schemes.
Employees’ State Insurance Scheme (ESIS)
Enacted in 1948, the Employees’ 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 and other specified establishments employing 20 persons or more, with employees earnings up to Rs 7500 per month being covered, along with their dependants. The current coverage stands at 84 lakh employees and 353 lakh beneficiaries across 22 States and Union Territories (expectedly, the membership is higher for more industrialized States). The benefit package is quite comprehensive in its coverage of health-related expenses, going beyond the cost of medical care to include cash benefits (sickness, maternity, permanent disablement of self and dependant) as well as other benefits such as funeral expenses and rehabilitation allowance. However, the actual package of benefits available is determined more by the type of facility accessed rather than the type of cover. Medical care comprises outpatient care, hospitalization or specialist treatment as well as services of the Indian systems of medicines. These services are provided through a network of ESIS facilities, public care centres, non-governmental organizations (NGOs) and empanelled private practitioners. Corresponding to these arrangements, a variety of payment mechanisms are employed from salaries for ESIS staff to capitation fees for private doctors. The ESIS is financed by a three-way contribution from employers, employees and the State Government. Between 1993–94 and 1997–98, the income of the scheme grew substantially (largely due to increases in contributions which now account for 80% of the ESIS income) while medical benefits have actually fallen (from about 50% to less than 30% of the expenditures) and, as a result, the net excess transferred to the ESI fund went up
2.
the formal and informal sector) determine the feasibility of collecting contributions as well as the amounts that may be raised through SHI schemes. Distribution of the population and infrastructure deterFinancing and Delivery of Health Care Services in India
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Table 1 Key features of the Employees' State Insurance Scheme (ESIS) and Central Government Health Scheme (CGHS)
Mandatory social insurance schemes Indicators ESIS CGHS
Types of beneficiaries
Factory sector employees (and dependants) with income less than Rs 7500 per month
About 353 lakh beneficiaries in 1998 Medical and other health-related provided through ESIS facilities and partnerships Premiums (financing of scheme) 4.75% of employees' wages by employers; 1.75% of their wages by employees; 12.5% of the total expenses by the State Governments Provider payments Mainly salaries for physicians in dispensaries and referral hospitals. Hospitals have global budget financed by ESIC through State Governments. Administrative costs About 21% of the revenue expenditure. For paying wages for corporation employees, and administering cash benefits, revenue recovery and implementation in new area. Status of finances Contributions: more than 80% of the ESIS incomedouble the expenditure on benefits.
Employees' State Insurance Scheme (ESIS)
Coverage Types of benefits
Employees (and dependants) of Central Government-current and retired, some autonomous and semi-government organizations, Members of Parliament judges, freedom fighters, journalists About lakh beneficiaries in 1996 Medical care through public facilities and restricted private care Varies from Rs 15 to Rs 150 per month based on salaries of the employeesMainly financed by the Central Government funds Salaries for doctors. Treatment in private hospitals is reimbursed on case basis, subject to actual expenditure and prescribed ceilings Direct administrative costs including travel expenditure, office expenses, RRT 5% of the total expenditure. Part of salaries can also be charged to administrative costs. Contributions about 15% of the CGHS income-half of the salary expenditures.
from 14% to 30%. Significantly, the cost of administering the scheme has been steadily increasing as a proportion of expenditure on the revenue account.
Central Government Health Scheme (CGHS)
Established in 1954, the CGHS covers employees and retirees of the Central Government, and certain autonomous, semiautonomous and semi-government organizations. It also covers Members of Parliament, governors, accredited journalists and members of the general public in some specified areas. The families of the employees are also covered under the scheme. Total beneficiaries stand at 43 lakh (10.4 lakh card holders, 2003) across 24 cities with membership in Delhi being the highest. Benefits under the scheme include medical care at all levels and home visits/care as well as free medicines and diagnostic services. These services are provided through public facilities (including CGHS-exclusive allopathic, ayurvedic, homeopathic and unani dispensaries) with some specialized treatment (with reimbursement ceilings) being permissible at private facilities. Of the total expenditure, about a third is spent on wages and salaries of the CGHS staff (Table 2) and Figure 1. Table 2 highlights three important points: (i) that 18% of the health department’s budget is spent on less than 0.5% of the population; (ii) that most of the expenditure is met by the Central Government as only 12% is the share of contributions.
If the scheme continues in its present form, and contributions stagnate at Rs 50 crore, the proportion of contribution will fall further to 5% of the total over the next five years, given the rising expenditures This calls for steps to ensure that contributions keep pace with expenditure, and perhaps even reduce the subsidy element; and (iii) The period 2001–04 also witnessed a sharp increase in inpatient expenditures. Coinciding
Fig 1 CGHS expenditure 1999-2004
Source: Ministry of Health and Family Welfare, GOI
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visits per card per year, varying between 5.6 visits in Bhopal to 28.4 visits in Bhubaneshwar. The approximate unit cost per visit comes Total expenditure on CGHS (Rs in crore) to a high of Rs 222 in 2002–03. Similarly inequitous is the payment structure for inpa1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 tient care too. To assess the health-seeking behaviour Establishment 117.1125 123.8712 125.3384 133.1083 139.4496 and the trends towards utilization of health Supplies and materials 106.176 131.2345 165.3858 185.1242 222.9404 facilities after the CGHS opened up to over Professional services 47.8071 51.2002 65.7699 81.9203 140.7256 200 private hospitals for providing care at TOTAL CGHS 271.0956 306.3059 356.4941 400.1528 503.1156 pre-negotiated rates to their members, the TOTAL Department of Health 2132.46 2291.84 2577.04 2625.37 2800.64 NCMH took up a study of the CGHS pay% Share of CGHS 12.7 13.4 13.8 15.2 18.0 ments pertaining to the reimbursements to Total contributions 54.27 52.54 50.65 70.9 60.58 pensioners, hospitals and diagnostic centres. % of expenditure 20.2 17.15 14.21 17.71 12.04 A sample of 1000 claims were examined from Source: Demand for Grants, MOHFW the total bills paid by the Pay and Accounts Office of CGHS, Delhi, during 1999, 2003 with the sharp increase in the membership among retired perand 2004. For 2003 and 2004, all the payments made to sons, this indicates the trend towards adverse selection (Fig. pensioners in the randomly chosen successive months of June 2). and July were taken up for the study. Results of the claims showed an increasing number of cases using private sector facilities, which has budgetary implications for the GovernFig 2 ment, particularly in view of the absence of any regulations regarding prices and the large number of pensioners joining The increasing per person expenditure on the scheme (Table 4). outpatient and inpatient (2001-04) The 1999 sample (July to December) comprising of 104 reimbursement bills showed treatment being taken in government institutions in 58 of the cases. The ratio of the amount spent on government and private hospitals in 1999 was 1:1.25, or 4:5. These ratios changed in 2003–04 more adversely to government hospitals—1:12 in the 2003 sample and 1:8.5 in 2004. Thus, over the 5-year period from 1999 to 2004, there was a sharp rise in the total number of bills, the total expenditure on professional services and payments made to private providers as a proportion of all payments, with government providers claiming just one-tenth of the total payment for provision of professional services in the 2004 sample.
Table 2
Private Health Insurance
Source: Ministry of Health and Family Welfare, GOI
Expenditures that cover outpatient treatment, including medicines for all serving and retired CGHS beneficiaries and inpatient/diagnostic services availed by retired beneficiaries, has thus grown between 12% and 25% per year over the past four years. A gross estimate suggests that another Rs 200 crore would have been incurred on inpatient treatment by serving employees. The maximum increase is seen to have occurred on professional services, i.e. reimbursement to pensioners and direct payments to hospitals and diagnostic centres. The CGHS is a high-cost enterprise with an inequitable spread of service delivery and no control systems for checking market failures such as moral hazard. As can be seen from Table 3, while each dispensary currently caters to an average of 3610 cardholders, varying between a low of 1073 cards per dispensary in Bhubaneshwar to a high of 6662 cards in Pune, the average OPD attendance during 2003–04 was 14.3 OPD
Since the liberalization of the insurance industry in 2000 India has been promoting private players to enter the health insurance sector. With the enactment of the IRDA, the industry now has a regulatory framework to protect the interests of policy holders. This was followed by another landmark decision in 2001 establishing Third Party Administrators (TPAs) to facilitate speedier expansion by providing an administrative–intermediary structure to the insurance industry. There are, at present, 12 general insurance companies and 25 TPAs. The total number of insurance holders is reported to be 112 lakh with almost 90% enrolled with the four public sector insurance companies. These four companies collected a premium of Rs 1128.64 crore under Mediclaim. Of the 102 lakh enrolled by these four companies (excluding GIC, Employment Guarantee Corporation, AICL), which are permitted to market health insurance products, Mediclaim alone accounts for 97 lakh persons, the rest being enrolled under other insurance
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Health insurance in India
SECTION IV
Table 3 City-wise utilization (of allopathy) during 2003-04
No. of cards OPD attendance No. per dispensary Cards per dispensary OPD per dispensary
Ahmedabad Allahabad Bangalore Bhopal Bhubaneshwar Chandigarh Chennai Dehradun Delhi Guwahati Hyderabad Jabalpur Jaipur Kanpur Kolkata Lucknow Meerut Mumbai Nagpur Patna Pune Ranchi Shillong Thiruvananathapuram Total Average
OPD: outpatient department
6672 17794 61409 2627 2147 7762 48156 456468 9243 90262 19534 24504 27439 56426 20068 13626 91379 21274 13407 46631 2789 1771 6155 1047543
118764 279625 592042 14656 60927 103346 486342
106484 949448 227542 380177 529268
724995 508847 390151 70999 12004 98160 5653777
5 7 10 1 2 1 14 1 87 3 14 3 5 9 17 6 6 28 10 5 7 2 1 3 247
1334 2542 6140 2627 1073 7762 3439 5246 3081 6447 6511 4900 3048 3319 3344 2271 3263 2127 2681 6661 1394 1771 2051 83041 3610
Source: MOHFW, GOI
23752 39946 59204 14656 30463 103346 34738
35494 67817 75847 76035 58807
25892 50884 55735 35499 12004 32720 832847 46269
Note: Blank cells indicate data not available and have been excluded in the calculations
The question that arises is whether promoting the private commercial insurance sector will help India achieve its health objecHealth-seeking behaviour and trends towards utilization of tives of equity, efficiency and quality? What health facilities are its implications? Should India consider Government Private Private/ Private as other options, or is this a case of one size institutions institutions Government a % of the fitting all? International experience and eco(in Rs) (in Rs) ratio total nomic theory on private insurance markets however show evidence of widening inequity, 1999- Individual claims 733236 (58) 914897 (46) 1.25 55.5% excessive utilization, adverse selection, 2003- Individual claims 658083 (79) 2018361 (114) increase in inappropriate care, risk selection 2003- Hospital claims 1156281 (33) 16427031 (1425) increasing overall cost of care and in a highly 2003-Diagnostic provider claims 0 2900829 (1287) competitive, voluntary market, high admin2003 Total Paid 1814364 21346221 11.77 92.2% istrative costs, unviable risk pools, under2004- Individual claims 3281255 (305) 7277243 (332) cutting and unrealistic pricing leading to 2004- Hospital claims 1299264 (39) 29227474 (2072) market instability and bankruptcies. Private 2004-Diagnostic provider claims 0 2579414 commercial-led health insurance systems 2004 Total Paid 4580519 39084131 8.53 89.5% resulting in, etc.—factors that contribute to Period selected for the study was June-July for 2003 and 2004, and July-December for 1999; Figures in parenthesis are number of cases inflation in costs. Yet of the 39(2001) counSource: NCMH analysis, 2004 tries having private insurance contributing schemes such as Jan Arogya, etc. During 2003–2004, the claim to 5% of the total health expenditure, 46% were low- and midratio was about 96.34%. The industry, however, believes that dle-income countries where private insurance is perceived as the overall claim ratio is expected to go up from around 130% an important source of health financing (Sikhri 2005), conto 300%–350% in the next three years (Table 5). tributing to about 5%–20% of the country’s total health spend-
Table 4
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Table 5 Premium and claim figures-Mediclaim (1999 to 2003-04)
1) National Insurance Co. Ltd
Year No. of policies issued Number covered Premium received No. of claims reported No. of claims settled Incurred claim amount (Rs in lakh) Incurred claim ratio (%)
1999-2000 2000--01 2001-02 2002-03 2003--04
572308 610571 897480 436273 505260
748508 803742 2497801 2025610 3122536
5210 5668 17614 22533 29802
48653 84392 213313 148963 198573
44760 77643 189595 140274 186110
3630 6045 14572 22037 30471
69.67 117.13 82.70 104.17 102.24
ing. Private insurance in these countries arose in response to increased expectations of affluent classes, covering the healthiest and the wealthiest resulting in limited social gain. Therefore, no country relies on private insurance to resolve the problems of financial risk protection for the poor and the ill. And regulation is required to minimize some of the adverse impacts.
The case of Chile
The USA and Chile are the two best examples of private health insurance. Chile, a middle-income country, consisting of 1.58 crore people, spends US$ 697 per capita (7.2% of the GDP) but has health outcomes that almost equal those of the USA. Table 6 gives a comparative statement of key indicators of India, Chile, China and the USA Chile developed its health system in three phases: the first till the 1980s was focused on reducing the burden of infectious and communicable diseases; the second during the 1980s when the National Health Fund was established to administer the SHI scheme (Fonasa) through a network of 194 hospitals run by the National Health Services System; and the third during the 1990s when health insurance was opened up to the private sector (Isapres). As of date, 67% of the population is enrolled with Fonasa, while 20% are covered under 40,000 private plans with 18 licensed, private Isapres. Insurance is mandatory and all have to pay 7% of their wages for health insurance. Both schemes are regulated by the Superintendence of Isapres, under the Ministry of Health (Government of Chile). Under the Fonasa, care is provided through its own public hospital network and for enhanced contributions, accredited network of private hospitals based on a fixed price reimbursement for specific ambulatory and inpatient medical services. Seventy-five per cent of the Fonasa budget is released to primary health centres that are obliged to provide a predefined package of health services. Isapres, on the other hand, offers a myriad and individually customized, risk-rated premium plans based on the age, health and economic status. They function on a feefor-service basis. The Isapres have the freedom to fix the premium, indicate the content and coverage levels, degree of co-payment and set the limits for reimbursements. Regulation is only on contractual compli-
2) New India Assurance Co. Ltd
(Rs in lakh) Year No. of policies issued Number covered Premium received (Rs) No. of claims reported No. of claims settled Incurred claim amount Incurred claim ratio (%)
1999-2000 2000-01 2001-02 2002-03 2003-04
489150 609255 822534 937012 949648
2163876 2951010 2794510 3086763 2856675
16165 23915 26996 35443 36641
108247 275774 165368 201108 167898
90573 305406 116819 196300 161959
15629.37 20349.96 18853.00 31053.00 30068.12
96.68 85.09 69.84` 87.61 82.06
3) Oriental Insurance Co. Ltd
(Rs in lakh) Year No. of policies issued 1999-00 269288 1077151 Number covered Premium received (Rs) 7450 No. of claims reported 12220 No. of claims settled 11556 Incurred claim amount 6570 Incurred claim ratio (%) 87.13
2000-01
2001-02
376878
502512
1507512
2010047
10553
15075
16386
63166
15420
53617
8870
14188
84.06
94.11
2002-03
2003-04
537061
555858
2148247
2223436
20408
22953
74620
83050
64251
71907
15754
22407
77.19
97.62
4) United India Insurance Co. Ltd
(Rs in lakh) Year No. of policies issued Number covered Premium received (Rs) No. of claims reported No. of claims settled Incurred claim amount Incurred claim ratio (%)
1999-2000 2000-01 2001-02 2002-03 2003-04
322845 105331 140441 245000 305000
904594 361600 482133 772000 845000
9124 11761 14518 21569 23528
60120 32452 30130 40000 50500
54077 27759 25626 37889 42585
7620 8850 15819 22317 25018
83.52 75.25 108.96 103.46 101.92
(Rs in lakh)
GIPSA Companies
Year No. of policies issued Number covered Premium received No. of claims reported No. of claims settled Incurred claim amount Incurred claim ratio (%)
1999-2000 2000-01 2001-02 2002-03 2003-04
1653600 1702035 2362967 2155348 2315768
3924693 5623864 7575427 7885465 9047647
38040 51897 94400 102600 112900
229240 409004 471977 464691 500021
200968 426228 385657 438714 462561
33448 44114 64800 91160 106400
88 85 69 90 94
Source: Department of Insurance, Ministry of Finance, GOI
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Table 6 Key indicators of India, Chile, China and the USA
Indicator India Chile
Population in crore Health expenditure per capita (in US$ Public expenditure. on health* as % of GDP/2000 IMR per 1000 live-births 2001 Life expectancy at birth Maternal mortality ratio per 100,000 lakh births*
Source: World Health Report, 2005, WHO, * MDG-UNDP 2002 ,
103.34 96 0.9 68 62 540
1.54 642 3.1 10 77 23
ance but not on the content of the policies. To safeguard the stability of the insurance pool, Isapres are known to follow rigorous procedures of screening out high risks, provide low coverage for high-cost illnesses and expensive procedures, discriminate against or even terminate subscribers with highcost chronic diseases by increasing the premium or contract conditions, forcing the subscriber to opt out. Typically, therefore, the Isapres enrollees have a mean income that is four times more than those enrolled in Fonasa; 70% of the beneficiaries are in the age group of 15–64 years with 2.5% above 65 years compared to 62% and 10%, respectively in Fonasa. Such tiered rating is inevitable so as to keep the premium low enough to retain the young healthy subscribers. As in India, Chile has the problem of inappropriate skill mix in public hospitals, not in keeping with the changed epidemiology; the centralized budgeting system giving little discretion, salaried system of provider payments with no incentives to improve efficiencies, resulting in 50% bed occupancy in peripheral hospitals and overcrowded city hospitals. Second, with private sector allowed to provide the same set of services, there is duplication of infrastructure and resultant wastage in the system as a whole. However, since the quality of care is similar in public hospitals, despite a law, 12% of Isapres beneficiaries were found to have availed free care in public hospitals. In other words, the system induces the subscriber to avail ambulatory care in Isapres and move to Fonasa when sick. Besides, due to the short-term character of the contracts and ability to offload patients when ill, the Isapres have no incentive of providing preventive care. This dual system has thus resulted in segmenting the population on the basis of income and risk. With the freedom to fix premiums, the risk-rating system has resulted in a systematic discrimination against fertile women, chronically ill and the elderly through the three stratagems of higher premiums, reduced benefits and refusal to enrol or renew contracts. The lack of uniformity or transparency of insurance plans makes it easier to resort to such tactics. The effect of such a system is seen in the disproportionate share of high-risk persons being discharged onto the public hospitals: HIV/AIDS (82%), cervix cancer (90%), kidney failure (83%) and leukaemia (80%). The system encompasses all the incentives for increased cost of care: fee for service as a basis of provider payment. With mandatory insurance, the competition is on quality, based
on sophisticated technology, which may not always be cost-effective and also puts pressure on the public system to keep pace. Thus, competition is on offering high-technology USA China clinical procedures to low-risk individuals. Third, the need for spending substantial 28.8 128.52 amounts on screening out high-risk patients. 5274 261 Such risk-rated premiums also affect the old 5.8 1.9 or those who fall sick as their option to change 2 31 the insurers is only Fonasa, as no other Isapres 77 71 will accept a high-risk enrollee. The admin8 55 istrative costs of Isapres are 14% and escalation of average fee per visit is 80%, higher than that of Fonasa, which are 1.2% and 50%, respectively. The cost of the whole system is high as despite mandatory payment of 7% of the wage, the out-ofpocket expenditures account for another 35% of the total health spending. Finally, in the event of insolvency or mergers between one Isapres and another, the interests of the enrollee are not protected. In 2002, Chile launched a major health reform process. The key features consist of mobilizing additional resources by earmarking 1% of the value-added tax (VAT) for health; accreditation of facilities and providers in the public and private sector; standardized benefit packages for delivery by Fonasa and Isapres guaranteeing access, opportunity, quality and financial protection; ensuring stability of enrollee interests in case of insolvency of a private insurer; and regulations for preventing risk discrimination and dumping of high-risk enrollees. Of importance is the Standard Benefit Package: access is guaranteed by entitling enrollees to receive care listed in the package at the appropriate level and within reasonable distance; opportunity implies defining a maximum wait period for each service, with the option to get the service from any place of choice to be reimbursed by the plan; quality is ensured by service provisioning by accredited members; and financial protection ensures that none are denied care for want of ability to pay and a ceiling of co-payment to be 20% or not exceeding a patient’s 2 months’ wage. For implementing these reforms, organizational and financial restructuring have also been designed with laws protecting enrollee interests and providing for a solidarity compensation fund to compensate private insurers for the enrolment of high-risk persons.
Current status of private health insurance in India
India has lessons to learn from the experience of Chile. India too has a dual system of care—a private fee-for-service based sector where the money is paid out-of-pocket by individual households and a tax-based public sector where the providers are salaried. Utilization of insurance under both these systems is partly restricted and rationed by the affordability of the individual household and availability of the budget. On the other hand, insurance as a means of financing is a far more sophisticated mechanism, requiring a comprehensive understanding of the failures that characterize health insurance markets. For example, a problem such as asymmetry in
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Health insurance in India
information puts the patient and the insurer at a disadvantage due to their inability to resist or challenge medical opinion regarding an existing condition or future treatment. Besides, in the absence of knowledge of prices, the provider can shortchange the two by overcharging. Second, cashless insurance creates disincentives to control costs as it appears to be a ‘free’ good for the patient and the provider, often resulting in excessive treatment by the provider (induced demand) and frivolous use by the patient taking treatment even for a condition which he would normally have ignored or cured with a home remedy (moral hazard). Third, it is only the patients who know their health status. Since it is normally those in need of health care who tend to subscribe to health insurance, this puts the risk on insurance agencies to resort to extensive processes of risk selection, such as medical examination, before being given admittance as an enrollee and focusing on lowrisk groups, such as the young or healthy. Risk selection in individual-based policies however results in increasing the loading fee and consequently the cost of premium. This is one reason for the attractive group discounts being as high as 67%. For these reasons, private commercial health insurance is known to select its customers—the young, healthy, rich, males—leaving the bad risks to the government—old, poor, young women in the reproductive age group, and the ill. Health insurance in India is usually associated with the ‘Mediclaim’ policy of the GIC, which was introduced in 1986 as a voluntary health insurance scheme offered by the public sector. The premium based on the age, risk and the benefit package opted for, ranged from a minimum premium of Rs 201 for those <25 years of age, to a maximum benefit of Rs 15,000 with discounts for group memberships. In 2001, there were 78 lakh persons covered under Mediclaim (Gupta 2003). The subscribers are usually from the middle and upper class, especially since there is a tax benefit in subscribing to Mediclaim. The standard Mediclaim policy covers only hospital care and domiciliary hospitalization benefits. Most medical conditions are reimbursed though there are important exclusions, such as pre-existing diseases, pregnancy and child birth, HIV/AIDS, etc. Hospitals with more than 15 beds and registered with a local authority can be identified as providers. The insurance company (or the TPA, where applicable) administers the scheme. Being an indemnity scheme, the patient pays the hospital bills and submits the necessary documents to the company. The company in turn reimburses the patient. A study of 621 GIC claims for the year 1998–99 by Bhat and Reuben (2001) showed that the average time between submission of documents and reimbursement is 121 days. This study also showed that one-third of the claims were due to adverse selection; 38% pertained to doctor’s fees and 25% charges for diagnostic services. The provider-induced claims thus accounted for 63%. Yet another interesting insight was that 22% of the total claims were for the treatment of communicable diseases, while 64% were for non-communicable diseases. There is also uncertainty about the amount reimbursed, there are times when the patient is reimbursed only partially, the usual reason being the insufficiency of documentation. The policy is not renewed automatically and is dependent on
the timely payment of premium. Ellis et al. observed that the GIC was more interested in whether the claim pertained to an existing disease or whether the facility was qualified or not, but spent little time on detecting fraud. With claims exceeding 30% a year, more than the household spending, it reflects the problem of moral hazard which requires close monitoring. Second, it was also observed that the GIC sets premium on the filing of claims and not actual amounts settled, giving it a cushion year on year as settled claims amounts are always lower than those filed, an amount that remains unadjusted. During 1994, 4.4% of the insured persons made a claim, of which only 75% of claims were settled. The claims ratio was 45%. However, of late, the claims ratio is growing at a fast rate, allegedly because of collusion between the patients, insurance agents and hospitals. From the above discussion, five features that characterize the health insurance system in India emerge: 1. By and large, the system offers traditional indemnity, under which the insured first pay the amount and then seek reimbursement. Under indemnity, all known diseases or health conditions are excluded and therefore such policies typically have a large number of exclusions. This also means that those most in need of insurance, i.e. the sick, get excluded for any financial risk protection against the diseases they are suffering from. 2. It is a fee-for-service-based payment system. Such a system of payment is advantageous for the provider since he bears no risk for the prices he can charge for services rendered by him. Combined with the asymmetry in information, such a system usually entails increased costs. 3. Policies provide a ceiling of the assured sum. Such a system, and that too within a fee-for-service payment system, results in shortchanging the insured as he gets less value for money, as the provider and the insurer have no obligations to provide quality care and/or over provide/over charge services so long as the amounts are within the assured amount of the insurance policy. 4. The system is based on risk-rated premiums. This again puts the risk on the insured as the premium is fixed in accordance with the health status and age. Under such a system, women in the reproductive age group, the old, the poor and the ill get to pay higher amounts and are discriminated against. 5. The system is voluntary, making it difficult to form viable risk pools for keeping premiums low.
Reasons for poor penetration of health insurance
Penetration of health insurance has been slow and halting, despite the ‘huge market’ estimated to range between Rs 7.5–20 crores. Some reasons that explain for the slow expansion of health insurance in the country are as follows:
1. Lack of regulations and control on provider behaviour
The unregulated environment and a near total absence of any form of control over providers regarding quality, cost or
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data-sharing, makes it difficult for proper underwriting and actuarial premium setting. This puts the entire risk on the insurer as there could be the problems of moral hazard and induced demand. Most insurance companies are therefore wary about selling health insurance as they do not have the data, the expertise and the power to regulate the providers. Weak monitoring systems for checking fraud or manipulation by clients and providers, add to the problem.
eases that are expensive to treat and can be catastrophic. If we take the number of beds as a proxy for availability of institutional care, the variance is high with Kerala having 26 beds per 1000 population compared with 2.5 in Madhya Pradesh.
6. Co-variate risks
High prevalence levels of risks that could affect a majority of the people at the same time could make the enterprise unviable as there would be no gains in forming large pools. The result could be higher premiums. In India this is an important factor due to the large load of communicable diseases. A study of claims (Bhat 2002) found that 22% of total claims were for communicable diseases.
2. Unaffordable premiums and high claim ratios
Increased use of services and high claim ratios only result in higher premiums. The insurance agencies in the face of poor information also tend to overestimate the risk and fix high premiums. Besides, the administrative costs are also high— over 30%, i.e. 15% commission to agent; 5.5% administrative fee to TPA; own administrative cost 20%, etc. Patients also experience problems in getting their reimbursements including long delays to partial reimbursements.
Third party administrators
With the entry of TPAs under the IRDA Regulations Act, 2001, the insurance industry is taking a new turn towards ‘Managed Care’. The TPAs are required to be registered under the Companies Act, 1956, and licensed by the IRDA, and be contracted by one or several insurance companies ‘for the provision of health services’. The original role of a TPA was to provide the back-office administrative set-up to insurance companies—issuing ID cards to subscribers, processing claims, making payments, etc. Taking advantage of the lack of clarity on the specific role and responsibilities of TPAs, some among them are rapidly developing capacity to establish provider networks to service the needs of the insured, collecting and analysing data, fixing and negotiating rates for procedures with providers, contracting providers, processing claims and making direct payment to them and arbitrating any dispute between the subscriber and the provider. This system, often referred to as ‘cashless payment’, has resulted in relieving the patients of the psychological stress of having to mobilize resources at short notice. By scrutinizing provider claims, TPAs also help in safeguarding the interests of the insuring company of any fraudulent claims by the providers. For all these services, the insurance companies pay 5.5% of the total amount of premium collected under the policy. In addition, TPAs were also to be given a bonus from insurance companies for reduced claim ratios or for promoting the companies with the insurers. This then would have given them the financial incentives to develop systems for provider control: contracting through predetermined rates for procedures and treatment, utilizations reviews, prior authorization for expensive surgeries, etc. and also ensuring that the patients do not resort to frivolous use of the services. However, with the administrative fee being low and the idea of bonus not operationalized, there is really no incentive for the TPAs to reduce the claim ratios. Secondly, barring a few, for most TPAs health insurance itself is a secondary concern to their main activity of brokerage. The system of TPAs has facilitated cashless payments and expanded access to providers but is yet to show evidence of having been able to control cost or provide appropriate care. As the system of TPAs unfolds there are apprehensions: (i) whether patients will get adequate treatment and appropriFinancing and Delivery of Health Care Services in India
3. Reluctance of the health insurance companies to promote their products and lack of innovation
Apart from high claim ratios, the non-exclusivity of health insurance as a product is another reason. In India, an insurance company cannot sell non-life as well as life insurance products. Since insurance against fire or natural disaster or theft is far more profitable, insurance companies tend to compete by adding low incentive such as premium health insurance products to important clients, cross-subsidizing the resultant losses. With a view to get the non-life accounts, insurance companies tend to provide health insurance cover at unviable premiums. Thus, there is total lack of any effort to promote health insurance through campaigns regarding the benefits of health insurance and lack of innovation to make the policies suitable to the needs of the people.
4. Too many exclusions and administrative procedures
Apart from delays in settlement of claims, non-transparent procedures make it difficult for the insured to know about their entitlements, because of which the insurer is able to, on one stratagem or the other, reduce the claim amount, thus demotivating the insured and deepening mistrust. The benefit package also needs to be modified to suit the needs of the insured. Exclusions go against the logic of covering health risks, though, there can be a system where the existing conditions can be excluded for a time period—one or two years but not forever. Besides, the system entail equity implications.
5. Inadequate supply of services
There is an acute shortage of supply of services in rural areas. Not only is there non-availability of hospitals for simple surgeries, but several parts of the country have barely one or two hospitals with specialist services. Many centres have no cardiologists or orthopaedicians for several non-communicable dis-
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ate care; (ii) whether quality of treatment will be compromised with the gradual loss of control and autonomy of the physician on the kind of treatment to be given to his/her patient; (iii) whether costs will go up due to the substantial administrative responsibilities placed on the providers for record maintenance, filling claim and billing forms—in USA, where health insurance is organized on a TPA system, doctors spend almost 30% of their time on processing their claims and the administrative costs of the system are 25%–30% as compared to 3% in Canada.; (iv) will there be possibilities of collusion between the TPA and some providers in the network, resulting in processing their higher claims even if not justified, affecting the interests of the insurance agency; (v) with TPAs getting organized over time, whether they may acquire monopoly control over the processes and dictate higher administrative fees, since in the current system the TPA bears no risk; and finally (vi) the legal uncertainty of the future in view of the framework regarding the functioning of TPAs being ambiguous and unclear. For example, the IRDA does not supervise or regulate the financial activities of TPAs, the contractual relationships with providers or relationships with the corporate or union health plans. In the light of such limited regulatory oversight, some already combine subscription plans being serviced by a provider network without involving any insurance company such as for example, the Karnataka Police insurance with Apollo-sponsored TPA which provides hospital services in a network of some 35 hospitals. In the absence of any statutory control or obligations imposed by the IRDA, such as networking only accredited providers, or those adhering to certain quality benchmarks, or submitting reports on the qualifications of the provider and performance reports, etc., there is a major lacuna, making it difficult to ensure appropriate accountability in the system. Overall international literature1 does show that the TPA system is expensive (personal communication with Professor ao, Harvard School of Public Health); even when their role is confined to payment of benefits and management of claims, the administrative costs run up to 20%–30%. If they are assigned the role of identifying providers then the amount can go even higher to 45%, making insurance products very unaffordable. Besides, such literature also seems to suggest that the TPAs neither have any motivation to undertake the stewardship function to protect consumer interest nor enroll new persons. In this context NGOs could be better agents. Given the complexities of these markets, the key lesson for India is to closely study behavioural responses that such financing systems generate among all the major players and institute appropriate regulatory systems to minimize likely distortions.
Universal Health Insurance Scheme (UHIS)
For providing financial risk protection to the poor, the Government announced a UHIS in 2003. Under this scheme, for a premium of Rs 365 per year per person, Rs 548 for a family of five and Rs 730 for a family of seven, health care for an assured sum of Rs 30,000 was provided. BPL families were given a premium subsidy of Rs 200 per annum. The scheme was redesigned in May 2004 with higher subsidy and restrict-
ing eligibility to BPL families only. The subsidy was increased to Rs 200, Rs 300 and Rs 400 to individuals, families of five and seven, respectively. To make the scheme more saleable, the insurance companies provided for a floater clause that made any member of the family eligible as against the Mediclaim Policy which is for an individual member. Yet in the last two years of its implementation the coverage has been around 10,000 BPL families in the first year and 34,000 in the second year till 31 January 2005. The reasons for failing to attract the rural poor are many. First, the public sector companies who were required to implement this scheme find it to be potentially loss-making and do not invest in propagating it, resulting in very low levels of awareness, reflected in the low enrollment and very poor claim ratios. To meet the targets, it is learnt that several field officers pay up the premium under fictitious names. Second, a major problem has been the identification of the eligible families. Identification became cumbersome as the family needed to have some form of certification, which is difficult to obtain from revenue authorities. Besides, the poor also find it difficult to pay the entire premium money at one time for a future benefit, foregoing current consumption needs. Third, the procedures are cumbersome and difficult for the poor—the premium has to be paid in a lump sum; the paperwork required for enrolment as well as getting claim amounts is very timeconsuming. Fourth, in most places there is a deficit in the supply or availability of service providers, particularly because government hospitals are not eligible. For example, in Uttaranchal, only 17 hospitals could be accredited under this scheme, which could have gone up to 37 if government hospitals were allowed to be included and also expanded access and choice to the enrollees. Besides, in several areas there are just no doctors available. Fifth, there was a set-back due to health insurance companies refusing to renew the previous year’s policies. Finally, the TPAs are also not willing to implement this scheme at 5.5% of premium amount as their administrative costs of covering rural populations in dispersed villages makes it unviable. During 2004, the Government also provided an insurance product under which for a premium of Rs 120 the sum assured was Rs 10,000. This was, to be available only for self-help groups (SHG). However, the intake is reportedly negligible. The reasons for this poor intake are similar to those cited above. With the Common Minimum Programme (CMP) committed to having a UHIS, there has been much effort and debate to evolve a suitable and sustainable design. To expand the health insurance business, recommendations are also being made to reduce the minimum pre-qualification of Rs 100 crore equity as it will require 15 years to break even. Another set of recommendations is for permitting TPAs and hospitals to introduce health insurance products. There are, however, doubts regarding this model as it may promote conflict of interest. In combining various aspects of provisioning and insuring there could be perverse interests to provide low quality of care over-diagnose or under-treat—for making profits.
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Community-Based Health Insurance
Community financing (CF) as a method of raising finance at the community level was initiated by UNICEF under its Bamako Initiative for Africa in 1987. The initiative had the following objectives: (i) to revitalize public health systems; (ii) to decentralize decision-making; (iii) to mobilize resources to cover local operating costs; (iv) to encourage community participation through management of services and locally generated funds; and (v) to define the minimum package of essential health services. (UNICEF 1987). Though the experiment failed in Africa, its concepts are once again gaining recognition as an appropriate strategy for low-income countries which have a weak resource base, poorly developed markets and a vast population having very low threshold of payment capacity (WHO 2002). In community financing, the community is in control of the principal functions of collection and utilization, the membership of the scheme is voluntary and there is willingness to prepay the contributions (Hsiao 2001). The scheme is based on the hypothesis that with greater social capital there will be more willingness to pay and participate. The community has been defined as a group of households living in close proximity or belonging to social, religious or economic organization. The efficacy of the scheme is based on two implicit principles: one, that the community has adequate homogeneity or social coherence that gets easily translated into a capacity to mobilize resources; and two, that the willingness to prepay will be influenced by self-interest when each individual perceives his marginal benefit exceeding his costs, i.e. accessing something of value which can be obtained easily and more in quality through prepayment. Literature reviews of such community-based schemes tend to suggest that they have enabled an increase in the availability of resources; inclusion of the poorest groups on account of government subsidy; enhanced access to health services; and reduced impoverishment on grounds of illness (Jakab 2001). While the CBHI movement is vibrant in Africa, it is slowly picking up momentum in India. Currently, there are about 22 voluntary CBHI programmes in India, initiated and administered by NGOs. Of these about 10 are active (Table 7). In many schemes, the community is also involved in various activities such as creating awareness, collecting premiums, processing claims and reimbursements, and the management of the scheme (deciding the benefit package, the premiums, etc). Devadasan, in his paper identified broadly three types of community health insurance (CHI) schemes and also analyzed their structure and basic features as discussed below: (Devadasan et al. 2004; Fig. 3): Type I—The provider of health care plays the dual role of providing care and running the insurance programme (e.g ACCORD, VHS) Type II—where a voluntary organization/NGO is the insurer, while purchasing care from independent providers (e.g. Tribhuvandas Foundation, DHAN Foundation) Type III—(intermediary design)—The NGO plays the role of the agent purchasing care from providers and insurance
companies (TPA, e.g. SEWA, Karuna Trust, BAIF). The membership of these CHIs scheme varies from 1000 to more than 20 lakh. Most of the schemes operate in rural areas and cover people from the informal sector. Enrolment is usually facilitated by membership of the organizations, e.g. micro finance groups, cooperatives, trade unions, etc. The annual premium ranges from Rs 20 to Rs 120 per individual. The unit of enrolment is an individual and the membership is voluntary in most of the schemes. All the schemes offer hospitalization; this ranges from the classical Mediclaim product to a very comprehensive cover including all conditions and no exclusions. Many NGOs have been successful in negotiating an appropriate insurance package for their members. Most providers are either NGOs or private for-profit organization. The utilization rates range from 6 to more than 240 per 1000 persons insured. The latter obviously indicates extreme adverse selection. The main strengths of the CBHIs schemes are that they have been able to reach out to the weaker sections and provide some form of health security; increase access to health care; protect the households from catastrophic health expenditures and consequent impoverishment or indebtedness. However, sustainability is an issue as these initiatives are dependent on government subsidy or donor assistance. They provide limited protection in view of the very little crosssubsidy between the rich and the poor, resulting in the small size of the revenue pool which also constricts getting a better bargain from the providers. A disturbing factor in these programmes, (barring one or two) is the very low claim ratio, ranging from 0.25 to 0.66, which indicates that the scheme is not able to overcome the barriers that are hindering access or the cover provided is too inadequate or the members too ignorant about their entitlements. It is also seen that the poorest of the poor get excluded on account of their inability to pay their share within the specified time limit. Some NGOs manage the scheme by themselves, which may be ‘illegal’ within the current IRDA regulations. Also, some of the schemes cover very small numbers and so the potential for scaling-up is restricted. Moreover, many of the schemes see health insurance as an end in itself and do not seek to either promote preventive and promotive health care or extend adequate provider linkages. There is no exhaustive evaluation of the CBHI schemes in India due to the lack of uniformity in MIS. Many questions remain unanswered and need to be researched to see if these models can be implemented and replicated in India. For example, it is not clear how much it costs to administer such schemes, or its impact on strategic purchasing of services, developing provider networks or on the local quack, or the problems for upscaling and finally if the scheme has helped protect the poor from penury and if so, how it can be sustained if NGOs withdraw their support, etc. Of all the schemes in operation, the one that has drawn widespread attention in India is the Yeshaswani, an insurance scheme for farmers, designed and implemented by the Government of Karnataka since 2002. Under this scheme, the Cooperative Department enrolled, through a governFinancing and Delivery of Health Care Services in India
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Table 7 Some community health insurance schemes in India
Name and location of the scheme Population covered (target population in 2003) Premium collected (per cent target population covered in 2003) Benefit package
ACCORDGudalur, Nilgiris, Tamil Nadu BAIFUrali Kanchan, Pune, Maharashtra BUCCSBuldhana, Maharashtra DHAN Foundation Kadamalai taluk, Theni District, Tamil Nadu Karuna TrustT Narsipur Block, Mysore District, Karnataka MGIMS HospitalWardha, Maharashtra Raigarh Ambikapur Health Association (RAHA) Raigarh, Chhattisgarh SEWAAhmedabad, Gujarat SHADEKolencherry, Kerala Student's Health HomeKolkata, West Bengal Voluntary Health Services Chennai, Tamil Nadu YeshasviniBangalore, Karnataka
Tribals living in Gudalur taluk and who are members of the AMS union (n =13,000) Women members (between 18 and 58 years) of the micro savings scheme in 22 villages (n =1500). Members of the Buldhana Urban Cooperative and Credit society (n = 175,000). Women members of the micro finance scheme and living in Mayiladumparai block (n =19049) BPL families in T Narsipur Block (n = 278,156) The small farmers and landless labourers living in the 40 villages around Kasturba Hospital (n= 30,000) Poor people living in the catchment area of the 92 rural health centres and hostel students. (n = 92,000 individuals). SEWA Union women members (urban and rural), and their husbands living in 11 Districts of Gujarat (n = 1,067,348) Members of the SHGs operating in Ernakulam district (n = 9000) Full-time student in West Bengal State, from Class 5 to University level. (n =56 lakh students) Total population of the catchment area of 14 mini-health centres (n= 104,247) Members of the District Farmer's cooperative societies and their families (n = 80 lakh)
Rs 25 per person per year (36%) Rs 105 per person per year (58%) NA
Hospitalization cover up to Rs 1500 per person per year Hospitalization cover up to Rs 5000 per person per year Hospitalization cover up to Rs 5000 per person per year Hospitalization cover up to Rs 10,000 per person per year Hospitalization cover up to Rs 2500 per person per year. Includes ambulance services and loss of wages Hospitalization cover up to Rs 1,500 per person per year Primary and secondary health care
Rs 100 per person per year (40%) Rs 30 per person per year. Fully subsidized for the SC/ST population (31%) Rs 48 per family of four (in cash or kind) (90%) Rs 20 per person (58%)
Rs 22.50 per person or Rs 45 for a couple (10%) The Universal Health Insurance Scheme (Rs 548 for a family of 5) (20%) Rs 4 per student per year (23%) Rs 250 per family of five (12%) Rs 120 per person (25%)
Hospitalization cover up to Rs 2000 per person
Hospitalization cover for family up to a maximum limit of Rs 30,000 per family per year Primary and secondary health care
Hospital cover Cover for all surgeries up to Rs 100,000
Source: Devadasan et al. 2004
ment fiat, over 17 lakh farmers within one year and created a corpus of over Rs 15 crore. In the second year, an additional 5 lakh members have been enrolled against the target of 1 crore. The scheme provides financial risk protection against 1600 surgeries offered in 90 accredited hospitals at prefixed rates. Outpatient treatment is free and any diagnostic service resulting in surgery carries a discount of 50%. To keep the premium low at Rs 90, now revised to Rs 120, a Trust chaired by Secretary of the Department of Cooperatives, has been constituted with the premium forming the corpus fund from which the claims are settled. A commercial TPA has been contracted by the Trust at 5.5% of premium collected to
provide ID cards to the members, process the claims and make payments to the service providers. A doctor appointed by the TPA gives prior authorization for expensive surgeries and also scrutinizes correctness of the claims. Within one year of establishment of this scheme, over 27,000 persons were provided outpatient treatment and 4000 surgeries performed. However, sustainability is an issue. The scheme is now facing monetary problems and has a long wait list for surgeries and claims to be paid despite the reimbursement being guaranteed by the Government of Karnataka. Focusing solely on surgical aspects of health can have only a limited appeal and a blind replication of this scheme can give wrong incentives
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Fig 3 Types of community health insurance schemes in India
NGO
(ACCORD, JRHIS, SHH, VHS)
Insurance Company
Premium
Health care
Group Premium
Reimbursement
Community
NGO
(SEWA, BAIF, Navsarjan and Karuna) Reimbursement (Karuna Trust, Navsarjan Trust)
NGO
(KKVS, RAHA)
Reimbursement (RAHA) Reimbursement (SEWA, BAIF)
Providers
Premium
Reimbursement (KKVS)
Providers
Health care
Premium
Health care
Community
Source: Devadasan. 2004
Community
for investing in surgery and neglecting other medical needs. However, the scheme has been innovative in demonstrating the benefits of utilizing government resources for the administration of insurance schemes, in bringing down the administrative overheads and facilitating lower premiums. The Yeshaswani model as well as experimentation abroad, seem to clearly point towards the fact that while CBHI is an affordable model of financial risk protection in low-risk settings, it needs institutional support and formal mechanisms for carrying out the critical functions of health insurance— collection of premium, settlement of claims, laying down clear rules of entitlements and oversight. Only when such systems are designed and put in place can the CBHI models be upscaled to reach risk pools that are financially viable and provide sustainability.
gatekeeper for referrals. (This portion on China is from Professor Hsaio of Harvard School of Public Health, USA in a personal communication with the author). The scheme details are as under:
Three underpinning concepts
(a) People by themselves, especially those living in rural areas and the poor, are unlikely to be able to raise enough money for such schemes to be fully self-financing, necessitating public subsidy; (b) Even if financing could somehow be organized, there is the issue of how services are to be delivered, since existing services are neither efficient nor effective in terms of quality; (c) Issues related to governance and management: how is one to organize and manage such schemes and who will perform the stewardship (or oversight) functions? These include overseeing the financial functioning and health of such schemes, the functioning of medical care providers, contracting (if any) with providers.
China’s model of Community-Based Health Insurance
In China, a model is under implementation on a pilot basis their combins certain design features to address the rotten health system in the rural areas. The model, based on a partnership between the government and the community, uses the village-based barefoot doctor as the key provider and
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Fig 4 China’s health insurance system
Regular budget County and Town Government
Public health and prevention
County hospital
Government subsidy
Reimbursement for services and
Fund Management Office
for village doctors' salaries and bonus after THC find their
Township health center
Salary and bonus payments to village doctors
Premium
work meet quality standards
Co-insurance
Enrollees
Village Health Post
Source: Hsiao, HSPH, USA
Co-insurance
Outline of the scheme
Premium
The premium is Rs 100 per person plus the government subsidy (Fig. 4). The contributions of each enrolled member are roughly equal, except for the very poor, from whom no premium is charged. There is an upper limit of benefits. Enrolment is on an annual basis—the first month of each year for renewals or new enrolments—and after that no enrolments are allowed to prevent adverse selection.
scheme upon examination of the prescription. Roughly 230 drugs can be prescribed—including both modern and traditional medicines—based on some type of essential drugs list. In addition, in case of referral to the subdistrict facility (Tehsil level), the patient is reimbursed 50% of the expenditures incurred; 20%–30% of all expenses for hospitalization at higher levels.
Referral
The patient can go to a higher order facility only if he gets a referral from the village doctor, who in turn has to take notes and justify why he is referring (Fig 5).
Jurisdiction of the scheme Government subsidy
Typically, each scheme covers several villages. The experience has been that 93% of the people covered under the scheme support it, but only 60% actually join it. Even this is sufficient to ensure a deep enough pool of members—6000 and above. A sum of Rs 110 per person is provided to those communities willing to set-up community financing organizations with a minimum number of members (about 70%). This acts as an incentive as well as subsidy.
Benefit package Provisioning
Free consultation visits to the village doctor as he is salaried under the scheme, but there is payment for the drugs prescribed. Fifty per cent of the amount of payment is reimbursed by the Typically in China, every village has one or a maximum of two village doctors. The villagers decide which doctor is to
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be involved with the scheme. This village doctor is employed on a salaried contract that lasts for only one year at a time. The village doctor gets paid in two parts: (i) a salary as per contract, and (ii) a performance-linked bonus. The salary is just enough to cover subsistence to ensure that he is interested in the bonus. The bonus depends on three factors: (i) the demand for the service of the doctor as reflected in the number of visits by the villagers; (ii) careful keeping of medical records (patient details, age, sex, number of visits, diagnosis, prescription); and (ii) regularity in attending continuing medical education and passing medical exams.
common health conditions, and on recognizing when to refer patients to higher-level facilities.
Medicines
The village doctor purchases the medicines from subdistrict level storage facilities operated by some agency, which he is allowed to sell at no more than 20% mark-up of the cost price. The price lists are prominently announced and displayed on notice boards.
Administration Training
The ‘barefoot village doctor’ (who is like the RMP/quack in India) is provided training. Those practising for over 5 years are exempted from training in the first year of the scheme, but in subsequent years they have to take continuing education courses or pass exams to remain a part of the scheme. For all others, a three-year course is necessary for qualification to work in the scheme, followed by annual examinations, and short continuing education courses on an annual basis. The training (and continuing education) of village-based doctors is focused on promoting the ability to treat the eight most A manager and a clerk handle the day-to-day operation of each scheme. The manager reports on the functioning of the scheme to a management committee; the clerk keeps premium receipts and payment records. The ‘Management committee’ is organized at several levels. First, each village under the scheme has a management committee of 5—typically composed of retired teachers, retired local officials, etc. Their functions are: (i) overseeing the functioning of the local doctor’s clinic—making sure there are no complaints, no price gouging, etc.; (ii) maintaining a suggestion box where complaints can be placed; and (iii) organ-
Fig 5 Model for provision of health care services in China
County Hospital
Referral
Township Health center
Patients who decided to bypass referral (they get less reimbursement) Emergency service Referral
Patients
Normal
Source: Hsiao, HSPH, USA
Village Health Post
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izing enrolment under the scheme. From each village-level ‘management committee’ one person is nominated to represent them at the ‘Board of Directors’ at the subdistrict level (the level at which the scheme is organized). Because of the large number of likely members of the Board, it meets only four times a year. However, a ‘standing committee’ of 7 that works on behalf of this Board, meets more frequently and oversees the manager and the clerk along with other functions. The standing committee may change from year to year. No payments are made to the standing committee and management committee members. The standing committee, based on simple contracts, employs the village doctors, etc. (Fig 6).
(a) Auditing of accounts; (b) Checking drug quality through laboratory testing and random checks. A broader approach to analyse/assess CBHI schemes is needed through examination of two policy issues: (i) coordination of CBHI and government risk pools, and (ii) equity implications of CBHI schemes and the role of government subsidies in such schemes. There is a strong need for empirical work to explore how CBHI schemes and the broader health care financing system interact. Even if individual schemes achieve their objectives (in terms of equity, efficiency, etc.), it does not necessarily imply that such objectives will be achieved at the system level.
Oversight and stewardship by government
In technical matters for which the committees at the village and subdistrict levels are not equipped, the government provides the support:
What are the lessons for India?
The lessons that emerge from the China Model and discussions in the earlier paragraphs are that given the huge size, diversity and levels of development in India, it is important
Fig 6 Regulation, monitoring and supervision of community-based health care system in China
County People's Congress Party Secretary
Supervise and Monitor
Regulate and
County and Town Government
Audit and Subsidize
Monitor
County hospital
Supervise
Town People's Congress
Report
Board of Directors
Regulate and monitor
Supervise and train
Executive Committee
Township Health Centre
Pay, supervise and train Monitor clinical work
Elect 1 members
Fund Management Office
Financial report
File claim records
Report
Village Health Post Board of Directors
Enrolled peasants
Source: Hsiao, HSPH, USA
Elect 5 members
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to adopt a four legged strategy for affording real risk protection to the poor: (i) Bring down covariate risk in the community and address the containment of infectious and childhood diseases by intensifying public health programmes; (ii) strengthen government facilities to enable them to provide equally good quality care to the poor – this is the cheapest and most affordable option for government in the short run as a well functioning public health system has great potential to protect the poor from risk; (iii) experiment with different models of financing to spread risk and reduce the burden on the government. Such models will imply designing the features and implementing them on a pilot basis before coming up with a final policy framework; and (iv) in places/states where there are networks of self help groups and evidence of solidarity experiment the China Model as it would: (a) strengthen participation and that of local bodies and Panchayat Raj institutions; (b) incorporate the RMP into the system; (c) drastically reduce costs; (d) enable providing healthcare within the village itself. Such designing needs to be based on, first, being clear as to what the objectives of public policy are—is it deepening insurance markets, or extending financial risk protection against illness, or increasing FDI to India? Second, the size of the risk pool and lowered risk factors are critical for low premiums that could be affordable for the majority of people. Thirdly if the system is to be based largely on a fee for service system of payment, with zero cost at the point of service, then it will entail putting in place a set of prerequisites, such as standardized treatment protocols and unit costs; regulations to control the provider, disease classification using ICD-10 and/or grouping of diseases under Diagnostic Related Group for payment system, pricing controls, putting sub-limits to expenses rather than having a cap of assured sum to contain charges, making it mandatory for data returns, standardization of claim forms etc. Besides, in any insurance system it is equally necessary to have regulations for quality and cost; mechanisms for accreditation and certification, issue of unique ID cards for members, different premium structures, controlling prices etc.
Implementation of the Package - Restructuring Institutional Mechanisms and Reorganizing Relationships
Most importantly, for the actual implementation of UHIS, a critical institutional player needs to be inducted on the demand side commanding considerable market power to negotiate the best possible care at the most affordable prices for the patients. The concept is based on the assumption that organizational structures are normally shaped to suit the objectives of financing systems. If expenditure control is the overriding objective then there is usually a tendency towards centralization of all spending decisions—costing, sanctioning, releasing, accounting, mandating referrals through gatekeepers, etc. But in a prepaid insurance system the key actor is the consumer on whose willingness to contribute rests the whole system. Since individual patients cannot be expected
to bargain prices on account of their vulnerability and the superior strength of the provider who has more information on their needs, Enthoven’s idea of a sponsor, as an instrument to strengthen demand side to tilt the market to the advantage of the consumer has force (Enthoven 1983, 1993). It implies that the purchasing function needs to be centralized into one entity large enough to make a difference to the practice and earnings of the providers. The concept also draws from the power of a single payer being able to negotiate better terms as in Canada than in a multipayer environment as in US. This concept is then the theoretical basis for proposing a Social Health Insurance Corporation as the sponsor and reinsurer for independent health insurance companies. One option for the establishment of such a SHIC in Indian conditions is a) by the merger of the ESIS (medical side) with the CGHS; and b) by steadily moving towards a mandatory health insurance paradigm. For this the starting point could be mandating all public servants working in the government or government owned entities to compulsorily pool their contributions to the SHIC. Combined with a broadened ESIS membership, this alone will increase the corpus amount over four to five times to the existing Rs. 1100 crore of premium collected for Health Insurance. This corpus can further be widened when the premium subsidy for the poor is also pooled in here. Such a mechanism will provide the required volume and velocity required to trigger establishment of health insurance companies, professional provider networks, mutual fund cooperatives like weavers and fishermen cooperative societies, a federation of CBHI schemes, HMO’s by hospitals having more than 500 beds and ability to establishment own provider network etc. All these entities subject to meeting solvency rules etc could be the vehicles to access the poor in the rural hinterland—like the commercial banks reach out through the grameen bank networks. For their operations the SHIC can act as the reinsurer. Secondly, in the future years, as this system settles down, the SHIC can also establish an equalization fund as in Chile. In Chile the equalization fund is made up of a proportion of the premiums collected by all the insurance companies being pooled into the fund. Subsequently, this fund reimburses the companies in accordance with the risk profile of the insured. This then acts as a positive incentive to adhere to the guidelines of not denying insurance to any one on grounds of risk and having exclusions of any kind. The success of this model will however depend upon our ability to bring in a high caliber of professional management to the SHIC and other financing entities – having capacity to collect premiums, issue ID’s, process claims, reimburse in a timely fashion, accredit and develop provider networks, negotiate rates etc. Secondly, the SHIC will have to be a financing instrument and not a provider. This then means that own hospitals and dispensaries by the ESIS, CGHS and PSUs will need to be converted into Trust hospitals available for their members at dedicated times and for general public at other times. The advantage of this measure will be two: a) that the SHIC will be able to accrue more for the corpus as the administrative costs now pass onto the hospitals units which become self
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financing, mobilizing its money from insurance policies/ user fees; and b) the general public as well as the employees and members of ESIS, CGHS and PSUs all get a wider access and choice of hospitals. At present the CGHS dispensaries have an average of 14 OP patients per day and the ESIS hospitals have an average occupancy rate of 50%, with some having even as low as 10%. Likewise, in several remote areas where public infrastructure is weak the PSUs have excellent medical facilities with capacity to serve the local populations. Thus over 2000 facilities under ESIS, CGHS and PSUs can be opened up to the general public with an incremental amount of additional budget. This would also increase access and feasibility of insurance reaching the poor. Economy of scale that comes from a large risk pool is an important consideration for covering hospitalization. By laying down a minimum level of say 75-80% population coverage at the village panchayat level, or a risk pool of 1015,000 members as the eligibility criteria for receiving government subsidies, it could be ensured to have a more representative membership – the healthy and the better paying sections along with sick and poor. And in order to achieve the willingness to pay and optimal participation, substantial subsidies targeted to the poor, a need based standardized benefit package and linkage to provider networks need to be incorporated as the three core elements of the design. The flip side of the SHIC model is that it may entail high administrative costs due to the several layers of intermediation. The SHIC will also need to be run on professional lines with highly skilled and trained persons, which will again increase costs. The issue then is whether such a structure will be suitable and affordable and other alternatives to reduce administrative costs need to be examined. In the absence of any experience it is incumbent to try out on pilot basis some of the financing systems. To monitor and regulate this huge initiative, there will also be an urgent need to have an independent health regulator and a body of laws that address various issues related to health insurance markets and the serious distortions that the current trends are creating and will be difficult to remove later. In the absence of such a roadmap for reform and clarity of vision, the goal of having a Universal Health Insurance will not be realized. This goal was first articulated in 1954 by the then Prime Minister Jawaharlal Nehru. It is indeed a tragedy that even after five decades such an important goal continues to be an aspiration.
large size of out of pocket expenditures provides an opportunity to pool these resources and facilitate spreading risk from households to government and employers on a shared basis which will be a more equitable financial arrangement. The dimension of equity is of particular concern as the inelasticities of demand for acute care, are resulting in over 33 lakh persons being pushed below poverty line, every year. In short the social benefits of instituting social insurance as a financial instrument to replace user fees, outweighs the possible risks of moral hazard and increased costs, typical outcomes of prepaid insurance. How to minimize these two market failures are of concern and need to be addressed by developing a well thought out strategy taking international evidence into account so we build on existing knowledge and learn from others’ experiences. It is argued that it is not advisable for governments to intervene in health insurance markets in a piecemeal manner—insurance for pensioners by the Department of Personnel; for weavers by the Department of Textiles, for fishermen by the Department of Agriculture, for farmers by the Department of Cooperatives, poor women by the Department of Rural Development etc., as such attempts fragment risk pools. In other words, resorting to insurance as a financing instrument must be an act of a deliberate strategy that addresses the market failures in order to ensure that inequities do not widen and the poor are not marginalized— two typical outcomes of private, fragmented insurance systems. In conclusion it is reiterated that given the fiscal constraints for government to provide universal access to free health care, insurance can be an important means of mobilizing resources, providing risk protection and achieving improved health outcomes. The critical need is to experiment with the wide range of financing instruments available in different scenarios and have adequate flexibility in the design features, the structures and processes, institutional mechanisms and regulatory frameworks, so that a viable balance can be achieved for minimizing market distortions so that the outcomes do not make the cure worse than the disease (Enthoven 1983, 1993). Unregulated markets are inefficient and inequitable, requiring governments to intervene to ensure no segmentation in the system (Bloom, 2001). For this, the burden of building partnerships and managing change is on the government, which in turn needs to base its strategy on sound research.
Acknowledgements
I gratefully acknowledge the assistance of Dr Somil Nagpal for the analysis of the CGHS and Dr Alaka Singha, WHO, Geneva. I am most indebted to Dr. William Hsiao, Harvard School of Public Health, USA for so generously sharing his experiences of China.
Conclusion
The present system of financing and payment systems raise several important concerns on the suitability of the structure to meet current day problems and future challenges. The
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Annexure 1 Number of workforce by employment category, income status and industry classification (1999-2000)
Industry High 1. Organized Sector 1.a. Government 1.b.1 Agriculture 1.b.2 Manufacturing, etc. 1.b.3. Services, etc. 2. Unorganized Sector 2.1. Regular salaried 2.1.a. Agriculture 2.1.b. Manufacturing, etc. 2.1.c. Services, etc. 2.2. Self-employed 2.2.a. Agriculture 2.2.b. Manufacturing, etc. 2.2.c. Services, etc. 2.3. Casual employed 2.3.a. Agriculture 2.3.b. Manufacturing, etc. 2.3.c. Services, etc. (1+2) Total Workforce Rural Middle Low High Urban Middle Low High 0.14 0.14 0.00 0.03 0.04 3.12 0.80 0.05 0.26 0.65 1.38 0.99 0.19 0.39 0.44 0.34 0.17 0.01 3.27 All areas Middle Low 1.80 1.09 0.03 0.34 0.18 13.21 2.55 0.12 0.69 1.61 7.87 5.26 0.86 1.74 3.35 2.17 0.72 0.32 15.01 0.87 0.72 0.05 0.17 0.07 17.30 1.78 0.20 0.51 1.03 8.35 5.14 1.22 1.81 7.10 5.15 1.36 0.65 18.16 Total 2.81 1.94 0.09 0.54 0.25 33.62 5.13 0.37 1.46 3.30 17.60 11.39 2.27 3.94 10.90 7.66 2.26 0.98 36.44
2.23 0.40 0.04 0.11 0.28 1.19 0.96 0.10 0.22 0.38 0.34 0.17 0.01 2.23
10.15 0.87 0.11 0.18 0.47 6.56 5.18 0.55 0.80 3.05 2.11 0.52 0.20 10.15
12.68 0.43 0.19 0.11 0.21 6.23 4.85 0.64 0.67 5.95 4.94 0.77 0.30 12.68
0.90 0.40 0.01 0.15 0.37 0.19 0.03 0.09 0.16 0.06 0.00 0.00 0.00 0.90
3.06 1.68 0.01 0.51 1.14 1.31 0.08 0.31 0.94 0.31 0.06 0.20 0.12 3.06
4.62 1.35 0.01 0.40 0.82 2.12 0.29 0.58 1.14 1.16 0.21 0.60 0.35 4.62
Note: The number of workforce has been measured by the current daily status (CDS). Figures are reconciled using Table 51 of the NSS Report No. 458 and tables extracted from unit-level record data of the 55th Round along with a table from Economic Survey (2003-04). Data on break-up of urban-rural organized employment are not available. High, middle and low denote the household monthly per capita expenditure class. Source: Unit Level Records of Employment and Unemployment Survey, 55th Round, National Sample Survey (NSS), 1999-2000
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REFERENCES
Bhat R, Reuben E. Analysis of claims and reimbursements made under Mediclaim Policy of GIC, W.P.No. 2001-08-09. Ahmedabad: IIM; 2001. Bhat R. Characteristics of private medical practitioners in India: A provider’s perspective. Health Policy and Planning 1999;14:2637 London, OUP. Bhat R. The private /public mix in health care in India Health Policy and Planning ,8:11 – 43-56 OUP, 1993. Bhat R. Public private partnerships in the health sector: Issues and prospects, May 1999, W.P No. 99 – 05-06 Ahmedabad: IIM. Bhat R. Public private partnerships in health sector: Issues and policy options, January 2000, Paper prepared for DFID, Delhi. Bloom Gerald, Equity In Health In Unequal Societies: Meeting Health Needs in contexts of Social Change, Health Policy, 2001 Carrin G, Chris J. Reaching universal coverage via social health insurance. Discussion paper 2, Papers on Health Financing and Contracting, WHO, 2004. Devadasan N, Kent Ranson, Wim Van Damme, Bart Criel, Community Insurance in India : An overview, EPW, July, 2004 Dyna Arhin-Tenkorang Health Insurance for the Informal Sector in Africa: Design features, risk protection and resource mobilization, Geneva: CMH; 2001. Ellis Randall P, Moneer Alam, Indrani Gupta, Health Insurance in India : Prognosis and Prospects, EPW, Jan 22, 2000. Enthoven A Managed Competition in Health Care and the Unfinished Agenda, Health Care Financing Review, 1986. Enthoven A. The History and Principles of Managed Competition, Health Affairs, 1993. Enthoven A. Managed Competition of Alternative Delivery Systems, Journal Of Health Politics, Policy & Law, 1988. Fuchs V. Who Shall Live? Health Economics & Social Choice, 1974. Garg C. Implications of current experiences of health insurance in India. In: Private health Insurance and Public health goals in India: Report on a National Seminar, New Delhi: World Bank; 2000. Garg C. Is health insurance feasible in India: Issues in private and social health insurance? Health security in India (unpublished). Government of India. National Sample Survey Organization. Household Consumer Expenditure Survey, 55th Round (19992000). Government of India. Private Health Insurance And Public Health Goals In India – Report on a National Seminar, GOI, 2000 Gupta I, Dasgupta P. Demand for Curative Health Care in Rural India: Choosing Between Private, Public And No Care, NCAER, 2002 Working Paper Series No. 82. Gupts Indrani, Private Health Insurance and Health Costs: Results from a Delhi Study, EPW, vol XXXVII July, 2002. Hsaio WC Abnormal Economics in the Health Sector, Health Policy 32, 1995. Hsaio W. Unmet health needs of 2 billion: Is community financing a solution. Working Paper for CMH, 2001. Jakab M, Krishnan. Literature Review on Community Financing, Washington: World Bank, 2001. Kent RM, Devadasan N, Acharya A, Ruth AF. How to design a community based health insurance scheme: Lessons learnt From the Indian experience—Report to the World Bank, 30 June, 2003 Mahal A. Assessing private health insurance in India: Potential impacts and regulatory issues. Economic and Political Weekly 2002:559–71. Dr. Marcelo Tokman and Ms. Consuelo Espinora Marty. Report on Health Insurance in Chile submitted to NCMH in December 2004. Pauly M. Is cream skimming a problem for the competitive medical market? Journal of Health Economics 1984;3 Pauly M. A primer on competition in medical markets. In: Frech HE III (ed). Health care in America. 1988. Purohit BC, Siddiqui TA. Cost recovery in diagnostic facilities, EPW, July 1995 Rao S. Health insurance: Concepts, issues and challenges. EPW, August 2004 Sen PD. Community control of health financing in India: A review of local Experiences, October 1997. Sekhrie N, Savedoff W. Private health insurance: Implications for developing countries; policy and practice. Bulletin of the World Health Organization 2005;85:127—34.
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The World Health Report, 2005, Make Every Mother and Child Count. Geneva: WHO. World Bank. Better health systems for India’s poor—analysis, findings and options. 2001
Xingzhu Liu et al. The Chinese experience of hospital price regulation. Health Policy and Planning 2000.
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S
OCIAL SECURITY FOR MEDICAL EMERGENCIES IS NOT NEW TO THE INDIAN ETHOS. It is a common practice for villagers to take a ‘piruvu’ (a collection) to support a household with a sick patient. However, health insurance, as we know it today, was introduced only in 1912 when the first Insurance Act was passed (Devadasan 2004). The current version of the Insurance Act was introduced in 1938. Since then there was little change till 1972 when the insurance industry was nationalized and 107 private insurance companies were brought under the umbrella of the General Insurance Corporation (GIC). Private and foreign entrepreneurs were allowed to enter the market with the enactment of the Insurance Regulatory and Development Act (IRDA) in 1999. The penetration of health insurance in India has been low. It is estimated that only about 3% to 5% of Indians are covered under any form of health insurance. In terms of the market share, the size of the commercial insurance is barely 1% of the total health spending in the country. The Indian health insurance scenario is a mix of mandatory social health insurance (SHI), voluntary private health insurance and community-based health insurance (CBHI). Health insurance is thus really a minor player in the health ecosystem.
Social Health Insurance
Universal coverage has two dimensions: health care coverage (adequate health care) and population coverage (health care for all) and, coupled with the societal values that underpin it, leaves essentially two financing options—general taxation and SHI. The former implies financing care entirely from general revenue; its viability as the single mechanism to finance universal health coverage is necessarily limited in an environment of competing demands on a severely limited tax base. The SHI is based on income-determined contributions from mandatory membership of, in principal, the entire population with the government subsidizing the financially vulnerable sections. While the SHI is an effective risk-pooling mechanism that allocates services according to need and distributes the financial burden according to the ability to pay (thereby ensuring equity in access), such schemes are difficult and expensive to implement where a majority of the workforce is unemployed or employed in the informal sector.
International experience in SHI: Factors that affect the speed of transition
Achieving universal coverage through SHI is not easy. Evidence from 8 countries with SHI schemes for which sufficient information is readily available—Austria, Belgium, Costa Rica, Germany, Israel, Japan, Republic of Korea (ROK) and Luxembourg— shows that the transition period (defined as the number of years between the first law related to health insurance and the latest law enacted to implement universal coverage) is 79 years (Austria), 118 years (Belgium), 20 years (Costa Rica), 127 years (Germany), 84 years (Israel), 36 years (Japan), 26 years (ROK) and 72 years (Luxembourg). These countries embarked on SHI when their economies were still underdeveloped; moreover, coverage is not necessarily a simple linear increase, as some groups are harder to reach than others. For example, moving from 25% to 50% coverage might take less time than moving from 50% to 75% (Carrin and James 2004). International experience suggests the following factors impacting the speed of transition to universal coverage using the SHI financing option: 1. The level of income and structure of the economy (specifically, the relative size of
Financing and Delivery of Health Care Services in India
K. SUJATHA RAO
SECRETARY, NATIONAL COMMISSION ON MACROECONOMICS AND HEALTH, GOVERNMENT OF INDIA, NEW DELHI E-MAIL: [email protected]
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Box 1 The Insurance Regulatory and Development Act (IRDA) 1999
The IRDA was passed in December 1999 by Parliament. The Act allows for the entry of private sector entities in the Indian insurance sector, including health insurance, and envisages the creation of a regulatory authority. The IRDA is supposed to protect the interests of the policyholders, promote efficiency in the conduct of insurance, regulate the rates and terms and conditions of the policies offered by insurers and direct the maintenance of solvency margins. The IRDA provides sufficient protection for capital and solvency margins. There is an entry requirement of a minimum capital of Rs 100 crore. Then there is a minimum lower bound of Rs 50 crore for the solvency margin along with a requirement of 20% of net premiums or 30% of the average of net incurred claims in the 3 preceding years. The IRDA has wide powers for accounting and auditing insurers. The Insurance Act does not allow the insurers to undertake additional business that is not directly linked to insurance. It discusses the liquidation of a company but does not talk of a Guarantee fund. The IRDA specifies a code of conduct for the insurance agents and also allows for a Tariff Advisory Committee to oversee premium rates, insurance plans and to prevent discrimination. However, there is no specific clause for the consumer, who has to use the CPA of 1986 to redress any complaints. The IRDA does not have much to say about the relationship between the insurer and the provider. Though the Tariff Advisory Committee can make recommendations the IRDA also does not have much to say about rating the premium. The IRDA does not also specify the benefit packages. It however allows for the entry of re-insurers in the market. Its main two functions are maintaining market standards, and overseeing solvency and financial regulations. Conclusion: The legislation concerning health insurance in India is fairly comprehensive even in comparison to a model set of regulations when focusing on auditing, financial controls, investment guidelines and licensing regulations. There is much less regulatory focus on the consumer of insurance products and the overall goals of health policy in the form of regulation that curbs risk selection, protects consumers, promotes HMOs, etc. It also cannot involve in the relationship between insurers and providers (which comes under the MRTP Act) or the expansion of ESIS (which is the ESIS Act). In India health insurance is not given much importance. The IRDA itself contains no reference whatsoever to the health sector or to health insurance. Nor is health mentioned in the nearly 175 pages of the Insurance Act of 1938. This broadly reflects the policy environment in India, where health insurance continues to be neglected. Even in GOI’s report on Insurance reforms (1994), there was precisely one reference to health insurance.
Source: Mahal A. Assessing private health insurance in India: Potential impacts and regulatory issues. Economic and Political Weekly 2002:559–71.
mine the capacity of SHI schemes to deliver the benefit package. 3. The administrative structure and solidarity in a country determine its ability to actually implement SHI and with legitimacy. In India, its large rural and informal sector accounting for 90% of the population, lack of cohesion and solidarity, and poor institutional capacity to organize them etc. will be constricting factors for the upscaling of the SHI in the near or medium term. The experience with collecting income tax predicts problems in assessing incomes and collecting premiums from small, unregistered firms, unorganized industries and the rural sector. The consumer redressal mechanism may also not function effectively because of the large illiterate population. The SHI is therefore likely to be restricted to the employed population and largely in urban areas, where collection of premium is easier and administrative costs minimal (Annexure). The existing mandatory health insurance schemes in India— the Employees’ State Insurance Scheme (ESIS) and the Central Government Health Scheme (CGHS)—were first started as pilot projects in 1948 and 1954, respectively in the context of achieving universal coverage via the SHI. Table 1 summarizes the provisions under these schemes.
Employees’ State Insurance Scheme (ESIS)
Enacted in 1948, the Employees’ 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 and other specified establishments employing 20 persons or more, with employees earnings up to Rs 7500 per month being covered, along with their dependants. The current coverage stands at 84 lakh employees and 353 lakh beneficiaries across 22 States and Union Territories (expectedly, the membership is higher for more industrialized States). The benefit package is quite comprehensive in its coverage of health-related expenses, going beyond the cost of medical care to include cash benefits (sickness, maternity, permanent disablement of self and dependant) as well as other benefits such as funeral expenses and rehabilitation allowance. However, the actual package of benefits available is determined more by the type of facility accessed rather than the type of cover. Medical care comprises outpatient care, hospitalization or specialist treatment as well as services of the Indian systems of medicines. These services are provided through a network of ESIS facilities, public care centres, non-governmental organizations (NGOs) and empanelled private practitioners. Corresponding to these arrangements, a variety of payment mechanisms are employed from salaries for ESIS staff to capitation fees for private doctors. The ESIS is financed by a three-way contribution from employers, employees and the State Government. Between 1993–94 and 1997–98, the income of the scheme grew substantially (largely due to increases in contributions which now account for 80% of the ESIS income) while medical benefits have actually fallen (from about 50% to less than 30% of the expenditures) and, as a result, the net excess transferred to the ESI fund went up
2.
the formal and informal sector) determine the feasibility of collecting contributions as well as the amounts that may be raised through SHI schemes. Distribution of the population and infrastructure deterFinancing and Delivery of Health Care Services in India
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Table 1 Key features of the Employees' State Insurance Scheme (ESIS) and Central Government Health Scheme (CGHS)
Mandatory social insurance schemes Indicators ESIS CGHS
Types of beneficiaries
Factory sector employees (and dependants) with income less than Rs 7500 per month
About 353 lakh beneficiaries in 1998 Medical and other health-related provided through ESIS facilities and partnerships Premiums (financing of scheme) 4.75% of employees' wages by employers; 1.75% of their wages by employees; 12.5% of the total expenses by the State Governments Provider payments Mainly salaries for physicians in dispensaries and referral hospitals. Hospitals have global budget financed by ESIC through State Governments. Administrative costs About 21% of the revenue expenditure. For paying wages for corporation employees, and administering cash benefits, revenue recovery and implementation in new area. Status of finances Contributions: more than 80% of the ESIS incomedouble the expenditure on benefits.
Employees' State Insurance Scheme (ESIS)
Coverage Types of benefits
Employees (and dependants) of Central Government-current and retired, some autonomous and semi-government organizations, Members of Parliament judges, freedom fighters, journalists About lakh beneficiaries in 1996 Medical care through public facilities and restricted private care Varies from Rs 15 to Rs 150 per month based on salaries of the employeesMainly financed by the Central Government funds Salaries for doctors. Treatment in private hospitals is reimbursed on case basis, subject to actual expenditure and prescribed ceilings Direct administrative costs including travel expenditure, office expenses, RRT 5% of the total expenditure. Part of salaries can also be charged to administrative costs. Contributions about 15% of the CGHS income-half of the salary expenditures.
from 14% to 30%. Significantly, the cost of administering the scheme has been steadily increasing as a proportion of expenditure on the revenue account.
Central Government Health Scheme (CGHS)
Established in 1954, the CGHS covers employees and retirees of the Central Government, and certain autonomous, semiautonomous and semi-government organizations. It also covers Members of Parliament, governors, accredited journalists and members of the general public in some specified areas. The families of the employees are also covered under the scheme. Total beneficiaries stand at 43 lakh (10.4 lakh card holders, 2003) across 24 cities with membership in Delhi being the highest. Benefits under the scheme include medical care at all levels and home visits/care as well as free medicines and diagnostic services. These services are provided through public facilities (including CGHS-exclusive allopathic, ayurvedic, homeopathic and unani dispensaries) with some specialized treatment (with reimbursement ceilings) being permissible at private facilities. Of the total expenditure, about a third is spent on wages and salaries of the CGHS staff (Table 2) and Figure 1. Table 2 highlights three important points: (i) that 18% of the health department’s budget is spent on less than 0.5% of the population; (ii) that most of the expenditure is met by the Central Government as only 12% is the share of contributions.
If the scheme continues in its present form, and contributions stagnate at Rs 50 crore, the proportion of contribution will fall further to 5% of the total over the next five years, given the rising expenditures This calls for steps to ensure that contributions keep pace with expenditure, and perhaps even reduce the subsidy element; and (iii) The period 2001–04 also witnessed a sharp increase in inpatient expenditures. Coinciding
Fig 1 CGHS expenditure 1999-2004
Source: Ministry of Health and Family Welfare, GOI
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visits per card per year, varying between 5.6 visits in Bhopal to 28.4 visits in Bhubaneshwar. The approximate unit cost per visit comes Total expenditure on CGHS (Rs in crore) to a high of Rs 222 in 2002–03. Similarly inequitous is the payment structure for inpa1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 tient care too. To assess the health-seeking behaviour Establishment 117.1125 123.8712 125.3384 133.1083 139.4496 and the trends towards utilization of health Supplies and materials 106.176 131.2345 165.3858 185.1242 222.9404 facilities after the CGHS opened up to over Professional services 47.8071 51.2002 65.7699 81.9203 140.7256 200 private hospitals for providing care at TOTAL CGHS 271.0956 306.3059 356.4941 400.1528 503.1156 pre-negotiated rates to their members, the TOTAL Department of Health 2132.46 2291.84 2577.04 2625.37 2800.64 NCMH took up a study of the CGHS pay% Share of CGHS 12.7 13.4 13.8 15.2 18.0 ments pertaining to the reimbursements to Total contributions 54.27 52.54 50.65 70.9 60.58 pensioners, hospitals and diagnostic centres. % of expenditure 20.2 17.15 14.21 17.71 12.04 A sample of 1000 claims were examined from Source: Demand for Grants, MOHFW the total bills paid by the Pay and Accounts Office of CGHS, Delhi, during 1999, 2003 with the sharp increase in the membership among retired perand 2004. For 2003 and 2004, all the payments made to sons, this indicates the trend towards adverse selection (Fig. pensioners in the randomly chosen successive months of June 2). and July were taken up for the study. Results of the claims showed an increasing number of cases using private sector facilities, which has budgetary implications for the GovernFig 2 ment, particularly in view of the absence of any regulations regarding prices and the large number of pensioners joining The increasing per person expenditure on the scheme (Table 4). outpatient and inpatient (2001-04) The 1999 sample (July to December) comprising of 104 reimbursement bills showed treatment being taken in government institutions in 58 of the cases. The ratio of the amount spent on government and private hospitals in 1999 was 1:1.25, or 4:5. These ratios changed in 2003–04 more adversely to government hospitals—1:12 in the 2003 sample and 1:8.5 in 2004. Thus, over the 5-year period from 1999 to 2004, there was a sharp rise in the total number of bills, the total expenditure on professional services and payments made to private providers as a proportion of all payments, with government providers claiming just one-tenth of the total payment for provision of professional services in the 2004 sample.
Table 2
Private Health Insurance
Source: Ministry of Health and Family Welfare, GOI
Expenditures that cover outpatient treatment, including medicines for all serving and retired CGHS beneficiaries and inpatient/diagnostic services availed by retired beneficiaries, has thus grown between 12% and 25% per year over the past four years. A gross estimate suggests that another Rs 200 crore would have been incurred on inpatient treatment by serving employees. The maximum increase is seen to have occurred on professional services, i.e. reimbursement to pensioners and direct payments to hospitals and diagnostic centres. The CGHS is a high-cost enterprise with an inequitable spread of service delivery and no control systems for checking market failures such as moral hazard. As can be seen from Table 3, while each dispensary currently caters to an average of 3610 cardholders, varying between a low of 1073 cards per dispensary in Bhubaneshwar to a high of 6662 cards in Pune, the average OPD attendance during 2003–04 was 14.3 OPD
Since the liberalization of the insurance industry in 2000 India has been promoting private players to enter the health insurance sector. With the enactment of the IRDA, the industry now has a regulatory framework to protect the interests of policy holders. This was followed by another landmark decision in 2001 establishing Third Party Administrators (TPAs) to facilitate speedier expansion by providing an administrative–intermediary structure to the insurance industry. There are, at present, 12 general insurance companies and 25 TPAs. The total number of insurance holders is reported to be 112 lakh with almost 90% enrolled with the four public sector insurance companies. These four companies collected a premium of Rs 1128.64 crore under Mediclaim. Of the 102 lakh enrolled by these four companies (excluding GIC, Employment Guarantee Corporation, AICL), which are permitted to market health insurance products, Mediclaim alone accounts for 97 lakh persons, the rest being enrolled under other insurance
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Table 3 City-wise utilization (of allopathy) during 2003-04
No. of cards OPD attendance No. per dispensary Cards per dispensary OPD per dispensary
Ahmedabad Allahabad Bangalore Bhopal Bhubaneshwar Chandigarh Chennai Dehradun Delhi Guwahati Hyderabad Jabalpur Jaipur Kanpur Kolkata Lucknow Meerut Mumbai Nagpur Patna Pune Ranchi Shillong Thiruvananathapuram Total Average
OPD: outpatient department
6672 17794 61409 2627 2147 7762 48156 456468 9243 90262 19534 24504 27439 56426 20068 13626 91379 21274 13407 46631 2789 1771 6155 1047543
118764 279625 592042 14656 60927 103346 486342
106484 949448 227542 380177 529268
724995 508847 390151 70999 12004 98160 5653777
5 7 10 1 2 1 14 1 87 3 14 3 5 9 17 6 6 28 10 5 7 2 1 3 247
1334 2542 6140 2627 1073 7762 3439 5246 3081 6447 6511 4900 3048 3319 3344 2271 3263 2127 2681 6661 1394 1771 2051 83041 3610
Source: MOHFW, GOI
23752 39946 59204 14656 30463 103346 34738
35494 67817 75847 76035 58807
25892 50884 55735 35499 12004 32720 832847 46269
Note: Blank cells indicate data not available and have been excluded in the calculations
The question that arises is whether promoting the private commercial insurance sector will help India achieve its health objecHealth-seeking behaviour and trends towards utilization of tives of equity, efficiency and quality? What health facilities are its implications? Should India consider Government Private Private/ Private as other options, or is this a case of one size institutions institutions Government a % of the fitting all? International experience and eco(in Rs) (in Rs) ratio total nomic theory on private insurance markets however show evidence of widening inequity, 1999- Individual claims 733236 (58) 914897 (46) 1.25 55.5% excessive utilization, adverse selection, 2003- Individual claims 658083 (79) 2018361 (114) increase in inappropriate care, risk selection 2003- Hospital claims 1156281 (33) 16427031 (1425) increasing overall cost of care and in a highly 2003-Diagnostic provider claims 0 2900829 (1287) competitive, voluntary market, high admin2003 Total Paid 1814364 21346221 11.77 92.2% istrative costs, unviable risk pools, under2004- Individual claims 3281255 (305) 7277243 (332) cutting and unrealistic pricing leading to 2004- Hospital claims 1299264 (39) 29227474 (2072) market instability and bankruptcies. Private 2004-Diagnostic provider claims 0 2579414 commercial-led health insurance systems 2004 Total Paid 4580519 39084131 8.53 89.5% resulting in, etc.—factors that contribute to Period selected for the study was June-July for 2003 and 2004, and July-December for 1999; Figures in parenthesis are number of cases inflation in costs. Yet of the 39(2001) counSource: NCMH analysis, 2004 tries having private insurance contributing schemes such as Jan Arogya, etc. During 2003–2004, the claim to 5% of the total health expenditure, 46% were low- and midratio was about 96.34%. The industry, however, believes that dle-income countries where private insurance is perceived as the overall claim ratio is expected to go up from around 130% an important source of health financing (Sikhri 2005), conto 300%–350% in the next three years (Table 5). tributing to about 5%–20% of the country’s total health spend-
Table 4
Financing and Delivery of Health Care Services in India
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Health insurance in India
Table 5 Premium and claim figures-Mediclaim (1999 to 2003-04)
1) National Insurance Co. Ltd
Year No. of policies issued Number covered Premium received No. of claims reported No. of claims settled Incurred claim amount (Rs in lakh) Incurred claim ratio (%)
1999-2000 2000--01 2001-02 2002-03 2003--04
572308 610571 897480 436273 505260
748508 803742 2497801 2025610 3122536
5210 5668 17614 22533 29802
48653 84392 213313 148963 198573
44760 77643 189595 140274 186110
3630 6045 14572 22037 30471
69.67 117.13 82.70 104.17 102.24
ing. Private insurance in these countries arose in response to increased expectations of affluent classes, covering the healthiest and the wealthiest resulting in limited social gain. Therefore, no country relies on private insurance to resolve the problems of financial risk protection for the poor and the ill. And regulation is required to minimize some of the adverse impacts.
The case of Chile
The USA and Chile are the two best examples of private health insurance. Chile, a middle-income country, consisting of 1.58 crore people, spends US$ 697 per capita (7.2% of the GDP) but has health outcomes that almost equal those of the USA. Table 6 gives a comparative statement of key indicators of India, Chile, China and the USA Chile developed its health system in three phases: the first till the 1980s was focused on reducing the burden of infectious and communicable diseases; the second during the 1980s when the National Health Fund was established to administer the SHI scheme (Fonasa) through a network of 194 hospitals run by the National Health Services System; and the third during the 1990s when health insurance was opened up to the private sector (Isapres). As of date, 67% of the population is enrolled with Fonasa, while 20% are covered under 40,000 private plans with 18 licensed, private Isapres. Insurance is mandatory and all have to pay 7% of their wages for health insurance. Both schemes are regulated by the Superintendence of Isapres, under the Ministry of Health (Government of Chile). Under the Fonasa, care is provided through its own public hospital network and for enhanced contributions, accredited network of private hospitals based on a fixed price reimbursement for specific ambulatory and inpatient medical services. Seventy-five per cent of the Fonasa budget is released to primary health centres that are obliged to provide a predefined package of health services. Isapres, on the other hand, offers a myriad and individually customized, risk-rated premium plans based on the age, health and economic status. They function on a feefor-service basis. The Isapres have the freedom to fix the premium, indicate the content and coverage levels, degree of co-payment and set the limits for reimbursements. Regulation is only on contractual compli-
2) New India Assurance Co. Ltd
(Rs in lakh) Year No. of policies issued Number covered Premium received (Rs) No. of claims reported No. of claims settled Incurred claim amount Incurred claim ratio (%)
1999-2000 2000-01 2001-02 2002-03 2003-04
489150 609255 822534 937012 949648
2163876 2951010 2794510 3086763 2856675
16165 23915 26996 35443 36641
108247 275774 165368 201108 167898
90573 305406 116819 196300 161959
15629.37 20349.96 18853.00 31053.00 30068.12
96.68 85.09 69.84` 87.61 82.06
3) Oriental Insurance Co. Ltd
(Rs in lakh) Year No. of policies issued 1999-00 269288 1077151 Number covered Premium received (Rs) 7450 No. of claims reported 12220 No. of claims settled 11556 Incurred claim amount 6570 Incurred claim ratio (%) 87.13
2000-01
2001-02
376878
502512
1507512
2010047
10553
15075
16386
63166
15420
53617
8870
14188
84.06
94.11
2002-03
2003-04
537061
555858
2148247
2223436
20408
22953
74620
83050
64251
71907
15754
22407
77.19
97.62
4) United India Insurance Co. Ltd
(Rs in lakh) Year No. of policies issued Number covered Premium received (Rs) No. of claims reported No. of claims settled Incurred claim amount Incurred claim ratio (%)
1999-2000 2000-01 2001-02 2002-03 2003-04
322845 105331 140441 245000 305000
904594 361600 482133 772000 845000
9124 11761 14518 21569 23528
60120 32452 30130 40000 50500
54077 27759 25626 37889 42585
7620 8850 15819 22317 25018
83.52 75.25 108.96 103.46 101.92
(Rs in lakh)
GIPSA Companies
Year No. of policies issued Number covered Premium received No. of claims reported No. of claims settled Incurred claim amount Incurred claim ratio (%)
1999-2000 2000-01 2001-02 2002-03 2003-04
1653600 1702035 2362967 2155348 2315768
3924693 5623864 7575427 7885465 9047647
38040 51897 94400 102600 112900
229240 409004 471977 464691 500021
200968 426228 385657 438714 462561
33448 44114 64800 91160 106400
88 85 69 90 94
Source: Department of Insurance, Ministry of Finance, GOI
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Table 6 Key indicators of India, Chile, China and the USA
Indicator India Chile
Population in crore Health expenditure per capita (in US$ Public expenditure. on health* as % of GDP/2000 IMR per 1000 live-births 2001 Life expectancy at birth Maternal mortality ratio per 100,000 lakh births*
Source: World Health Report, 2005, WHO, * MDG-UNDP 2002 ,
103.34 96 0.9 68 62 540
1.54 642 3.1 10 77 23
ance but not on the content of the policies. To safeguard the stability of the insurance pool, Isapres are known to follow rigorous procedures of screening out high risks, provide low coverage for high-cost illnesses and expensive procedures, discriminate against or even terminate subscribers with highcost chronic diseases by increasing the premium or contract conditions, forcing the subscriber to opt out. Typically, therefore, the Isapres enrollees have a mean income that is four times more than those enrolled in Fonasa; 70% of the beneficiaries are in the age group of 15–64 years with 2.5% above 65 years compared to 62% and 10%, respectively in Fonasa. Such tiered rating is inevitable so as to keep the premium low enough to retain the young healthy subscribers. As in India, Chile has the problem of inappropriate skill mix in public hospitals, not in keeping with the changed epidemiology; the centralized budgeting system giving little discretion, salaried system of provider payments with no incentives to improve efficiencies, resulting in 50% bed occupancy in peripheral hospitals and overcrowded city hospitals. Second, with private sector allowed to provide the same set of services, there is duplication of infrastructure and resultant wastage in the system as a whole. However, since the quality of care is similar in public hospitals, despite a law, 12% of Isapres beneficiaries were found to have availed free care in public hospitals. In other words, the system induces the subscriber to avail ambulatory care in Isapres and move to Fonasa when sick. Besides, due to the short-term character of the contracts and ability to offload patients when ill, the Isapres have no incentive of providing preventive care. This dual system has thus resulted in segmenting the population on the basis of income and risk. With the freedom to fix premiums, the risk-rating system has resulted in a systematic discrimination against fertile women, chronically ill and the elderly through the three stratagems of higher premiums, reduced benefits and refusal to enrol or renew contracts. The lack of uniformity or transparency of insurance plans makes it easier to resort to such tactics. The effect of such a system is seen in the disproportionate share of high-risk persons being discharged onto the public hospitals: HIV/AIDS (82%), cervix cancer (90%), kidney failure (83%) and leukaemia (80%). The system encompasses all the incentives for increased cost of care: fee for service as a basis of provider payment. With mandatory insurance, the competition is on quality, based
on sophisticated technology, which may not always be cost-effective and also puts pressure on the public system to keep pace. Thus, competition is on offering high-technology USA China clinical procedures to low-risk individuals. Third, the need for spending substantial 28.8 128.52 amounts on screening out high-risk patients. 5274 261 Such risk-rated premiums also affect the old 5.8 1.9 or those who fall sick as their option to change 2 31 the insurers is only Fonasa, as no other Isapres 77 71 will accept a high-risk enrollee. The admin8 55 istrative costs of Isapres are 14% and escalation of average fee per visit is 80%, higher than that of Fonasa, which are 1.2% and 50%, respectively. The cost of the whole system is high as despite mandatory payment of 7% of the wage, the out-ofpocket expenditures account for another 35% of the total health spending. Finally, in the event of insolvency or mergers between one Isapres and another, the interests of the enrollee are not protected. In 2002, Chile launched a major health reform process. The key features consist of mobilizing additional resources by earmarking 1% of the value-added tax (VAT) for health; accreditation of facilities and providers in the public and private sector; standardized benefit packages for delivery by Fonasa and Isapres guaranteeing access, opportunity, quality and financial protection; ensuring stability of enrollee interests in case of insolvency of a private insurer; and regulations for preventing risk discrimination and dumping of high-risk enrollees. Of importance is the Standard Benefit Package: access is guaranteed by entitling enrollees to receive care listed in the package at the appropriate level and within reasonable distance; opportunity implies defining a maximum wait period for each service, with the option to get the service from any place of choice to be reimbursed by the plan; quality is ensured by service provisioning by accredited members; and financial protection ensures that none are denied care for want of ability to pay and a ceiling of co-payment to be 20% or not exceeding a patient’s 2 months’ wage. For implementing these reforms, organizational and financial restructuring have also been designed with laws protecting enrollee interests and providing for a solidarity compensation fund to compensate private insurers for the enrolment of high-risk persons.
Current status of private health insurance in India
India has lessons to learn from the experience of Chile. India too has a dual system of care—a private fee-for-service based sector where the money is paid out-of-pocket by individual households and a tax-based public sector where the providers are salaried. Utilization of insurance under both these systems is partly restricted and rationed by the affordability of the individual household and availability of the budget. On the other hand, insurance as a means of financing is a far more sophisticated mechanism, requiring a comprehensive understanding of the failures that characterize health insurance markets. For example, a problem such as asymmetry in
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information puts the patient and the insurer at a disadvantage due to their inability to resist or challenge medical opinion regarding an existing condition or future treatment. Besides, in the absence of knowledge of prices, the provider can shortchange the two by overcharging. Second, cashless insurance creates disincentives to control costs as it appears to be a ‘free’ good for the patient and the provider, often resulting in excessive treatment by the provider (induced demand) and frivolous use by the patient taking treatment even for a condition which he would normally have ignored or cured with a home remedy (moral hazard). Third, it is only the patients who know their health status. Since it is normally those in need of health care who tend to subscribe to health insurance, this puts the risk on insurance agencies to resort to extensive processes of risk selection, such as medical examination, before being given admittance as an enrollee and focusing on lowrisk groups, such as the young or healthy. Risk selection in individual-based policies however results in increasing the loading fee and consequently the cost of premium. This is one reason for the attractive group discounts being as high as 67%. For these reasons, private commercial health insurance is known to select its customers—the young, healthy, rich, males—leaving the bad risks to the government—old, poor, young women in the reproductive age group, and the ill. Health insurance in India is usually associated with the ‘Mediclaim’ policy of the GIC, which was introduced in 1986 as a voluntary health insurance scheme offered by the public sector. The premium based on the age, risk and the benefit package opted for, ranged from a minimum premium of Rs 201 for those <25 years of age, to a maximum benefit of Rs 15,000 with discounts for group memberships. In 2001, there were 78 lakh persons covered under Mediclaim (Gupta 2003). The subscribers are usually from the middle and upper class, especially since there is a tax benefit in subscribing to Mediclaim. The standard Mediclaim policy covers only hospital care and domiciliary hospitalization benefits. Most medical conditions are reimbursed though there are important exclusions, such as pre-existing diseases, pregnancy and child birth, HIV/AIDS, etc. Hospitals with more than 15 beds and registered with a local authority can be identified as providers. The insurance company (or the TPA, where applicable) administers the scheme. Being an indemnity scheme, the patient pays the hospital bills and submits the necessary documents to the company. The company in turn reimburses the patient. A study of 621 GIC claims for the year 1998–99 by Bhat and Reuben (2001) showed that the average time between submission of documents and reimbursement is 121 days. This study also showed that one-third of the claims were due to adverse selection; 38% pertained to doctor’s fees and 25% charges for diagnostic services. The provider-induced claims thus accounted for 63%. Yet another interesting insight was that 22% of the total claims were for the treatment of communicable diseases, while 64% were for non-communicable diseases. There is also uncertainty about the amount reimbursed, there are times when the patient is reimbursed only partially, the usual reason being the insufficiency of documentation. The policy is not renewed automatically and is dependent on
the timely payment of premium. Ellis et al. observed that the GIC was more interested in whether the claim pertained to an existing disease or whether the facility was qualified or not, but spent little time on detecting fraud. With claims exceeding 30% a year, more than the household spending, it reflects the problem of moral hazard which requires close monitoring. Second, it was also observed that the GIC sets premium on the filing of claims and not actual amounts settled, giving it a cushion year on year as settled claims amounts are always lower than those filed, an amount that remains unadjusted. During 1994, 4.4% of the insured persons made a claim, of which only 75% of claims were settled. The claims ratio was 45%. However, of late, the claims ratio is growing at a fast rate, allegedly because of collusion between the patients, insurance agents and hospitals. From the above discussion, five features that characterize the health insurance system in India emerge: 1. By and large, the system offers traditional indemnity, under which the insured first pay the amount and then seek reimbursement. Under indemnity, all known diseases or health conditions are excluded and therefore such policies typically have a large number of exclusions. This also means that those most in need of insurance, i.e. the sick, get excluded for any financial risk protection against the diseases they are suffering from. 2. It is a fee-for-service-based payment system. Such a system of payment is advantageous for the provider since he bears no risk for the prices he can charge for services rendered by him. Combined with the asymmetry in information, such a system usually entails increased costs. 3. Policies provide a ceiling of the assured sum. Such a system, and that too within a fee-for-service payment system, results in shortchanging the insured as he gets less value for money, as the provider and the insurer have no obligations to provide quality care and/or over provide/over charge services so long as the amounts are within the assured amount of the insurance policy. 4. The system is based on risk-rated premiums. This again puts the risk on the insured as the premium is fixed in accordance with the health status and age. Under such a system, women in the reproductive age group, the old, the poor and the ill get to pay higher amounts and are discriminated against. 5. The system is voluntary, making it difficult to form viable risk pools for keeping premiums low.
Reasons for poor penetration of health insurance
Penetration of health insurance has been slow and halting, despite the ‘huge market’ estimated to range between Rs 7.5–20 crores. Some reasons that explain for the slow expansion of health insurance in the country are as follows:
1. Lack of regulations and control on provider behaviour
The unregulated environment and a near total absence of any form of control over providers regarding quality, cost or
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data-sharing, makes it difficult for proper underwriting and actuarial premium setting. This puts the entire risk on the insurer as there could be the problems of moral hazard and induced demand. Most insurance companies are therefore wary about selling health insurance as they do not have the data, the expertise and the power to regulate the providers. Weak monitoring systems for checking fraud or manipulation by clients and providers, add to the problem.
eases that are expensive to treat and can be catastrophic. If we take the number of beds as a proxy for availability of institutional care, the variance is high with Kerala having 26 beds per 1000 population compared with 2.5 in Madhya Pradesh.
6. Co-variate risks
High prevalence levels of risks that could affect a majority of the people at the same time could make the enterprise unviable as there would be no gains in forming large pools. The result could be higher premiums. In India this is an important factor due to the large load of communicable diseases. A study of claims (Bhat 2002) found that 22% of total claims were for communicable diseases.
2. Unaffordable premiums and high claim ratios
Increased use of services and high claim ratios only result in higher premiums. The insurance agencies in the face of poor information also tend to overestimate the risk and fix high premiums. Besides, the administrative costs are also high— over 30%, i.e. 15% commission to agent; 5.5% administrative fee to TPA; own administrative cost 20%, etc. Patients also experience problems in getting their reimbursements including long delays to partial reimbursements.
Third party administrators
With the entry of TPAs under the IRDA Regulations Act, 2001, the insurance industry is taking a new turn towards ‘Managed Care’. The TPAs are required to be registered under the Companies Act, 1956, and licensed by the IRDA, and be contracted by one or several insurance companies ‘for the provision of health services’. The original role of a TPA was to provide the back-office administrative set-up to insurance companies—issuing ID cards to subscribers, processing claims, making payments, etc. Taking advantage of the lack of clarity on the specific role and responsibilities of TPAs, some among them are rapidly developing capacity to establish provider networks to service the needs of the insured, collecting and analysing data, fixing and negotiating rates for procedures with providers, contracting providers, processing claims and making direct payment to them and arbitrating any dispute between the subscriber and the provider. This system, often referred to as ‘cashless payment’, has resulted in relieving the patients of the psychological stress of having to mobilize resources at short notice. By scrutinizing provider claims, TPAs also help in safeguarding the interests of the insuring company of any fraudulent claims by the providers. For all these services, the insurance companies pay 5.5% of the total amount of premium collected under the policy. In addition, TPAs were also to be given a bonus from insurance companies for reduced claim ratios or for promoting the companies with the insurers. This then would have given them the financial incentives to develop systems for provider control: contracting through predetermined rates for procedures and treatment, utilizations reviews, prior authorization for expensive surgeries, etc. and also ensuring that the patients do not resort to frivolous use of the services. However, with the administrative fee being low and the idea of bonus not operationalized, there is really no incentive for the TPAs to reduce the claim ratios. Secondly, barring a few, for most TPAs health insurance itself is a secondary concern to their main activity of brokerage. The system of TPAs has facilitated cashless payments and expanded access to providers but is yet to show evidence of having been able to control cost or provide appropriate care. As the system of TPAs unfolds there are apprehensions: (i) whether patients will get adequate treatment and appropriFinancing and Delivery of Health Care Services in India
3. Reluctance of the health insurance companies to promote their products and lack of innovation
Apart from high claim ratios, the non-exclusivity of health insurance as a product is another reason. In India, an insurance company cannot sell non-life as well as life insurance products. Since insurance against fire or natural disaster or theft is far more profitable, insurance companies tend to compete by adding low incentive such as premium health insurance products to important clients, cross-subsidizing the resultant losses. With a view to get the non-life accounts, insurance companies tend to provide health insurance cover at unviable premiums. Thus, there is total lack of any effort to promote health insurance through campaigns regarding the benefits of health insurance and lack of innovation to make the policies suitable to the needs of the people.
4. Too many exclusions and administrative procedures
Apart from delays in settlement of claims, non-transparent procedures make it difficult for the insured to know about their entitlements, because of which the insurer is able to, on one stratagem or the other, reduce the claim amount, thus demotivating the insured and deepening mistrust. The benefit package also needs to be modified to suit the needs of the insured. Exclusions go against the logic of covering health risks, though, there can be a system where the existing conditions can be excluded for a time period—one or two years but not forever. Besides, the system entail equity implications.
5. Inadequate supply of services
There is an acute shortage of supply of services in rural areas. Not only is there non-availability of hospitals for simple surgeries, but several parts of the country have barely one or two hospitals with specialist services. Many centres have no cardiologists or orthopaedicians for several non-communicable dis-
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ate care; (ii) whether quality of treatment will be compromised with the gradual loss of control and autonomy of the physician on the kind of treatment to be given to his/her patient; (iii) whether costs will go up due to the substantial administrative responsibilities placed on the providers for record maintenance, filling claim and billing forms—in USA, where health insurance is organized on a TPA system, doctors spend almost 30% of their time on processing their claims and the administrative costs of the system are 25%–30% as compared to 3% in Canada.; (iv) will there be possibilities of collusion between the TPA and some providers in the network, resulting in processing their higher claims even if not justified, affecting the interests of the insurance agency; (v) with TPAs getting organized over time, whether they may acquire monopoly control over the processes and dictate higher administrative fees, since in the current system the TPA bears no risk; and finally (vi) the legal uncertainty of the future in view of the framework regarding the functioning of TPAs being ambiguous and unclear. For example, the IRDA does not supervise or regulate the financial activities of TPAs, the contractual relationships with providers or relationships with the corporate or union health plans. In the light of such limited regulatory oversight, some already combine subscription plans being serviced by a provider network without involving any insurance company such as for example, the Karnataka Police insurance with Apollo-sponsored TPA which provides hospital services in a network of some 35 hospitals. In the absence of any statutory control or obligations imposed by the IRDA, such as networking only accredited providers, or those adhering to certain quality benchmarks, or submitting reports on the qualifications of the provider and performance reports, etc., there is a major lacuna, making it difficult to ensure appropriate accountability in the system. Overall international literature1 does show that the TPA system is expensive (personal communication with Professor ao, Harvard School of Public Health); even when their role is confined to payment of benefits and management of claims, the administrative costs run up to 20%–30%. If they are assigned the role of identifying providers then the amount can go even higher to 45%, making insurance products very unaffordable. Besides, such literature also seems to suggest that the TPAs neither have any motivation to undertake the stewardship function to protect consumer interest nor enroll new persons. In this context NGOs could be better agents. Given the complexities of these markets, the key lesson for India is to closely study behavioural responses that such financing systems generate among all the major players and institute appropriate regulatory systems to minimize likely distortions.
Universal Health Insurance Scheme (UHIS)
For providing financial risk protection to the poor, the Government announced a UHIS in 2003. Under this scheme, for a premium of Rs 365 per year per person, Rs 548 for a family of five and Rs 730 for a family of seven, health care for an assured sum of Rs 30,000 was provided. BPL families were given a premium subsidy of Rs 200 per annum. The scheme was redesigned in May 2004 with higher subsidy and restrict-
ing eligibility to BPL families only. The subsidy was increased to Rs 200, Rs 300 and Rs 400 to individuals, families of five and seven, respectively. To make the scheme more saleable, the insurance companies provided for a floater clause that made any member of the family eligible as against the Mediclaim Policy which is for an individual member. Yet in the last two years of its implementation the coverage has been around 10,000 BPL families in the first year and 34,000 in the second year till 31 January 2005. The reasons for failing to attract the rural poor are many. First, the public sector companies who were required to implement this scheme find it to be potentially loss-making and do not invest in propagating it, resulting in very low levels of awareness, reflected in the low enrollment and very poor claim ratios. To meet the targets, it is learnt that several field officers pay up the premium under fictitious names. Second, a major problem has been the identification of the eligible families. Identification became cumbersome as the family needed to have some form of certification, which is difficult to obtain from revenue authorities. Besides, the poor also find it difficult to pay the entire premium money at one time for a future benefit, foregoing current consumption needs. Third, the procedures are cumbersome and difficult for the poor—the premium has to be paid in a lump sum; the paperwork required for enrolment as well as getting claim amounts is very timeconsuming. Fourth, in most places there is a deficit in the supply or availability of service providers, particularly because government hospitals are not eligible. For example, in Uttaranchal, only 17 hospitals could be accredited under this scheme, which could have gone up to 37 if government hospitals were allowed to be included and also expanded access and choice to the enrollees. Besides, in several areas there are just no doctors available. Fifth, there was a set-back due to health insurance companies refusing to renew the previous year’s policies. Finally, the TPAs are also not willing to implement this scheme at 5.5% of premium amount as their administrative costs of covering rural populations in dispersed villages makes it unviable. During 2004, the Government also provided an insurance product under which for a premium of Rs 120 the sum assured was Rs 10,000. This was, to be available only for self-help groups (SHG). However, the intake is reportedly negligible. The reasons for this poor intake are similar to those cited above. With the Common Minimum Programme (CMP) committed to having a UHIS, there has been much effort and debate to evolve a suitable and sustainable design. To expand the health insurance business, recommendations are also being made to reduce the minimum pre-qualification of Rs 100 crore equity as it will require 15 years to break even. Another set of recommendations is for permitting TPAs and hospitals to introduce health insurance products. There are, however, doubts regarding this model as it may promote conflict of interest. In combining various aspects of provisioning and insuring there could be perverse interests to provide low quality of care over-diagnose or under-treat—for making profits.
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Community-Based Health Insurance
Community financing (CF) as a method of raising finance at the community level was initiated by UNICEF under its Bamako Initiative for Africa in 1987. The initiative had the following objectives: (i) to revitalize public health systems; (ii) to decentralize decision-making; (iii) to mobilize resources to cover local operating costs; (iv) to encourage community participation through management of services and locally generated funds; and (v) to define the minimum package of essential health services. (UNICEF 1987). Though the experiment failed in Africa, its concepts are once again gaining recognition as an appropriate strategy for low-income countries which have a weak resource base, poorly developed markets and a vast population having very low threshold of payment capacity (WHO 2002). In community financing, the community is in control of the principal functions of collection and utilization, the membership of the scheme is voluntary and there is willingness to prepay the contributions (Hsiao 2001). The scheme is based on the hypothesis that with greater social capital there will be more willingness to pay and participate. The community has been defined as a group of households living in close proximity or belonging to social, religious or economic organization. The efficacy of the scheme is based on two implicit principles: one, that the community has adequate homogeneity or social coherence that gets easily translated into a capacity to mobilize resources; and two, that the willingness to prepay will be influenced by self-interest when each individual perceives his marginal benefit exceeding his costs, i.e. accessing something of value which can be obtained easily and more in quality through prepayment. Literature reviews of such community-based schemes tend to suggest that they have enabled an increase in the availability of resources; inclusion of the poorest groups on account of government subsidy; enhanced access to health services; and reduced impoverishment on grounds of illness (Jakab 2001). While the CBHI movement is vibrant in Africa, it is slowly picking up momentum in India. Currently, there are about 22 voluntary CBHI programmes in India, initiated and administered by NGOs. Of these about 10 are active (Table 7). In many schemes, the community is also involved in various activities such as creating awareness, collecting premiums, processing claims and reimbursements, and the management of the scheme (deciding the benefit package, the premiums, etc). Devadasan, in his paper identified broadly three types of community health insurance (CHI) schemes and also analyzed their structure and basic features as discussed below: (Devadasan et al. 2004; Fig. 3): Type I—The provider of health care plays the dual role of providing care and running the insurance programme (e.g ACCORD, VHS) Type II—where a voluntary organization/NGO is the insurer, while purchasing care from independent providers (e.g. Tribhuvandas Foundation, DHAN Foundation) Type III—(intermediary design)—The NGO plays the role of the agent purchasing care from providers and insurance
companies (TPA, e.g. SEWA, Karuna Trust, BAIF). The membership of these CHIs scheme varies from 1000 to more than 20 lakh. Most of the schemes operate in rural areas and cover people from the informal sector. Enrolment is usually facilitated by membership of the organizations, e.g. micro finance groups, cooperatives, trade unions, etc. The annual premium ranges from Rs 20 to Rs 120 per individual. The unit of enrolment is an individual and the membership is voluntary in most of the schemes. All the schemes offer hospitalization; this ranges from the classical Mediclaim product to a very comprehensive cover including all conditions and no exclusions. Many NGOs have been successful in negotiating an appropriate insurance package for their members. Most providers are either NGOs or private for-profit organization. The utilization rates range from 6 to more than 240 per 1000 persons insured. The latter obviously indicates extreme adverse selection. The main strengths of the CBHIs schemes are that they have been able to reach out to the weaker sections and provide some form of health security; increase access to health care; protect the households from catastrophic health expenditures and consequent impoverishment or indebtedness. However, sustainability is an issue as these initiatives are dependent on government subsidy or donor assistance. They provide limited protection in view of the very little crosssubsidy between the rich and the poor, resulting in the small size of the revenue pool which also constricts getting a better bargain from the providers. A disturbing factor in these programmes, (barring one or two) is the very low claim ratio, ranging from 0.25 to 0.66, which indicates that the scheme is not able to overcome the barriers that are hindering access or the cover provided is too inadequate or the members too ignorant about their entitlements. It is also seen that the poorest of the poor get excluded on account of their inability to pay their share within the specified time limit. Some NGOs manage the scheme by themselves, which may be ‘illegal’ within the current IRDA regulations. Also, some of the schemes cover very small numbers and so the potential for scaling-up is restricted. Moreover, many of the schemes see health insurance as an end in itself and do not seek to either promote preventive and promotive health care or extend adequate provider linkages. There is no exhaustive evaluation of the CBHI schemes in India due to the lack of uniformity in MIS. Many questions remain unanswered and need to be researched to see if these models can be implemented and replicated in India. For example, it is not clear how much it costs to administer such schemes, or its impact on strategic purchasing of services, developing provider networks or on the local quack, or the problems for upscaling and finally if the scheme has helped protect the poor from penury and if so, how it can be sustained if NGOs withdraw their support, etc. Of all the schemes in operation, the one that has drawn widespread attention in India is the Yeshaswani, an insurance scheme for farmers, designed and implemented by the Government of Karnataka since 2002. Under this scheme, the Cooperative Department enrolled, through a governFinancing and Delivery of Health Care Services in India
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Table 7 Some community health insurance schemes in India
Name and location of the scheme Population covered (target population in 2003) Premium collected (per cent target population covered in 2003) Benefit package
ACCORDGudalur, Nilgiris, Tamil Nadu BAIFUrali Kanchan, Pune, Maharashtra BUCCSBuldhana, Maharashtra DHAN Foundation Kadamalai taluk, Theni District, Tamil Nadu Karuna TrustT Narsipur Block, Mysore District, Karnataka MGIMS HospitalWardha, Maharashtra Raigarh Ambikapur Health Association (RAHA) Raigarh, Chhattisgarh SEWAAhmedabad, Gujarat SHADEKolencherry, Kerala Student's Health HomeKolkata, West Bengal Voluntary Health Services Chennai, Tamil Nadu YeshasviniBangalore, Karnataka
Tribals living in Gudalur taluk and who are members of the AMS union (n =13,000) Women members (between 18 and 58 years) of the micro savings scheme in 22 villages (n =1500). Members of the Buldhana Urban Cooperative and Credit society (n = 175,000). Women members of the micro finance scheme and living in Mayiladumparai block (n =19049) BPL families in T Narsipur Block (n = 278,156) The small farmers and landless labourers living in the 40 villages around Kasturba Hospital (n= 30,000) Poor people living in the catchment area of the 92 rural health centres and hostel students. (n = 92,000 individuals). SEWA Union women members (urban and rural), and their husbands living in 11 Districts of Gujarat (n = 1,067,348) Members of the SHGs operating in Ernakulam district (n = 9000) Full-time student in West Bengal State, from Class 5 to University level. (n =56 lakh students) Total population of the catchment area of 14 mini-health centres (n= 104,247) Members of the District Farmer's cooperative societies and their families (n = 80 lakh)
Rs 25 per person per year (36%) Rs 105 per person per year (58%) NA
Hospitalization cover up to Rs 1500 per person per year Hospitalization cover up to Rs 5000 per person per year Hospitalization cover up to Rs 5000 per person per year Hospitalization cover up to Rs 10,000 per person per year Hospitalization cover up to Rs 2500 per person per year. Includes ambulance services and loss of wages Hospitalization cover up to Rs 1,500 per person per year Primary and secondary health care
Rs 100 per person per year (40%) Rs 30 per person per year. Fully subsidized for the SC/ST population (31%) Rs 48 per family of four (in cash or kind) (90%) Rs 20 per person (58%)
Rs 22.50 per person or Rs 45 for a couple (10%) The Universal Health Insurance Scheme (Rs 548 for a family of 5) (20%) Rs 4 per student per year (23%) Rs 250 per family of five (12%) Rs 120 per person (25%)
Hospitalization cover up to Rs 2000 per person
Hospitalization cover for family up to a maximum limit of Rs 30,000 per family per year Primary and secondary health care
Hospital cover Cover for all surgeries up to Rs 100,000
Source: Devadasan et al. 2004
ment fiat, over 17 lakh farmers within one year and created a corpus of over Rs 15 crore. In the second year, an additional 5 lakh members have been enrolled against the target of 1 crore. The scheme provides financial risk protection against 1600 surgeries offered in 90 accredited hospitals at prefixed rates. Outpatient treatment is free and any diagnostic service resulting in surgery carries a discount of 50%. To keep the premium low at Rs 90, now revised to Rs 120, a Trust chaired by Secretary of the Department of Cooperatives, has been constituted with the premium forming the corpus fund from which the claims are settled. A commercial TPA has been contracted by the Trust at 5.5% of premium collected to
provide ID cards to the members, process the claims and make payments to the service providers. A doctor appointed by the TPA gives prior authorization for expensive surgeries and also scrutinizes correctness of the claims. Within one year of establishment of this scheme, over 27,000 persons were provided outpatient treatment and 4000 surgeries performed. However, sustainability is an issue. The scheme is now facing monetary problems and has a long wait list for surgeries and claims to be paid despite the reimbursement being guaranteed by the Government of Karnataka. Focusing solely on surgical aspects of health can have only a limited appeal and a blind replication of this scheme can give wrong incentives
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Fig 3 Types of community health insurance schemes in India
NGO
(ACCORD, JRHIS, SHH, VHS)
Insurance Company
Premium
Health care
Group Premium
Reimbursement
Community
NGO
(SEWA, BAIF, Navsarjan and Karuna) Reimbursement (Karuna Trust, Navsarjan Trust)
NGO
(KKVS, RAHA)
Reimbursement (RAHA) Reimbursement (SEWA, BAIF)
Providers
Premium
Reimbursement (KKVS)
Providers
Health care
Premium
Health care
Community
Source: Devadasan. 2004
Community
for investing in surgery and neglecting other medical needs. However, the scheme has been innovative in demonstrating the benefits of utilizing government resources for the administration of insurance schemes, in bringing down the administrative overheads and facilitating lower premiums. The Yeshaswani model as well as experimentation abroad, seem to clearly point towards the fact that while CBHI is an affordable model of financial risk protection in low-risk settings, it needs institutional support and formal mechanisms for carrying out the critical functions of health insurance— collection of premium, settlement of claims, laying down clear rules of entitlements and oversight. Only when such systems are designed and put in place can the CBHI models be upscaled to reach risk pools that are financially viable and provide sustainability.
gatekeeper for referrals. (This portion on China is from Professor Hsaio of Harvard School of Public Health, USA in a personal communication with the author). The scheme details are as under:
Three underpinning concepts
(a) People by themselves, especially those living in rural areas and the poor, are unlikely to be able to raise enough money for such schemes to be fully self-financing, necessitating public subsidy; (b) Even if financing could somehow be organized, there is the issue of how services are to be delivered, since existing services are neither efficient nor effective in terms of quality; (c) Issues related to governance and management: how is one to organize and manage such schemes and who will perform the stewardship (or oversight) functions? These include overseeing the financial functioning and health of such schemes, the functioning of medical care providers, contracting (if any) with providers.
China’s model of Community-Based Health Insurance
In China, a model is under implementation on a pilot basis their combins certain design features to address the rotten health system in the rural areas. The model, based on a partnership between the government and the community, uses the village-based barefoot doctor as the key provider and
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Fig 4 China’s health insurance system
Regular budget County and Town Government
Public health and prevention
County hospital
Government subsidy
Reimbursement for services and
Fund Management Office
for village doctors' salaries and bonus after THC find their
Township health center
Salary and bonus payments to village doctors
Premium
work meet quality standards
Co-insurance
Enrollees
Village Health Post
Source: Hsiao, HSPH, USA
Co-insurance
Outline of the scheme
Premium
The premium is Rs 100 per person plus the government subsidy (Fig. 4). The contributions of each enrolled member are roughly equal, except for the very poor, from whom no premium is charged. There is an upper limit of benefits. Enrolment is on an annual basis—the first month of each year for renewals or new enrolments—and after that no enrolments are allowed to prevent adverse selection.
scheme upon examination of the prescription. Roughly 230 drugs can be prescribed—including both modern and traditional medicines—based on some type of essential drugs list. In addition, in case of referral to the subdistrict facility (Tehsil level), the patient is reimbursed 50% of the expenditures incurred; 20%–30% of all expenses for hospitalization at higher levels.
Referral
The patient can go to a higher order facility only if he gets a referral from the village doctor, who in turn has to take notes and justify why he is referring (Fig 5).
Jurisdiction of the scheme Government subsidy
Typically, each scheme covers several villages. The experience has been that 93% of the people covered under the scheme support it, but only 60% actually join it. Even this is sufficient to ensure a deep enough pool of members—6000 and above. A sum of Rs 110 per person is provided to those communities willing to set-up community financing organizations with a minimum number of members (about 70%). This acts as an incentive as well as subsidy.
Benefit package Provisioning
Free consultation visits to the village doctor as he is salaried under the scheme, but there is payment for the drugs prescribed. Fifty per cent of the amount of payment is reimbursed by the Typically in China, every village has one or a maximum of two village doctors. The villagers decide which doctor is to
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be involved with the scheme. This village doctor is employed on a salaried contract that lasts for only one year at a time. The village doctor gets paid in two parts: (i) a salary as per contract, and (ii) a performance-linked bonus. The salary is just enough to cover subsistence to ensure that he is interested in the bonus. The bonus depends on three factors: (i) the demand for the service of the doctor as reflected in the number of visits by the villagers; (ii) careful keeping of medical records (patient details, age, sex, number of visits, diagnosis, prescription); and (ii) regularity in attending continuing medical education and passing medical exams.
common health conditions, and on recognizing when to refer patients to higher-level facilities.
Medicines
The village doctor purchases the medicines from subdistrict level storage facilities operated by some agency, which he is allowed to sell at no more than 20% mark-up of the cost price. The price lists are prominently announced and displayed on notice boards.
Administration Training
The ‘barefoot village doctor’ (who is like the RMP/quack in India) is provided training. Those practising for over 5 years are exempted from training in the first year of the scheme, but in subsequent years they have to take continuing education courses or pass exams to remain a part of the scheme. For all others, a three-year course is necessary for qualification to work in the scheme, followed by annual examinations, and short continuing education courses on an annual basis. The training (and continuing education) of village-based doctors is focused on promoting the ability to treat the eight most A manager and a clerk handle the day-to-day operation of each scheme. The manager reports on the functioning of the scheme to a management committee; the clerk keeps premium receipts and payment records. The ‘Management committee’ is organized at several levels. First, each village under the scheme has a management committee of 5—typically composed of retired teachers, retired local officials, etc. Their functions are: (i) overseeing the functioning of the local doctor’s clinic—making sure there are no complaints, no price gouging, etc.; (ii) maintaining a suggestion box where complaints can be placed; and (iii) organ-
Fig 5 Model for provision of health care services in China
County Hospital
Referral
Township Health center
Patients who decided to bypass referral (they get less reimbursement) Emergency service Referral
Patients
Normal
Source: Hsiao, HSPH, USA
Village Health Post
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izing enrolment under the scheme. From each village-level ‘management committee’ one person is nominated to represent them at the ‘Board of Directors’ at the subdistrict level (the level at which the scheme is organized). Because of the large number of likely members of the Board, it meets only four times a year. However, a ‘standing committee’ of 7 that works on behalf of this Board, meets more frequently and oversees the manager and the clerk along with other functions. The standing committee may change from year to year. No payments are made to the standing committee and management committee members. The standing committee, based on simple contracts, employs the village doctors, etc. (Fig 6).
(a) Auditing of accounts; (b) Checking drug quality through laboratory testing and random checks. A broader approach to analyse/assess CBHI schemes is needed through examination of two policy issues: (i) coordination of CBHI and government risk pools, and (ii) equity implications of CBHI schemes and the role of government subsidies in such schemes. There is a strong need for empirical work to explore how CBHI schemes and the broader health care financing system interact. Even if individual schemes achieve their objectives (in terms of equity, efficiency, etc.), it does not necessarily imply that such objectives will be achieved at the system level.
Oversight and stewardship by government
In technical matters for which the committees at the village and subdistrict levels are not equipped, the government provides the support:
What are the lessons for India?
The lessons that emerge from the China Model and discussions in the earlier paragraphs are that given the huge size, diversity and levels of development in India, it is important
Fig 6 Regulation, monitoring and supervision of community-based health care system in China
County People's Congress Party Secretary
Supervise and Monitor
Regulate and
County and Town Government
Audit and Subsidize
Monitor
County hospital
Supervise
Town People's Congress
Report
Board of Directors
Regulate and monitor
Supervise and train
Executive Committee
Township Health Centre
Pay, supervise and train Monitor clinical work
Elect 1 members
Fund Management Office
Financial report
File claim records
Report
Village Health Post Board of Directors
Enrolled peasants
Source: Hsiao, HSPH, USA
Elect 5 members
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to adopt a four legged strategy for affording real risk protection to the poor: (i) Bring down covariate risk in the community and address the containment of infectious and childhood diseases by intensifying public health programmes; (ii) strengthen government facilities to enable them to provide equally good quality care to the poor – this is the cheapest and most affordable option for government in the short run as a well functioning public health system has great potential to protect the poor from risk; (iii) experiment with different models of financing to spread risk and reduce the burden on the government. Such models will imply designing the features and implementing them on a pilot basis before coming up with a final policy framework; and (iv) in places/states where there are networks of self help groups and evidence of solidarity experiment the China Model as it would: (a) strengthen participation and that of local bodies and Panchayat Raj institutions; (b) incorporate the RMP into the system; (c) drastically reduce costs; (d) enable providing healthcare within the village itself. Such designing needs to be based on, first, being clear as to what the objectives of public policy are—is it deepening insurance markets, or extending financial risk protection against illness, or increasing FDI to India? Second, the size of the risk pool and lowered risk factors are critical for low premiums that could be affordable for the majority of people. Thirdly if the system is to be based largely on a fee for service system of payment, with zero cost at the point of service, then it will entail putting in place a set of prerequisites, such as standardized treatment protocols and unit costs; regulations to control the provider, disease classification using ICD-10 and/or grouping of diseases under Diagnostic Related Group for payment system, pricing controls, putting sub-limits to expenses rather than having a cap of assured sum to contain charges, making it mandatory for data returns, standardization of claim forms etc. Besides, in any insurance system it is equally necessary to have regulations for quality and cost; mechanisms for accreditation and certification, issue of unique ID cards for members, different premium structures, controlling prices etc.
Implementation of the Package - Restructuring Institutional Mechanisms and Reorganizing Relationships
Most importantly, for the actual implementation of UHIS, a critical institutional player needs to be inducted on the demand side commanding considerable market power to negotiate the best possible care at the most affordable prices for the patients. The concept is based on the assumption that organizational structures are normally shaped to suit the objectives of financing systems. If expenditure control is the overriding objective then there is usually a tendency towards centralization of all spending decisions—costing, sanctioning, releasing, accounting, mandating referrals through gatekeepers, etc. But in a prepaid insurance system the key actor is the consumer on whose willingness to contribute rests the whole system. Since individual patients cannot be expected
to bargain prices on account of their vulnerability and the superior strength of the provider who has more information on their needs, Enthoven’s idea of a sponsor, as an instrument to strengthen demand side to tilt the market to the advantage of the consumer has force (Enthoven 1983, 1993). It implies that the purchasing function needs to be centralized into one entity large enough to make a difference to the practice and earnings of the providers. The concept also draws from the power of a single payer being able to negotiate better terms as in Canada than in a multipayer environment as in US. This concept is then the theoretical basis for proposing a Social Health Insurance Corporation as the sponsor and reinsurer for independent health insurance companies. One option for the establishment of such a SHIC in Indian conditions is a) by the merger of the ESIS (medical side) with the CGHS; and b) by steadily moving towards a mandatory health insurance paradigm. For this the starting point could be mandating all public servants working in the government or government owned entities to compulsorily pool their contributions to the SHIC. Combined with a broadened ESIS membership, this alone will increase the corpus amount over four to five times to the existing Rs. 1100 crore of premium collected for Health Insurance. This corpus can further be widened when the premium subsidy for the poor is also pooled in here. Such a mechanism will provide the required volume and velocity required to trigger establishment of health insurance companies, professional provider networks, mutual fund cooperatives like weavers and fishermen cooperative societies, a federation of CBHI schemes, HMO’s by hospitals having more than 500 beds and ability to establishment own provider network etc. All these entities subject to meeting solvency rules etc could be the vehicles to access the poor in the rural hinterland—like the commercial banks reach out through the grameen bank networks. For their operations the SHIC can act as the reinsurer. Secondly, in the future years, as this system settles down, the SHIC can also establish an equalization fund as in Chile. In Chile the equalization fund is made up of a proportion of the premiums collected by all the insurance companies being pooled into the fund. Subsequently, this fund reimburses the companies in accordance with the risk profile of the insured. This then acts as a positive incentive to adhere to the guidelines of not denying insurance to any one on grounds of risk and having exclusions of any kind. The success of this model will however depend upon our ability to bring in a high caliber of professional management to the SHIC and other financing entities – having capacity to collect premiums, issue ID’s, process claims, reimburse in a timely fashion, accredit and develop provider networks, negotiate rates etc. Secondly, the SHIC will have to be a financing instrument and not a provider. This then means that own hospitals and dispensaries by the ESIS, CGHS and PSUs will need to be converted into Trust hospitals available for their members at dedicated times and for general public at other times. The advantage of this measure will be two: a) that the SHIC will be able to accrue more for the corpus as the administrative costs now pass onto the hospitals units which become self
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financing, mobilizing its money from insurance policies/ user fees; and b) the general public as well as the employees and members of ESIS, CGHS and PSUs all get a wider access and choice of hospitals. At present the CGHS dispensaries have an average of 14 OP patients per day and the ESIS hospitals have an average occupancy rate of 50%, with some having even as low as 10%. Likewise, in several remote areas where public infrastructure is weak the PSUs have excellent medical facilities with capacity to serve the local populations. Thus over 2000 facilities under ESIS, CGHS and PSUs can be opened up to the general public with an incremental amount of additional budget. This would also increase access and feasibility of insurance reaching the poor. Economy of scale that comes from a large risk pool is an important consideration for covering hospitalization. By laying down a minimum level of say 75-80% population coverage at the village panchayat level, or a risk pool of 1015,000 members as the eligibility criteria for receiving government subsidies, it could be ensured to have a more representative membership – the healthy and the better paying sections along with sick and poor. And in order to achieve the willingness to pay and optimal participation, substantial subsidies targeted to the poor, a need based standardized benefit package and linkage to provider networks need to be incorporated as the three core elements of the design. The flip side of the SHIC model is that it may entail high administrative costs due to the several layers of intermediation. The SHIC will also need to be run on professional lines with highly skilled and trained persons, which will again increase costs. The issue then is whether such a structure will be suitable and affordable and other alternatives to reduce administrative costs need to be examined. In the absence of any experience it is incumbent to try out on pilot basis some of the financing systems. To monitor and regulate this huge initiative, there will also be an urgent need to have an independent health regulator and a body of laws that address various issues related to health insurance markets and the serious distortions that the current trends are creating and will be difficult to remove later. In the absence of such a roadmap for reform and clarity of vision, the goal of having a Universal Health Insurance will not be realized. This goal was first articulated in 1954 by the then Prime Minister Jawaharlal Nehru. It is indeed a tragedy that even after five decades such an important goal continues to be an aspiration.
large size of out of pocket expenditures provides an opportunity to pool these resources and facilitate spreading risk from households to government and employers on a shared basis which will be a more equitable financial arrangement. The dimension of equity is of particular concern as the inelasticities of demand for acute care, are resulting in over 33 lakh persons being pushed below poverty line, every year. In short the social benefits of instituting social insurance as a financial instrument to replace user fees, outweighs the possible risks of moral hazard and increased costs, typical outcomes of prepaid insurance. How to minimize these two market failures are of concern and need to be addressed by developing a well thought out strategy taking international evidence into account so we build on existing knowledge and learn from others’ experiences. It is argued that it is not advisable for governments to intervene in health insurance markets in a piecemeal manner—insurance for pensioners by the Department of Personnel; for weavers by the Department of Textiles, for fishermen by the Department of Agriculture, for farmers by the Department of Cooperatives, poor women by the Department of Rural Development etc., as such attempts fragment risk pools. In other words, resorting to insurance as a financing instrument must be an act of a deliberate strategy that addresses the market failures in order to ensure that inequities do not widen and the poor are not marginalized— two typical outcomes of private, fragmented insurance systems. In conclusion it is reiterated that given the fiscal constraints for government to provide universal access to free health care, insurance can be an important means of mobilizing resources, providing risk protection and achieving improved health outcomes. The critical need is to experiment with the wide range of financing instruments available in different scenarios and have adequate flexibility in the design features, the structures and processes, institutional mechanisms and regulatory frameworks, so that a viable balance can be achieved for minimizing market distortions so that the outcomes do not make the cure worse than the disease (Enthoven 1983, 1993). Unregulated markets are inefficient and inequitable, requiring governments to intervene to ensure no segmentation in the system (Bloom, 2001). For this, the burden of building partnerships and managing change is on the government, which in turn needs to base its strategy on sound research.
Acknowledgements
I gratefully acknowledge the assistance of Dr Somil Nagpal for the analysis of the CGHS and Dr Alaka Singha, WHO, Geneva. I am most indebted to Dr. William Hsiao, Harvard School of Public Health, USA for so generously sharing his experiences of China.
Conclusion
The present system of financing and payment systems raise several important concerns on the suitability of the structure to meet current day problems and future challenges. The
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Annexure 1 Number of workforce by employment category, income status and industry classification (1999-2000)
Industry High 1. Organized Sector 1.a. Government 1.b.1 Agriculture 1.b.2 Manufacturing, etc. 1.b.3. Services, etc. 2. Unorganized Sector 2.1. Regular salaried 2.1.a. Agriculture 2.1.b. Manufacturing, etc. 2.1.c. Services, etc. 2.2. Self-employed 2.2.a. Agriculture 2.2.b. Manufacturing, etc. 2.2.c. Services, etc. 2.3. Casual employed 2.3.a. Agriculture 2.3.b. Manufacturing, etc. 2.3.c. Services, etc. (1+2) Total Workforce Rural Middle Low High Urban Middle Low High 0.14 0.14 0.00 0.03 0.04 3.12 0.80 0.05 0.26 0.65 1.38 0.99 0.19 0.39 0.44 0.34 0.17 0.01 3.27 All areas Middle Low 1.80 1.09 0.03 0.34 0.18 13.21 2.55 0.12 0.69 1.61 7.87 5.26 0.86 1.74 3.35 2.17 0.72 0.32 15.01 0.87 0.72 0.05 0.17 0.07 17.30 1.78 0.20 0.51 1.03 8.35 5.14 1.22 1.81 7.10 5.15 1.36 0.65 18.16 Total 2.81 1.94 0.09 0.54 0.25 33.62 5.13 0.37 1.46 3.30 17.60 11.39 2.27 3.94 10.90 7.66 2.26 0.98 36.44
2.23 0.40 0.04 0.11 0.28 1.19 0.96 0.10 0.22 0.38 0.34 0.17 0.01 2.23
10.15 0.87 0.11 0.18 0.47 6.56 5.18 0.55 0.80 3.05 2.11 0.52 0.20 10.15
12.68 0.43 0.19 0.11 0.21 6.23 4.85 0.64 0.67 5.95 4.94 0.77 0.30 12.68
0.90 0.40 0.01 0.15 0.37 0.19 0.03 0.09 0.16 0.06 0.00 0.00 0.00 0.90
3.06 1.68 0.01 0.51 1.14 1.31 0.08 0.31 0.94 0.31 0.06 0.20 0.12 3.06
4.62 1.35 0.01 0.40 0.82 2.12 0.29 0.58 1.14 1.16 0.21 0.60 0.35 4.62
Note: The number of workforce has been measured by the current daily status (CDS). Figures are reconciled using Table 51 of the NSS Report No. 458 and tables extracted from unit-level record data of the 55th Round along with a table from Economic Survey (2003-04). Data on break-up of urban-rural organized employment are not available. High, middle and low denote the household monthly per capita expenditure class. Source: Unit Level Records of Employment and Unemployment Survey, 55th Round, National Sample Survey (NSS), 1999-2000
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