1. R. Sidharth
Health Insurance in IndiaHealth Insurance in India
–– devising an appropriate modeldevising an appropriate model

2. Agenda
Healthcare and health insurance in IndiaHealthcare and health insurance in India
Macroeconomic trends and indicesMacroeconomic trends and indices
Current schemes and coverageCurrent schemes and coverage
Global experience and the objectives of health insurance reformGlobal experience and the objectives of health insurance reform
Devising an appropriate model for IndiaDevising an appropriate model for India
Segmenting the marketSegmenting the market
Framework for reformFramework for reform
Managing the reform processManaging the reform process

3. Health care spend in India is considerably lower than that in
other countries . . .
Access to health careAccess to health care
service providers andservice providers and
availability ofavailability of
physicians is one partphysicians is one part
of the issueof the issue
Financing for healthFinancing for health
care is the othercare is the other
aspect of the issueaspect of the issue
20042004 USUS UKUK MexicoMexico BrazilBrazil ChinaChina IndiaIndia
Life expectancyLife expectancy
(avg. # of years)(avg. # of years)
77.477.4 78.378.3 72.672.6 71.471.4 72.572.5 64.064.0
# of Physicians# of Physicians
per 1,000 peopleper 1,000 people
2.72.7 1.91.9 1.71.7 1.21.2 1.71.7 0.40.4
HealthcareHealthcare
spendspend (USD per(USD per
capita)capita)
5,3655,365 3,0363,036 336336 236236 6262 3232
HealthcareHealthcare
spendspend (% of(% of
GDP)GDP)
13.213.2 8.48.4 5.55.5 7.57.5 5.05.0 5.35.3
Source: Economist Intelligence Unit. KPMG. 2004.

4. The World Health Organization has defined possible approach
to financing of health expenditure . . .
Tax-based and out-Tax-based and out-
of-pocket expensesof-pocket expenses
are direct expenseare direct expense
related outlaysrelated outlays
Health insuranceHealth insurance
involves a fund poolinvolves a fund pool
for future health carefor future health care
External fundExternal fund
sources rely onsources rely on
donations, grantsdonations, grants
Total healthTotal health
expenditureexpenditure
PublicPublic
PrivatePrivate
SocialSocial
securitysecurity
ExternallyExternally
fundedfunded
Tax-fundedTax-funded
PrivatePrivate
health ins.health ins.
ExternallyExternally
sourcedsourced
Out-of-Out-of-
pocketpocket
Using central / stateUsing central / state
revenues for healthrevenues for health
Compulsory premiumCompulsory premium
contributions to healthcontributions to health
Channeling loans,Channeling loans,
grants etc. to healthcaregrants etc. to healthcare
Payments to health carePayments to health care
providers for servicesproviders for services
Premium contributionsPremium contributions
towards health supporttowards health support
Channeling donationsChanneling donations
etc. to healthcareetc. to healthcare

5. The proportion of insurance in health care financing in India is
extremely low . . .
Public spending inPublic spending in
health care is veryhealth care is very
low at 17% andlow at 17% and
the Nationalthe National
Health Policy hasHealth Policy has
recognized thisrecognized this
More than 86% ofMore than 86% of
healthcarehealthcare
financing isfinancing is
throughthrough
unplanned for,unplanned for,
non-contributorynon-contributory
spendingspending
0%
100%
Source of finance Means of finance
86% from
out-of-
pocket
expenses
83% from
private
sector
spending
Health care financing in India
2002, %
Source: WHO. CII-McKinsey. 2003.

6. The key issue related to financing of health care in India
revolves around the lack of adequate insurance . . .
Limited coverageLimited coverage
Only around 10% of the population is covered through healthOnly around 10% of the population is covered through health
financing schemesfinancing schemes
Geographic spread in terms of health care facilities and financingGeographic spread in terms of health care facilities and financing
awareness is limitedawareness is limited
Selection criteria by suppliers often restricts the poor (and moreSelection criteria by suppliers often restricts the poor (and more
likely to be ill) from affordable pre-payment schemeslikely to be ill) from affordable pre-payment schemes
Moral hazard and Adverse selectionMoral hazard and Adverse selection
Claims ratios for Mediclaim and Jan Arogya policies have been inClaims ratios for Mediclaim and Jan Arogya policies have been in
the range of 120 – 130%the range of 120 – 130%
System leakagesSystem leakages
Provider malpractices leading to over-charging or pre-selection /Provider malpractices leading to over-charging or pre-selection /
selective recommendationselective recommendation
Lack of universal schemesLack of universal schemes
Limitations in terms of coverage of illnesses as well as treatmentLimitations in terms of coverage of illnesses as well as treatment
optionsoptions
Alternative therapies often not considered / included underAlternative therapies often not considered / included under
insuranceinsurance
The extent ofThe extent of
coverage as well ascoverage as well as
the type of coveragethe type of coverage
are the key issuesare the key issues
related to insurancerelated to insurance
penetrationpenetration
Some companiesSome companies
have put-off plans forhave put-off plans for
India due to potentialIndia due to potential
leakages in theleakages in the
systemsystem

7. The experience of different countries suggests that private
insurance has an important role to play in overall health care . . .
Source of health insurance in countries with targeted, non-Source of health insurance in countries with targeted, non-
universal access to health care coverageuniversal access to health care coverage
e.g. Netherlands restricts public health coverage to an incomee.g. Netherlands restricts public health coverage to an income
thresholdthreshold
Private health insurance has enhanced access to timely hospitalPrivate health insurance has enhanced access to timely hospital
carecare
e.g. In UK, waiting time reduction and private health insurancee.g. In UK, waiting time reduction and private health insurance
coverage have led to a virtuous cyclecoverage have led to a virtuous cycle
Private health insurance has increased service capacity and supplyPrivate health insurance has increased service capacity and supply
by injecting financial resources up frontby injecting financial resources up front
e.g. In the US, private health insurance has financed hospitals in termse.g. In the US, private health insurance has financed hospitals in terms
of doctors and facilities through the HMO set-upof doctors and facilities through the HMO set-up
Private health insurance increases choice (provider, benefits, cost-Private health insurance increases choice (provider, benefits, cost-
sharing) for the individualsharing) for the individual
e.g. In Australia, private health insurance offer the option of access toe.g. In Australia, private health insurance offer the option of access to
spare capacity and elective care in non-public institutionsspare capacity and elective care in non-public institutions
Private healthPrivate health
insurance has led toinsurance has led to
expansion of healthexpansion of health
coverage andcoverage and
expenditure in otherexpenditure in other
countriescountries
However, regulationHowever, regulation
as well as the role ofas well as the role of
public healthpublic health
expenditure cannotexpenditure cannot
be ignoredbe ignored

8. Health insurance typically helps a patient manage health care
costs beyond a threshold amount through pooling . . .
As a contingent claimAs a contingent claim
instrument, healthinstrument, health
insurance is aninsurance is an
efficient way to helpefficient way to help
individuals prepareindividuals prepare
for health carefor health care
Insurer payment
(from premium
pool)
Individual
payment
Deductible Co-insured
Health care
expenditure
(INR)
Patient
expenditure
(INR)
Stop-loss
level

9. As a result, most countries have adopted a mix of public and
private role for health care funding . . .
PHE*PHE*
(% of total)(% of total)
PHE*PHE*
covercover (%)(%)
Nature of PHE* coverNature of PHE* cover PHI**PHI**
(% of total)(% of total)
PHI**PHI**
covercover (%)(%)
AustraliaAustralia 68.968.9 100100 All permanent residents asAll permanent residents as
enrolled under MediCare (tax-enrolled under MediCare (tax-
financed)financed)
7.37.3 44.944.9
40.340.3
FranceFrance 75.875.8 99.999.9 Social security systemsSocial security systems
covering all residentscovering all residents
12.712.7 86.086.0
GreeceGreece 56.156.1 100100 All population (financedAll population (financed
through tax and healththrough tax and health
insurance contributions)insurance contributions)
N.A.N.A. 10.010.0
MexicoMexico 47.947.9 5050 Formal worker section andFormal worker section and
government employeesgovernment employees
Voluntary system for othersVoluntary system for others
2.52.5 2.82.8
PortugalPortugal 68.568.5 100100 All permanent residents asAll permanent residents as
enrolled under NHS (tax-enrolled under NHS (tax-
financed)financed)
1.51.5 14.814.8
UKUK 80.980.9 100100 All permanent residents asAll permanent residents as
enrolled under NHS (tax-enrolled under NHS (tax-
financed)financed)
3.33.3 10.010.0
USUS 44.244.2 24.724.7 Above 65 or disabledAbove 65 or disabled
(MediCare), poor (Medicaid)(MediCare), poor (Medicaid)
and poor children (SCHIP)and poor children (SCHIP)
35.135.1 71.971.9
* PHE: Public health expenditure
** PHI: Private health insurance
Source: OECD. KPMG. 2004.

10. The approach to health financing / insurance also varies
across different segments of the population covered . . .
The right approach toThe right approach to
insurance for specificinsurance for specific
segments may varysegments may vary
across countriesacross countries
The insuranceThe insurance
approach must beapproach must be
designed arounddesigned around
differences indifferences in
segments of thesegments of the
population –population –
including mindsetsincluding mindsets
Approach to health insurance forApproach to health insurance for
different segments of thedifferent segments of the
populationpopulation
Health insuranceHealth insurance
coveragecoverage
(% of population)(% of population)
19701970 20002000
KoreaKorea Formal sector: Social insuranceFormal sector: Social insurance
Informal sector: Social insuranceInformal sector: Social insurance
Poor / non-working: SocialPoor / non-working: Social
insuranceinsurance
13%13% 96%96%
BrazilBrazil Formal sector: Private insuranceFormal sector: Private insurance
Informal sector: Government coverInformal sector: Government cover
Poor / non-working: GovernmentPoor / non-working: Government
covercover
40%40% 94%94%
ThailandThailand Formal sector: Social insuranceFormal sector: Social insurance
Informal sector: Community schemeInformal sector: Community scheme
Poor / non-working: N.A.Poor / non-working: N.A.
2%2% 60%60%Source: CII-McKinsey. IDFC. 2003.

11. Global experience provides some key learning on health
insurance policy design . . .
Balancing risk-spreading and incentives offeredBalancing risk-spreading and incentives offered
Balancing the need to encourage health insurance against moralBalancing the need to encourage health insurance against moral
hazard (individuals choose more care) and principal-agenthazard (individuals choose more care) and principal-agent
problems (providers supply more care)problems (providers supply more care)
Integration of insurance and health care provisionIntegration of insurance and health care provision
Managing doctor loyalties with patient and insurer under managedManaging doctor loyalties with patient and insurer under managed
carecare
Approach to competition and portabilityApproach to competition and portability
Balancing the need for consumer choice against adverse selectionBalancing the need for consumer choice against adverse selection
(sick preferring more generous plans)(sick preferring more generous plans)
Focus on health as against financing of health careFocus on health as against financing of health care
The over-riding objective should be to improve health rather thanThe over-riding objective should be to improve health rather than
the financing of health care servicesthe financing of health care services
Various economicVarious economic
studies havestudies have
suggested some keysuggested some key
learning aroundlearning around
health insurancehealth insurance
policy designpolicy design

12. There are some key considerations related to formulation of
appropriate approach to health insurance in India . . .
Differential approach by segments of populationDifferential approach by segments of population
Formal sector (government and non-government workers)Formal sector (government and non-government workers)
Self-employed segmentSelf-employed segment
Poor / Unemployed segmentPoor / Unemployed segment
Scope and structure of health insurance coverScope and structure of health insurance cover
Product and segment coverageProduct and segment coverage
Portability across service providersPortability across service providers
Cap on premium amountsCap on premium amounts
Risk-adjusted approachRisk-adjusted approach
Nature of fiscal incentivesNature of fiscal incentives
Subsidies and tax incentives for health insurance as against healthSubsidies and tax incentives for health insurance as against health
carecare
The approach toThe approach to
health insurancehealth insurance
in India must takein India must take
into accountinto account
specificspecific
considerationsconsiderations

13. As a result, the traditional model for health insurance needs
to change . . .
The traditional modelThe traditional model
has focused onhas focused on
insurers orinsurers or
intermediariesintermediaries
working with theworking with the
employed segmentemployed segment
only as the front-endonly as the front-end
IndividualIndividual
InsurerInsurer
ProviderProvider
Government /Government /
EmployerEmployer
Fixed feesFixed fees
ServiceService
chargescharges
VoluntaryVoluntary
premiumspremiums
MandatoryMandatory
premiumpremium
MandatoryMandatory
premiumpremium
Costs up toCosts up to
deductibledeductible
Could be allied toCould be allied to
insurer or be ainsurer or be a
governmentgovernment
approvedapproved
providerprovider
IntermediariesIntermediaries
TPAs etc.TPAs etc.
Financial flows
Service flows

14. . . . to one that allows the flexibility to serve different
segments of the population, in an efficient manner . . .
Health insuranceHealth insurance
providers may needproviders may need
to align themselvesto align themselves
to overall health careto overall health care
including financing,including financing,
preventive healthpreventive health
care and healthcare and health
outreach in order tooutreach in order to
grow coveragegrow coverage
Regulations andRegulations and
policy must bepolicy must be
designed todesigned to
encourage thisencourage this
Self-employedSelf-employed
populationpopulation
SalariedSalaried
populationpopulation
Unemployed /Unemployed /
PoorPoor
Government /Government /
EmployersEmployers
GovernmentGovernment
PrivatePrivate
hospitalshospitals
PublicPublic
hospitalshospitals
ClinicsClinics ChemistsChemists
Insurers / TPAs / NGOs:Insurers / TPAs / NGOs:
Processing activities and claims settlementProcessing activities and claims settlement
Insurers / TPAs / NGOs:Insurers / TPAs / NGOs:
Enrolments and actuarial assessmentEnrolments and actuarial assessment
Health
care
Health
insurance
Insurers / TPAs / NGOs:Insurers / TPAs / NGOs:
Community health facilities / health educationCommunity health facilities / health education
EmployerEmployer
supportedsupported
health insurancehealth insurance
GovernmentGovernment
sponsoredsponsored
health insurancehealth insurance
VoluntarilyVoluntarily
funded healthfunded health
insuranceinsurance
CommunityCommunity
health schemeshealth schemes

15. Community-based initiatives have been particularly cost-
efficient in reaching out to the poor / unemployed segments . . .
TypicalTypical
administrative costsadministrative costs
associated withassociated with
health insurance arehealth insurance are
around 20% ofaround 20% of
premium but couldpremium but could
fall to 5 – 6% underfall to 5 – 6% under
CBHIsCBHIs
CBHIs must howeverCBHIs must however
be designed to targetbe designed to target
specific segmentsspecific segments
Role in Community-based health initiative (CBHI)Role in Community-based health initiative (CBHI)
HealthHealth
intermediaryintermediary
HealthHealth
managermanager
HealthHealth
providerprovider
Example ofExample of
some CBHIs /some CBHIs /
NGOsNGOs
SEWA /SEWA /
ACCORDACCORD
TribhuvandasTribhuvandas
FoundationFoundation
Sewagram /Sewagram /
VHSVHS
Nature ofNature of
health riskhealth risk
coveredcovered
Inpatient, non-Inpatient, non-
health relatedhealth related
InpatientInpatient Inpatient,Inpatient,
OutpatientOutpatient
Access toAccess to
benefitsbenefits
After certainAfter certain
periodperiod
At time ofAt time of
dischargedischarge
At time ofAt time of
utilizationutilization
AdministrativeAdministrative
costscosts
ModerateModerate LowLow LowLow
Nature of poolNature of pool
formationformation
Occupation /Occupation /
geography-geography-
basedbased
Occupation /Occupation /
geography-geography-
basedbased
Geography-Geography-
basedbased
Source: ICRIER. KPMG. 2003.

16. As insurers get more aligned to overall health services, there
may be a shift to a ‘virtual’ managed care system . . .
The nature ofThe nature of
insurance policy ininsurance policy in
place drives the roleplace drives the role
of key stakeholdersof key stakeholders
attached to theattached to the
industryindustry
IndemnityIndemnity
Managed CareManaged Care
PPOPPO IPA /IPA /
NetworkNetwork
HMOHMO
Group /Group /
Staff HMOStaff HMO
Choice ofChoice of
providersproviders
PatientPatient PatientPatient Gate-Gate-
keeper (inkeeper (in
network)network)
Gate-Gate-
keeper (inkeeper (in
network)network)
Payment ofPayment of
providersproviders
Fee-for-Fee-for-
serviceservice
(FFS)(FFS)
DiscounteDiscounte
d FFSd FFS
CapitationCapitation SalarySalary
Cost-sharingCost-sharing ModerateModerate Low withinLow within
network;network;
high outhigh out
Low withinLow within
network;network;
high outhigh out
Low withinLow within
network;network;
high outhigh out
Role of insurerRole of insurer Pay billsPay bills Pay billsPay bills
FormForm
networknetwork
Pay billsPay bills
FormForm
networknetwork
MonitorMonitor
utilizationutilization
ProvideProvide
carecare
Source: Harvard University. World Bank. 2002.Note:
PPO – Preferred Provider Organization
HMO – Health Management Organization

17. Managing the reform process would require several
infrastructural and market changes to be effected…
Appropriate market segmentation, awarenessAppropriate market segmentation, awareness
initiatives, product innovation, and incentivesinitiatives, product innovation, and incentives
Easing of entry norms for specialist healthEasing of entry norms for specialist health
insurance companiesinsurance companies
Provider rating and credentiallingProvider rating and credentialling
Centralised database for health insuranceCentralised database for health insurance
experience statisticsexperience statistics
Efficient back-office support for underwriting andEfficient back-office support for underwriting and
claims processingclaims processing
An appropriate healthAn appropriate health
infrastructure is aninfrastructure is an
essential pre-essential pre-
requisite to healthrequisite to health
insurance reforminsurance reform

18. Contact detailsContact details
R. SidharthR. Sidharth
sidz4u@ymail.comsidz4u@ymail.com