HISTORY OF HEALTH INSURANCE

Could be traced to the countrys deep-rooted history where insurance finds mention in the writings of Manusmrithi, Dharmasastra and Arthasastra. The writings refer to pooling of resources that could be redistributed in times of calamity such as fire, flood, epidemics and famine. The tradition was preserved in the form of marine trade loans and carriers contracts. Insurance developed in India with the establishment of life and non-life insurance companies, beginning early 19th century. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers. In 1938, with a view to protecting interest, of insurance public the earlier legislation was consolidated and amended by insurance act 1938 with comprehensive provisions for effective control over the activities of insurers. There were allegations of unfair trade practices and there were apprehensions over the solvency of the insurers. The Government of India, therefore, decided to nationalize the insurance business, initially the life insurance business in 1956, and followed by the nationalization of the general insurance business in 1973. Accordingly, the Life Insurance Corporation of India, and the General Insurance Corporation of India, with its four subsidiaries, namely, the National Insurance Company Ltd., the New India Assurance Company Ltd and the United India Insurance Company Ltd. were formed. This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The process of re-opening of the sector had begun in the early 1990s to increase the penetration of insurance, to improve customer service, to enhance the efficiency of the insurance industry and to bring down costs through competition. In 1993, the Government set up a committee under the chairmanship of Shri R N Malhotra to propose recommendations for reforms in the insurance sector. The Committee submitted its report in 1994 wherein, among other things, it recommended that the private sector be permitted to enter the insurance industry. It also stated that foreign companies be allowed to enter by floating Indian companies, preferably through joint venture with Indian partners. Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory

and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA opened up the market in August 2000 and so far, 16 life insurance companies and 17 general insurance companies, including two stand alone health insurance companies, the ECGC and Agriculture Insurance Company of India, are operating in the country.

EVOLUTION OF HEALTH INSURANCE

Formal systems for Health Insurance in India began with the inception of the Employees State Insurance Scheme, introduced vide the ESI Act, 1948. Established in 1948, the Employees State Insurance Scheme (ESIS) provides for both cash and medical benefits. It was introduced as a social security blanket for workers employed in the formal sector, in organizations which meet certain criteria for enrolment, and these criteria have been revised from time to time. ESIS provides for comprehensive health services through a network of its own dispensaries and hospitals, supplemented by Authorized Medical Attendants and private hospitals to serve needs which cannot be met by its own network. The coverage includes OPD and IPD services, and a large variety of cash benefits to compensate for loss of pay and other eventualities. The scheme is largely financed through a contribution from employers and employees, which is supplemented by the Central and State governments. The ESIS covered about 30 million beneficiaries in 2005 06. The ESIS was soon followed by a scheme for central government employees, the Central Government Health Scheme (CGHS), which was introduced in 1954 as a contributory health scheme to provide comprehensive medical care to the central government employees and their families. The list of beneficiaries includes all categories of current as well as former central government employees, members of parliament, supreme court and high court judges, and certain other categories of beneficiaries. The CGHS has over 44 lakh beneficiaries and is financed largely by the Government of India budget, while the government employees also contribute a nominal amount (ranging from Rs. 15 to Rs. 150 per month) from their salaries based on their scale of pay. Here also, the coverage is comprehensive and includes both outpatient care and hospitalization. OP care is provided through CGHS dispensaries, located in major cities. It also uses the facilities of the government and approved private hospitals to provide inpatient care and reimburses the expenses to the patient or the hospital, as the case may be. Even before

nationalization, non-life insurers were providing health cover, largely on group basis, and individual health insurance schemes were few, with diverse terms and conditions. After nationalization, the four subsidiaries of GIC continued to issue health insurance policies, more as tailor-made group covers to corporate with varying terms and conditions. The first serious attempt to standardize the terms and conditions of health insurance was made by the GIC in 1986 with the launch of what is popularly known as the Mediclaim policy. Mediclaim is a voluntary health insurance scheme and covers for hospitalization and domiciliary hospitalization episodes (and certain day care procedures) with certain exclusions like pre-existing diseases, pregnancy and child birth, HIV-AIDS, etc (though maternity is covered in Group Mediclaim policies). It is an indemnity cover, where reimbursement of expenses is provided to the insured, or more recently, directly to the hospitals through the mechanism of Third Party Administrators. Over the last two decades, the standard Mediclaim product underwent a number of revisions and modifications. Also, in recent years particularly from private insurance companies, there has been the availability of newer products which have included certain innovations. Thus, the maximum sum insured available under Mediclaim which used to Rs. 83,000 in 1986, became 1 lakh in 1996 and shortly thereafter the sum insured was increased to Rs 3 lakhs, and finally to Rs. 5 lakhs presently. However, still higher sum insured is now available under other products. Similarly, the concept of sub-limits for room charges, OT, surgeons fees etc. which formed part of the original mediclaim product, was done away in 1996, but has been reintroduced in newer version of the product as a measure of cost control. A major innovation in the post 2000 period, is the availability of cashless facility through the agency of TPAs or through direct tie-ups of insurers with hospitals, where the insured need not make payments to the hospitals and the same is settled directly by the insurers (or through TPA) with the hospital. There has also been an increase in the maximum age at which cover can be granted under mediclaim (subject to necessary mediclaim examinations) which presently stands upto 80 years in some versions, though in practice, underwriting practices vary and acceptance rates at higher age groups are significantly lower. The insurance industry also innovated and launched certain other health insurance related product, to fill in certain gaps which were not addressed by the Mediclaim policy. Even prior to the opening up of the insurance sector,

a number of products were introduced by the industry. In recent years, the availability of newer products has been still higher, and there are earmarked products for Senior Citizens, for Diabetics, against specific diseases, for lower socio-economic groups (Universal Health Insurance Scheme) and the pace of innovations is increasing with the entry of stand alone private health insurance companies in the market since 2006. Already, two stand alone private health insurance companies are operational, and health insurance is now an increasingly important portfolio of other insurance companies. Current Perspective The urgent need for rationalizing health insurance arises out of several factors. Health expenditure is a major outgo from an individuals income and out of pocket payments may not be sufficient in the event of even minor hospitalizations. Health Insurance is an ideal mechanism for protect ting an individuals earnings by transferring the risk. Health Insurance can provide a better access to health care. A properly managed health insurance programmes would not only protect the finances of the individual but also ensure wellness by providing access to preventive health care. It can also be used as a tool for obtaining cost effective healthcare. Basically, a health insurance policy protects a policyholder against uncertain illness/sickness by either reimbursing the costs of medical treatment of paying a lump sum amount to the policyholder in the event of diagnosis of a specific ailment covered under the health insurance policy. The principle underlying health insurance (as in other insurances) is from the total pool of premium contribution of the policyholders the fortunate take care of the unfortunates. In India, presently the health portfolio is showing a high claims ratio implying that the claims outgo is being funded from either the reserves or cross-subsidized by other classes of insurance business like fire and engineering. However, this element of crosssubsidization would not continue for a long since fire, engineering and motor classes of business are witnessing drastic fall in prices in view of competition as a result of detariffing. Hence, it is imperative that there be adequate numbers not only to sustain health insurance but also ensure affordable premium. In the case of senior citizens, with the total number of insured persons being low, both the parameters, namely claims outgo and the number are loaded against them. It is therefore a prime requisite that the number

of uninsured senior citizen population (over 80 million) is brought into the commercial insurance fold. The Life insurers also market health insurance which is mostly in the form of riders or long term benefits policies, but the policies are directly targeted at the younger population. There are very few stand-alone health insurance products in the life sector. MEDICAL INSURANCE Risk and Medical Insurance Introduction Risk traditionally has been defined in terms of uncertainty of incurring a loss. In insurance, this risk is transferred from individuals to the insurer who is willing to combine the risk of many individuals and provide the necessary protection to any individuals should a loss occur. In exchange of this protection, each individual pays a contribution which forms a pool of funds that will be used by the insurer to pay the loss incurred. Characteristics of an insurable risk Significant Premiums are principally derived from analyzing historical losses paid. Ideally, total losses should be significant enough to be used in this calculation. Medical expenses meet this criterion. Potential expenses associated with acute conditions involving high bills of hospitalization can easily produce a considerable amount. Accidental and unintended Under one definition of risk, the loss must be for fortuitous, unintended and beyond the insured persons control. This means that if an individual deliberately causes a loss, he or she should not be indemnified for a loss. This is why drug addiction and hazardous sports are excluded from almost all of the medical insurance plans. Unexpected The loss also must be unexpected. If a loss is so common as to be expected, it is considered non-insurable. Examples are vaccinations and circumcisions which are excluded coverages from almost every insurance plans.

Calculable The risks should reasonably be calculable. The insurable event, though unexpected, must permit a clear and definitive measurement of the value of the loss associated with the occurrence. The actual loss per an individual is difficult to predict. However, an estimate can be projected through the law of large numbers and the insurer persons past experience. Under the law of large numbers, the number of individuals seeking protection must be large enough to allow the insurer to predict the incidence of losses and the associated expenses.

Peril Peril is defined as a cause of loss. In medical insurance, it would be any sickness or disease that is expected to result in a loss. If a person has a underlying infection, for example, TB in his body, he would have a raise in his body temperature (otherwise described as fever). In this case, TB is the peril, or cause of the loss. Other example of perils in medical insurance could be fracture, eye diseases, appendicitis, ulcers, etc.

Hazard such danger arising from the character of the insured. Examples of physical hazard are contaminated living conditions or environment that increases the chance of infectious diseases or obesity that increases the chance of heart diseases. For example, if a smoker develops lungs cancer, the peril or cause of loss is the cancer. Cigarettes are the physical hazards, which cause the lungs cancer. 2. Moral Hazard - Moral hazard arises from the human tendency that results in higher than average chance of loss because insurance is in force. Both insured persons and care providers attempt to overuse the benefits in order to profit from an incurred loss. Examples, exchange of drugs for cosmetic items and pharmacies; adjusting diagnosis to justify excluded procedures or prescribing unnecessary procedures. Risky individuals often rationalize their actions based on a false perception that medical insurance is an open cheque

1. Physical hazard - The danger of loss arising from the condition, as opposed to

policy that covers all their health care needs or they think that the insurer has plenty of money Adverse selection Adverse selection is a tendency of a person who are vulnerable to specific losses to purchase insurance to cover those particular losses. For example, a person who has a history of illness would be very interested in obtaining medical insurance. If such applicants are successful in obtaining coverage, we say that the insurer is adversely selected against. It can never be completely eliminated. However, stringent underwriting measures may reduce the risk. Policy provisions are also used to control adverse selection. Examples of such provisions are the preexisting condition clause in medical insurance. Principles of Medical Insurance. Insurable interest. The principle of insurable interest is the legal right to insure and it means that the person effecting the insurance has some legally recognised relationships to the object of the insurance. That is the insured must lose financially if a loss occurs, or must incur some other kind of harm if the loss takes place. For example, a husband has an insurable interest in the health of wife or dependent, since he may suffer loss financially if they get sick. Any person, obviously have an insurable interest in his health. Utmost Good Faith The principle of utmost good faith imposes a high degree of honesty on the applicant for insurance. It is supported by the legal doctrines of representations and non disclosure. Representations are statements made by the applicants for insurance. Example, the applicant for medical insurance is asked to complete medical history declaration that is usually incorporated within the application form. The declarations include questions concerning the applicants age, weight, height, occupation, state of health, family history, etc. The statements given in reply to such questions are called representations. Indemnity

The principle of indemnity is one of the most important legal principles in the field of insurance. The principle of indemnity states that the insured should not profit from a covered loss but should be restored to approximately the same financial position that existed prior to the occurrence of the loss. Most medical insurance contracts are contracts of indemnity. If a covered illness occurs, the insured should not collect more than the actual cost of the treatment. There are some policies (Hospital Cash Plans), which pay a fixed amount for each day of a hospital stay, regardless of the cost of the treatment. These are not contracts of indemnity, and the principle of indemnity has no relevance to such contracts. Subrogation This principle of subrogation strongly supports the principle of indemnity. Subrogation means substitution for the insurer in place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance. Stated simply, this means that the insurer is entitled to recover from a negligent third party any loss payment made to the insured. Contribution Contribution clauses are usually present in medical insurance contracts. These clauses apply when more than one contract covers the same loss. For instance, a husband and wife both have insurance coverage through their employees. Both contracts cover spouse. If the wife falls sick, she should try to collect the treatment cost from two insurers. Should this happen, she will be benefiting from her insurance, thus violating the principle of indemnity? Proximate Cause The proximate cause can be defined as: The active efficient cause that sets in motion a train of events which bring about a result, without the intervention on any force started and working actively from new and independent source. You might thing it is a simple matter to determine what insuring against the perils of sickness actually means. The question we need to ask is Where does the operation of these perils start and when does their effect end? All contracts are subject to some conditions. Sometimes these will be specifically included in the contract and sometimes these will be implied. Often in insurance contracts, they will state that

certain causes of loss are excluded or that certain causes of loss are excluded or that certain results of a peril which is otherwise insured are excluded. There are a number of reasons why this may be so. The extra cover might warrant why this may be so. The extra cover might warrant an additional charge of the peril may be one which the insurers regard as a fundamental risk and therefore not acceptable such as the risk of war. The proximate cause is not necessarily the first cause or the last cause: it is the dominant cause. We might describe it as the efficient or operative cause. If there are several causes operating, the proximate one will be the dominant o ne or the most forceful one operating to bring the result. In most cases there is no problem. For example a person suffers from a car accident and dies immediately. However, in some situations, it is difficult to determine the efficient cause of the loss, and arbitration may be employed or courts may be called upon to decide. Often we can establish very quickly what the initial event and the last event. The difficulty arises in deciding if there is a direct chain of causation between them, or whether some new force has intervened to supersede the initial cause of the event bringing about the ultimate loss (a medical bill).

HISTORICAL DEVELOPMENT
The medical insurance (sickness cover) was originally developed in 1930s as an extension to Personal Accident policies for employee group benefits. It originally compensated members for income lost because of absence from work due to illness. From this development it emerged the idea of full medical schemes, similar to those currently available. Firstly through Blue Cross Blue Shield organization in the USA, BUPA in the UK and many other insurance organizations that followed. Medical insurance has generally flourished most in those territories with little or no state health services. It now contributes towards a major part of personal and overall national health care expenses. Definition Insurance is the most important and effective way of transferring risk, from individuals to risk carriers (or so-called insurers). It is broadly defined to include

arrangements that provide benefits for losses and/or services via the insurers. In light of this concept, medical (or so called health or sickness) insurance may be defined as: An insurance that pays the cost of medical, surgical and hospital expenses related to medical treatments of sudden, single episode, fairly short-term and curable illnesses or injuries (commonly known as acute conditions). Medical insurance is designed to provide compensation for costs of medical treatments for acute conditions such as appendicitis, acute phases of illnesses and other eligible conditions such as maternity, dental, etc. Acute phases of an illness are characterized by a single episode of fairly short duration. For example, a person who suffers from migraine might not get a headache on a daily basis. But when a headache occurs, it is severe in nature, of short duration and controlled with rest and medications. The headache, when it occurs is knows as acute episode of migraine. Chronic illnesses and pre-existing conditions are usually excluded by a majority of insurers. However, initial diagnostic investigations until the diagnosis is confirmed, are usually covered. Further maintenance and preventive treatments are not covered. Pre-existing and chronic condition are discussed in later chapters. Several of the terms used in the above definitions require explanation. These are defined as follows: Acute Conditions Is rapid onset of a medical condition, often accompanied by severe symptoms and intense pain, and a brief duration after which the insured person returns to their normal or previous state of health and degree of activity. Chronic Condition Is a medical condition that persist over a long duration, requiring regular maintenance treatment without prospect of cure or of being able to return the insured person to his/her normal or previous state of health. An example of chronic condition is diabetes mellitus. The illness itself is long-life, but can be controlled with medications and lifestyle changes. Eligible Medical Condition Means any diseases, illness or injury not otherwise excluded by the policy terms and conditions. Illness

Illness means any kind of sickness or disease, not otherwise excluded by the policy, which is sustained during the period of insurance and makes it necessary for a member to receive treatment from a physician or consultant. Maintenance Treatment Its treatment provided for a medical condition of a long duration that will only give relief or control symptoms rather than effect a cure. Pre-existing Condition Is any medical condition or its related condition that is medically existing prior to a members enrolment, whether it is known or not known to the member and necessitate for the member to receive treatment from a physician or consultant. Some insurers limit the existence of the condition to a period of 12 to 48 months prior to the members enrolment. Related conditions, means any medical condition considered to be either an underlying cause of or directly attributable to a pre-existing condition. Treatment Is a surgical or medical procedure, the sole purpose of which is to cure a medical condition and not to provide relief only for a chronic illness. ADVANTAGES OF MEDICAL INSURANCE Individual clients Protection against financial loss Peace of mind Better quality of medical care privately Choice of facilities with freedom in selection of a time for treatment (no waiting time) Choice of hospitals and doctors Private room and hotel facilities Health consciousness Limited individual health costs.

Corporate Clients Attraction and retention of qualified staff

Healthy workforce Limited health care budget Increase productivity/profitability Reduce employees absentee rate Employees loyalty Reduce employee turnover.

According to a survey conducted by BUPA in the UK few years back (on a sample of 201 insured persons), a majority of individuals acquire medical insurance to have easier access (i.e. reduce the waiting time of the government providers) to a quality health care services when needed. The following shows details of the result: Total Population Less waiting time Quality of medical care/treatment Decline of public health care Peace of mind More need as getting old Personal attention/consideration Family to look after/care for DISADVANTAGES OF MEDICAL INSURANCE Cost of doing business Insurers consume economic resources such as land, labour, capital and business enterprise in providing insurance to society. In financial terms, an expense loading must be added to the pure premium to cover the expenses incurred by companies in their daily operations. As per international industry average, operating expenses of medical insurers account for at least 15 percent of each premium dollar. As a result, the total costs to society are increased. However, these additional costs can be justified for several reasons. First, from the insureds viewpoint, uncertainty concerning the payment of a 73 % 36 % 18 % 15 % 12 % 12 % 10 %

covered loss is reduced because of insurance. Second, the costs of doing business are not necessarily wasteful, since insurers engage in a wide variety of loss prevention activities. Finally, the insurance industry provides large number of jobs to large number of people. Fraudulent Claims A second cost of insurance is the submission of fraudulent claims. Moral hazard among some of insured persons is substantially high. According to a study conducted by one of the insurers in the region, the consumption of health care services among the insured population is as follows: 10 % of the insured persons use 50 % of the costs Another 10 % use 20 % And 50 % use 30 % While 30 % use no health care

This shows that on average 20 % of the population consume 70 % of the medical insurance costs. A portion of the losses incurred is expected to be illegitimate. A dishonest person deliberately incurs a loss and then submits the claim to the insurer for payment. Numerous examples of fraudulent claims can be given. The following are some examples: Swapping membership cards with other family members or friends Frequent use of unnecessary medical services Exchange of drugs for other cosmetic items at the pharmacies Frequent use of unnecessary or excluded procedures. This is done by requesting treating doctors to adjust diagnosis to justify these procedures. The payment of fraudulent claims results in higher premiums to all insured persons. These extra costs fall directly on society. Inflated claims Many claims are inflated because of insurance. The loss may not be intentionally caused by the insured, but the claim may be inflated. In other words, it may exceed the actual financial loss experienced by the insured. A number of examples can be given. A surgeon may charge above-average fees for surgical procedures covered by a patients medical insurance policy. Others might prescribe unnecessary procedures for the sake of revenue maximization. These inflated claims must be recognized as an important social

cot of insurance. Premiums must be increased to cover the losses, and disposable income that could be used for the consumption of other goods or services is thereby reduced. In summary, the social and economic benefits of insurance appear to outweigh the social costs. Insurance reduces worry and fear, the indemnification function contributes greatly to social and economic stability, economic security or individuals and corporate is preserved and from the insurers prospective, objective risk in the economy is reduced. The social costs of insurance can be viewed as the sacrifice that society must make to obtain the benefits on insurance.

FEATURES OF MEDICAL INSURANCE

Individual versus group medical insurance It is very important to distinguish between individual and group medical insurance. Each has its own features and should be clearly understood. The following table shows a comparison between characteristics of individual and group medical insurance contracts: A comparison of Individual & Group Medical Insurance. Individual It provides coverage to an individual who owns the contract of insurance. Insured person is the policy owner. It often includes the policyholders family members. Group It provides coverage to a number of persons under a single contract (known as the master contract). The policy owner is an employer or any other organization. It provides benefits to a group of individuals who have a specific relationship (for example, employment) to the policy It is usually owned by the insured. There are some cases where an individual purchases the insurance for spouse or dependent children only. owner. Someone other than the person insured owns it.

It covers any individual who legally qualify To avoid anti-selection, most of policies for contracting and his spouse and eligible dependents. No limitations on the number of participants. Acceptance for coverage is determined by the characteristics of a person being insured, rather than those of the policy owner. It requires the receipt of the contract or policy by the insured or policy owner as evidence of coverage. Except spouse and dependents, insureds coverage normally begins with the termination. Individual premiums are determined by the characteristics of the person being insured. usually cover full-time employees. Usually a minimum number of participants is required. The underwriting is focused on the characteristics of the group, rather than those of the individual members. Employees covered receive certificates of insurance as evidence of their coverage. Members may become eligible for or cease eligibility for coverage any time during the

inception of the contract and ceases with its policy period. The actual group experience of the larger employers is the most significant factor in settling the premium. Pre-existing conditions Pre-existing conditions are any medical conditions or their related conditions, which are a consequence of any previous illness that has ever required or would require hospitalization, medical treatment and/or medication, or has been diagnosed prior to members enrolments. These conditions are generally excluded, but some policies cover them under certain conditions, usually after elapse of a waiting (i.e. moratorium) period. Chronic conditions Chronic Condition is defined as a medical condition of long duration that is seen to be an ongoing condition without prospect of cure or of being able to rturn the insured person to their normal or previous state of health. As mentioned earlier, indemnity medical insurance policies only cover acute and curable conditions. Conditions such as hypertension, bronchitis, diabetes, peptic ulcer, sinusitis, etc. are not curable. They require preventive or maintenance treatment, which will only give relief or control

symptoms rather than effect a cure. The conditions are not under the scope of medical insurance. However, initial diagnostic investigations until th diagnosis is confirmed, are usually covered. Excess Excess (or deductible) is defined as the first amount, payable by the insured member towards the cost of each claim (often outpatient). If the cost of treatment is less than the excess amount, then the insured person will be liable to pay all the expenses. The excess may be expressed as: A flat amount (for example Rs. 50 or Rs. 100): or As a percentage of total treatment cost. Per service or episode of service; Per life time; Per calendar year; or Per family

Further, the excess may be imposed on aggregate:

Coinsurance This is the amount an insured person is required to pay for the cost of services after he has met his excess if any excess exists. The coinsurance rate is usually expressed as a percentage of billed charges, usually between 10 to 25 %. For example, if the insurance company pays 80 percent of the claim, the insured pays 20 percent. Insurance Co pays (Rs. 100 ) E X C E S S 20 % COINSURANCE 80 % PAID BY INSURANCE

Insured pays Definition Medical insurance contracts normally contain a list of precise definitions of terms such as hospital, doctor, outpatient treatment, etc., in order to assist in claims control and avoid benefit abuse. Usual, reasonable and customary charges These are charges for the same service in the same territory. Insurers compare cost of services incurred by insured persons with the limit established, by the insurer as normal and reasonable and if billings exceed the standard, the company pays based on usual, reasonable and customary charges. Medically necessary services Medical insurance provides compensation for any medical, surgical or other medical services that a member requires provided such services are reasonable for the condition presented. In other words, the proposed treatments should be in accordance with accepted prevailing medical and surgical practices in the country where the treating doctor exist. Contract of Insurance Introduction The tangible representation to insured persons of all promises and protection together with their qualifying provisions is a legal document that is binding on insurers and is known as a contract of insurance (under individual contracts) and a master contract (under group contracts). Policy wording Each insurer has its own printed policy wordings. Although the actual wordings and the structure might vary between each company, in essence they all cover the heading, preamble clause, definition, exclusions and conditions in addition to other provision. In

the following pages we will discuss the main parts, which are usually contained in health and life insurance contracts. Heading This part shows the name and registered address of the insurer at the top of the front page or, sometime, in a separate front. Preamble Clause The preamble clause section usually can be found on the first page of the policy or on a policy insert, but its actual wordings vary between one insurer to another. It may refer to the parties of the contract and to the basis on which the contract is based. The following clause gives an example of such wordings: This Policy is a contract between the Insurance Company and the Policyholder named in the Membership Certificate. The basis of this contract shall be: any information provided to the Company by or on behalf of Policyholder in the Application, addenda thereto or subsequent correspondence, and the cover provided by the Policy Schedule, the table of Benefits, the Membership Certificate, Members Guide and Directory of Hospitals and any endorsements or addenda thereto. All of which are deemed incorporated in this contract. Or, This policy is a contract the Insurance Company (the company), and the policyholder named in the Certificate of Insurance (the Certificate). The information provided to the company by or on behalf of the policyholder and/or the insured members in the application form and any addenda thereto is the basis of this contract and is deemed to be incorporated herein. The cover provided shall be determined by reading the rules defined herein together with the Certificate issued to the policyholder. Any cover not shown in the Certificate is not provided. Please examine the policy and the Certificate carefully to make sure the required protection has been provided. In consideration of the payment of the required premium and upon the receipt of Proof of Claim, the company will pay the policyholder up to the limits shown on the Schedule of Benefits for medical or other covered expenses incurred during the period of insurance.

Benefits are payable either to the insured member (at the request of the policyholder) or to the policyholder, whose official receipt shall be a valid discharge of the companys liability to pay in respect thereof. The companys liability is limited in amount to the limits shown on the Schedule of Benefits. The overall maximum limit stated on the schedule is the maximum amount recoverable under the policy by an insured member during any one period of insurance of one year. Definitions The purpose of definitions is to define clearly the meaning of key words or phrases so that coverage under the policy can be determined easily. One must bear in mind that not all types of policies contain a definition section. However, it is becoming more and more common to include such section in an attempt to make insurance policies as conspicuous, plain and clear as possible. Among common words defined under most of the policies include medical expenses, accidental bodily injury, illness, employer, employee, dependant, insured member, deductible, physician, hospital, usual country of residence, reasonable and customary charges, pre-existing condition and due date. A detailed definition of each is mentioned later. Eligibility This clause defines persons eligible for insurance. Under individual insurance, all individuals who are below the upper limit for age and are legally qualified for contracting are eligible to become an insured member. Most companies usually state an upper limit of 65 for age. For groups, all existing employees shall become insured members as from the date of commencement of the insurance cover, subject to the employee being actively at work (or on normal annual leave) on that date. If absent from work through reason of injury or sickness, cover will commence after the employee has been actively at work for a period of two consecutive weeks. New employees shall be eligible to become insured members from the first day of the month following the date on which they first become employees, as defined in the policy. Dependants (other than newly-born children) are eligible for insurance on the same date that the insured member, to whom they are related becomes eligible, or on the date the insured member acquires any such dependant, whichever is the later. Newly born children are eligible for insurance when they achieve

the minimum age stipulated by each policy, usually 14 days. Parents, sisters, brothers, aunts and uncles are not considered as eligible dependents. Limit of Liability This refers to maximum amount the insurer is liable for compensation. It is important to note that each company has its own limits and sub-limits, which may vary within each policy. The overall maximum limit stated in the contract is the maximum amount recoverable under the policy as a whole by an insured member during any one period of insurance. These benefits are payable either to the insured member or to the providers of covered medical services, whole official receipt shall be a valid discharge of the companys liability. Within each policy, the limits may also be divided into the sublimits. Summary of Benefits Summary of benefits (also called Table of Benefits) is the most important section of a policy. It is the operating clause where the actual cover provided and its limitations are outlined. An extract from a typical benefit table, with the various limits is illustrated here: Benefit Details Plan A (Basic Plan) Territorial Limits Annual maximum Benefits In-Patient Treatment (Hospital Accommodation) Daycare Treatment Out-patient Treatment Emergency Treatment Abroad Maternity Dental Optical Excluded Excluded Excluded Excluded 500 600 Excluded Excluded Full Refund 1,000 200 50 Full Refund (Shared) Full Refund Excluded Full Refund (Private) Full Refund 1,000 Full Refund (Suite) Full Refund Full Refund India 10,000 Plan B (Standard Plan) India 50,000 Plan C (Comprehensive Plan) Worldwide 250,000

Excess

Nil

100

100

Exclusions Exclusions are a basic part of any insurance contract. There are two major types of exclusions in medical insurance contract These include: Special Exclusions These include: Maternity Dental Optical/Vision

These exclusions are covered at additional premium General Exclusion A list of general items excluded from the policy. Almost all of the policies in the region apply the same exclusions. Administration and General Conditions The condition section is another important part of an insurance contract. Condition s are provisions in the policy that qualify or place limitations on the insurers promise to perform. In effect, the condition section imposes certain duties on the insured if he or she wishes to collect for a loss. If the policy conditions are not met, the insurer can refuse to pay the claim. Common conditions in a contract include: Notifying the insurer if a loss occurs, Filing a proof of loss with the insurer, and Cooperating with the insurer;

Insurance contracts also contain certain miscellaneous provisions that are common to all insurance contracts. These provisions treat the relationship between the insured and insurer, and the relationship and responsibility of the insurer towards third parties. These common provisions also establish working procedures for carrying out the terms of the contract. In medical insurance, some common provisions refer to cancellations, subrogation, and requirements if a loss occurs, assignment of the policy, and other-

insurance provisions, the grace period, the reinstatement of a lapsed policy, and the misstatement of age. TYPES OF MEDICAL INSURANCE PLANS Introduction Over the years, several types of medical insurance plans have been developed internationally. They are usually designed to serve individual markets, but there are some common plans that are offered in most of the markets. The following examples those are available in the region: Indemnity Plans Conventional Indemnity plans are the earliest plans offered to the markets. These plans originally were designed to cover expenses incurred in hospitals as inpatient; modern plans often offer more comprehensive cover. Currently, the scopes of coverage under these plans are often categorized under the headings of: Basic Plans Provides limited range of inpatient benefits, with a limited choice of hospitals, and sometimes surgeries are limited to a number of illnesses. Standard/Core Plans Provides controlled or limited benefits, low level of hospital accommodation and limited choice of hospitals. Comprehensive Plans Provide widest scope of cover, refund most charges and are the most expensive type of indemnity plans. Tailored Plans Expand or limit coverage to suit individual clients needs and budgets. These plans are usually available to group clients. Cafeteria Plans Individuals and employees are able to substantially design their own plans based on a list of benefits offered by the insurer. Managed Care Plans Managed care plans have been designed to overcome the out-of-control costs of the indemnity plans. These plans are based on an organized way to manage costs, use, and

quality of the health care system. The plans involve medical providers in the provision of the services by means of risk sharing arrangements such as fixed (capitation) and rduced charges (Preferred Provider Organizations) contracts, out-of-network (Point-of-Service) and Health Maintenance Organizations (HMOs). The following are different types of arrangements offered under managed care plans: Capitation A method of paying medical providers through a pre-paid, flat monthly fee for each covered person. Under these arrangements, the provider shares the risk in the sense that the capitation fee is independent of the number of services received or the costs incurred by the provider in furnishing those services. Preferred Provider Organization (PPO) Networks of providers with which contracts are negotiated for clients to receive medical services at discounted costs. Health Maintenance Organization (HMO) Prepaid health plans in which members pay monthly premium and the HMO covers doctors visits, hospital stays, emergency care, surgery, preventive care, checkups, lab tests, X-rays, and therapy. Under these arrangements, each member must choose a primary care physician who coordinates the entire members need for services and makes referrals to specialists if required. Point-of-Service (POS) Plan A type of managed care plan combining features of HMOs and PPOs, in which members decide whether to go to a network provider and pay a flat amount per visit as a co-payment, or to an out-of-network provider and pay a deductible and/or a coinsurance charge. Managed care schemes are widely used in the Indian sub continent is limited. Some insurance companies, especially in Saudi Arabia sell Capitation Contracts and in UAE they have started offering HMO products. Hospital Cash Plans These plans provide fixed daily cash sums during hospitalizations, irrespective of the cost of the treatment. The cash sums are partial compensation for hospitalization expenses and consequent loss of earnings. These plans are particularly suitable for areas where

there is a good state health service, which provides hospital treatment free or at nominal costs. MEDICAL INSURANCE SCOPE OF COVERAGE Introduction Plans vary in the types of treatment they cover. An insurer may provide cover for some or all of the following: in-patient treatment; day-patient (also known as daycare or day case) treatment and outpatient treatment. Some policies may also cover physiotherapy and certain types of alternative treatments, like acupuncture and homeopathy. Benefit Options Medical insurance products present a broad spectrum of specific coverage and benefit options that pay for the expenses associated with needed health care services and/or allow the insured to maintain his/her quality of life. Core Benefits These are the basic primary (outpatient) and secondary (daycare and inpatient) benefits offered under most of the plans. Inpatient and Daycare These refer inpatient hospital care services that include the following benefits: Hospital accommodation and services. These normally include room charges (either suite, private or shared), meals and nursing care Parent accommodation accompanying a child (usually under 10 or 12) Anesthetists fees Operating theatre charges Consultants and surgeons fees Medications Laboratory Diagnostics Physiotherapy charges Intensive care unit charges Medical supplies and disposable Nursing at home (in lieu of a hospital stay)

Hospital cash benefits Ambulance

Out-patient Outpatient benefits include Consultations Medication Laboratory Diagnostics Physiotherapy charges

Ancillary Benefits These refer to coverage and benefits that are outside the scope of basic and standard plans. These benefits are usually incorporated into comprehensive plans. Examples of ancillary benefits include: Maternity These refer the necessary charges made for pre-natal, childbirth and post-natal treatment of a female insured. General benefits structure include: Normal delivery: ante-natal and post-natal care Caesarian delivery: ante-natal and post-natal care Legal abortion/miscarriage

Dental Dental plans vary enormously in what they cove r. A very comprehensive plan might include: Diagnostic services, including routine examinations and x-rays. Simple restorative care, including amalgam (silver filling) Crowns and jackets Treatment of disease, abscesses of gums and root canal therapy Oral surgery Bridges and dentures Orthodontia Cleaning and scaling are often excluded

Optical This refers to vision care. A comprehensive cover might include: Eye examination Lenses Frames Contact lenses

Emergency Treatment Abroad This refers to emergency treatment required while an insured person is outside his country of residence for reasons such as a business trip or holiday. Treatment Abroad This refers to treatments outside country of residence, other than emergency. Exclusions Insurance is not designed to cover all the services a person might require. There are some ill nesses and treatments which are not covered these are common to most schemes. General Exclusions These are exclusions generally applied to most of the policies. A majority of the policies include: Drug abuse Self-inflicted injuries Sexually transmitted diseases, HIV/AIDS, impotence Infertility Cosmetic surgery Gender reassignment (sex change) Preventive treatment Kidney dialysis Mobility aids Experimental treatment Experimental drugs (for example, genome project or gene therapy) Organ transplant War risks

Injuries arising from dangerous hobbies (hazardous pursuits), such as diving Congenital diseases Birth control devices and pills Circumcision unless for medical reasons Insured member above and below the required age Pre-existing and chronic conditions Services or treatment in any home, spa, hydro-clinic, sanatorium or long-term care facility Routine medical examinations or check-ups Vaccinations, medical certificates Examinations for employment or travel Nuclear risks Mental illness or disease and psychiatric disorders Self poisoning Prostheses and corrective devices

RATING MEDICAL INSURANCE PLANS Introduction Rating refers to the calculation of the contribution known as a premium; each individual has to pay the insurer, in exchange for insurance protection. This contribution should be sufficient to meet costs of expected insurance losses, pay office expenses, provide a profit and establish reserves. Rating Methods There are different methods for calculating basic premium rates ranging from stochastic modeling of each benefit to simply taking the average of the aggregate claims cost. However, a general approach is usually that of: Basic Rate = Expected Claims Frequency X Expected Claims Cost. Calculating Standard Rates In its simplest way, an expense ratio and the insurers desired profit margin should be added to the basic rate (usually known as the risk premium) in order to arrive at a standard premium rate (usually known as the office premium). In reality calculating

standard rates can be a complicated process and is usually handled by actuaries. They consider several other parameters, such as medical inflation, social attitude to illness and accidents, the use of deductible and coinsurance, etc. Individual Rating Individual rates are calculated using manual-rating process, under which rates are established only for broad classes of insurance business. The insurer does not consider the past claims experience of a particular group when determining the rates. However, the past experience is not entirely ignored since the aggregate claims experience for a class of business is used to determine the rates for that class. The rate for an individual is then determined by adjusting the rate for the class to reflect the characteristics of the individual being insured, using such parameters (known as risk factors) as age, sex, occupation, health status (i.e. medical history), smoking status, etc. Individual (manual) rating is also used in calculation initial rate for groups with no past experience. Group Rating Some insurers use experience rating methods for calculating group rates. With experience rating, insurer considers the actual group experience in determining the groups premium rate. It is believed by some to be the most cost-effective way to reflect the general health of a group in the rate that is charged. Small groups are treated like individuals (although some use an experience factor to some extent). Rating Process This refers to the steps used to determine a premium rate for a particular group based on the amount of risk that group presents. Items that generally go into the rating process include age, sex, type of industry, benefits, and administrative costs. Underwriting Medical Insurance Introduction Underwriting enables an insurance company to provide its services to insured persons and to make a profit. It acts as a filter or sieve and as such the insurers experience will vary greatly according to the degree and efficiency of its underwriting process. Poor underwriting makes the company vulnerable to financial loss caused by adverse selection. Definition

Underwriting is defined as the process of selecting, classifying, evaluating, assuming risks and rating of applicants for insurance. Applicants who meet the underwriting standards are insured at standard rates. If the underwriting standards are not met, the insurance is denied, or an extra premium must be paid. Individual versus group underwriting In individual insurance, all applicants must be evaluated separately (one-at-a-time underwriting). Individual underwriting involves the assessment of individuals health status, occupation, hobbies, and other pertinent information that may result in: 1. pre-existing limitations; 2. exclusion of benefits; 3. waiting period before benefits become effective; 4. higher premiums; or 5. refusal to offer coverage On the other hand, group underwriting is generally concerned with the nature and composition of the group as a whole. It does not rely on underwriting individuals oneat-a-time. A group is a population that comes together for job, profession or reasons other than acquiring medical insurance. Obtaining medical insurance is not the groups primary goal. Therefore, in contrast to individual insurance, group insurance enjoys a built-in spread of applicants across a broad range of health conditions. In summary, the main objective of group underwriting is twofold: 1. 2. To minimizing the risk of anti-selection (meaning those who are more likely to seek insurance) by insuring a sufficient spread of lives; and To lower premium rates through reduced administrative expenses. Small groups and late joiners under large groups are also subject to individual underwriting. It is not really possible to dispense with individual underwriting unless thee are at least 10 15 members. Underwriting pre-existing condition Pre-existing conditions may be underwritten by using the following methods: Full Medical Underwriting (FMU) This refers to asking detailed questions about the applicants state of health. If the applicant has a medical condition which is likely to recur, the insurer will still issue a

policy but is likely to exclude that particular condition, and any other connected with it, either for good or for a limited time. Moratorium Based Underwriting Under this method, there is no medical underwriting, but the insurer use a moratorium to exclude treatment for a pre-existing condition for a set period of time. For example, some insurers apply 3 years moratorium period to exclude maternity benefits. Medical History Disregarded (MHD) Under this method, there is no medical underwriting. In return, the insurer chareges an extra premium to protect itself against any pre-existing condition the applicant might be suffering. The responsibilities of an underwriter They must appraise the risk, decide on the conditions for acceptability and set a rate. CLAIMS Contracts such as medical insurance that provide benefits on an indemnity basis typically require that the insurance company be given a written proof of loss (i.e. a claim form) Concerning occurrence, character and extent of the loss for which a claim is made. In medical insurance, when a member utilizes a benefit a claim is incurred. This claim will usually be incurred at one of the following providers: 1. Hospitals 2. Pharmacies 3. Laboratories 4. Clinics 5. Diagnostic Centers; or 6. Any other provider of medical service. Claims processing The claim processing function is structured in the following order and is usually followed in the same order as mentioned 1. Submission of claim 2. Acknowledgement of claim receipt 3. Batch creation of the received claim 4. Auditing the claim

5. Data entry of the audited claim 6. Approval of the claim 7. Settlement of the claim 8. Filing of the settled claim TYPES OF CLAIMS FORMS Primary Claim Form It is a form used for outpatient, emergency daycare and emergency inpatient treatments. It is also used for pre-authorization of treatment request. Pre-authorization means the review and approval of services by the insurer prior to or simultaneous with the treatment date. Secondary Claim Form It is a form used for daycare and inpatient treatments (hospital admissions). WHY YOU SHOULD BUY HEALTH INSURANCE? To pay your medical treatment expenses incase of hospitalization due to any disease or accident. If you have health insurance your current earning will not be effected as the cost will be borne by the Insurance Company. Health coverage can help you to limit your out-of-pocket costs, protect your assets and even safeguard your future earnings. You will not have to worry about arranging money at the 11th hour and this will give you peace of mind. The cost of medical expenses is rising and its expected to further rise because of inflation and ever increasing rise in the cost of medicines and other expenses. With cashless hospitalization you just need to show the ID card and the patient will be treated without paying any cash. You can even get treated in the best hospitals which were not usually affordable. Many insurance companies offer 24hour helpline that helps you arrange for ambulances, get information bout the nearest hospitals, best doctors, etc. There has been enormous change in the lifestyle of everyone. Life ha become complex with increasing competition and ever rising expectation from family members and peers. This increases risk of suffering from health problems. HOW MUCH HEALTH INSURANCE IS REQUIRED?

The need for a medical insurance increases with the age. Disease may affect persons of any age may be a child, grown ups, young man or an old man. Accidents and injuries can affect anyone. However, the amount needed for medical expenses may vary depending upon the type of disease. It is very difficult to say that in case of a child the medical expenses will be low and in case of an elderly man the expenses will be high due to age related problems. Though in case of elderly persons the chances of incurring medical expenses are more. But no one can predict in what age the disease may struck. Now a days we see many young healthy persons suffer heart attack, cerebral hemorrhage and many such diseases which were not known before. Comparatively the age expectancy has increased a lot. In 1040s 50s the average life expectancy of a person was considered to be 40 years. Now the life expectancy is at around 60 65 years. Insurance is required for both Living too long and dying too soon. If a person lives long chances of contracting diseases increase and as a result the cost of living longer increases. Since in old age the person usually retires from work the burden of sharing his expenses comes on either the pension he received or his children on whom he is dependant. If the children are not financially strong the burden of meeting medical expenses may upset their budget. The amount of insurance that needs to be taken exactly depends upon the current earning capacity of the person and the amount he can afford towards health insurance without disturbing his routine expenses. Health Insurance is must for all, i.e. Individuals and his Spouse, Children and Dependant parents. If a person covers all family members in a single policy he can get group discount which will help him to sav insurance premium. A person can also opt for a Floater Policy under which all the family members will be covered under a single sum insured. For example say if a person opts for a floater policy of Rs. 250000. Now under this policy the sum insured for all the family members will be Rs. 2.5 lacs. In case of hospitalization of single member also he can avail treatment up to Rs, 2.5 lacs.

However after availing the amount the sum insured will be reduced by the amount of claims paid under the policy. So every individual must set out a budget which he can afford to forego every year and must take health insurance accordingly. However he must ensure that the amount of policy is enough to cover most medical expenses. In any case there should not be underinsurance. Having underinsurance is like not having insurance. Suppose you are very hungry and you go to a restaurant. You order for 5 chapattis. However you have to satisfy with only one chapatti as you dont have enough money in your wallet. Even though you had one chapatti your hunger is not satisfied. You dont feel good as your want has remained unsatisfied. So your position before you had one chapatti and after having chapatti remains the same. Rather after having one chapatti you have become more unsatisfied. Similar is the case in insurance. Under Insurance is a strict NO.NO.Now say a major operation costs Rs. 250000. But you have purchased a policy for only Rs. 50,000. This will not erve the purpose for having health insurance as you will have to arrange the balance amount for the treatment from your own pocket. The hospital will ask you to first arrange the money then only the treatment will be started. So ultimately you dont get the advantage of having a health insurance. In case of health insurance the amount of premium paid is not refunded if a person does not suffer from any disease during the year. I know a person who used to get sad at the time of end of the policy that he has wasted the entire premium and he has not suffered from any disease. So indirectly if he would have suffered any disease he would have been happy that his insurance premium has been utilized. I definitely think you dont agree with this person and you will certainly feel happy that you have not suffered any disease. That gentleman did not calculate that had he suffered from any disease he would have been hospitalized and may have been off from work for 15 days or more. This would certainly have affected his earnings and business. What is the ideal amount for health insurance? Ideally we see that an mount of around 150000 250000 on an average depending on capacity of the person would be adequate. However if the amount is more and the person can afford it nothing like it.

This will again depend upon the earning capacity and financial position of each individual. You should consider medical premium expenses as maintenance cost of living a healthy life. Dont treat it as a wasteful expenditure. IS IT ADVISABLE TO HAVE MULTIPLE COVERS FROM INSURANCE COMPANYS? Even if you have multiple covers you will get only the actual claim amount. Multiple cover means having a policy from more than one insurance company. Suppose you take one policy from X Insurance Co. for Rs. 2 lakhs and Y Insurance Co. for Rs. 1.5 lakhs. You suffer from disease and the amount of claim is Rs. 75000. You will not get a separate claim from each of them. However if you have a claim of Rs. 230000 then only the two companies will proportionally share the claim amount. But that will be a cumbersome affair as you need to submit original document to the insurance company for getting a claim. You can submit the original papers to one company only. So instead of purchasing health insurance from two separate companies take bigger amount from one insurance company. STANDARD COVERAGE UNDER A HEALTH INSURANCE POLICY Health Insurance policies are being offered by many companies. All insurance companies have their own terms and conditions. Generally the insurers cover the following policies: Hospitalization Expenses: Room, nursing expenses, fees of the doctors. OT charges, medicines and drugs, X-Ray, dialysis, chemotherapy, radiotherapy, cost of organs, etc. Following expenses are NOT paid by the insurance companies: 1. vaccination 2. circumcision 3. change of sex 4. aesthetic treatment 5. plastic surgery 6. cost of spectacles, contact lenses, hearing aids

THIRD PARTY ADMINISTRATORS AND HEALTH INSURANCE IN INDIA The TPAs are licensed by IRDA which undertakes the implementation and administration of the schemes. A TPA acts as nodal agency between the insurance company, the insured member and the hospitals to provide right service at the time to the right person at the right price. The arrival of TPA is expected to play an important role in health insurance market in ensuring better services to the policy holders. In addition, their presence is expected to address the cost and quality issues of the vast private healthcare providers in India. However, the insurance sector still faces challenge of effectively institutionalizing the services of TPA. A lot needs to be done in this direction. THE ROLE OF TPA The basic role is to function as an intermediary between the insurer and the insured and facilitate the cashless services. For this service theyre paid a fixed percent of insurance premium as commission. The commission is 5.5% of premium amount. Following are the major responsibilities of a TPA 1. Enrolment and Insurance of Member Card: The TPA receives the policies from the insurers along with the member details. The TPA processes the information and issues an ID card to the insured member. This card is utilized by the insured members for availing cashless treatment at network hospital of TPA. 2. Claims Management: Healthcare Outsourcing and accuracy in health insurance claims processing are the key elements in improving turn-around time and claims throughput. This is achieved through high potential segments in healthcare outsourcing to the TPA health insurance claims processing. The target is to manage core processing cost drivers and generate significant financial improvements for the insurers overall plan performance. The health insurance claims processing services are driven by transactional efficiency. The TPA helps in achieving maximum automation of claims resolution processes. They support new products and services by leveraging the existing legacy system.

The outsourcing of claims processing to the TPA ensures cost and advanced process engineering savings that are critical to health care and claims management functions and processes. The TPAs has a team of medical professionals and the technical staff to handle the claims management for the members enrolled with the insurance company. 3. Call Center services: Call Center services are available 24hrs. Provides the status of the claims on phone, fax or email Information on coverage of treatments within the members benefit plan General questions regarding procedures and protocols Provide information related to network hospitals and their contact details Address grievances of customers

4. Pre-authorization: Pre authorization is a system of approval of treatment and guarantee of payment by an administrator or an insurer to the treating provider for services rendered to the enrolled members of a pre defined benefit plan. Objectives of this system Cashless treatment: Cashless treatment is a payment authorization or guarantee to the provider for cost of treatment rendered to the enrolled member. Cashless service relieves the member from upfront payment to the provider for the treatments which are covered in the plan. The administrator settles the bill of the patient directly once the authorization has been issued. Utilization review: Utilization review is a method of ensuring quality of care within parameters of cost containment. Unlike the retrospective claim audits of traditional insurance, utilization review evaluates appropriateness of health care before it is delivered in order to help eliminate waste and potential risks to the patients. Utilization Review techniques are mechanisms that attempt to control costs by examining whether services provided are medically necessary and services are provided at an appropriate level of care at a minimal cost.

EMPLOYEE STATE INSURANCE SCHEME (ESI)

Health- financing models based on formal employment are widely prevalent and make up a significant source of health financing. This is in addition to the other sources of health financing through general government revenues and private through general revenues and private insurance. These health financing mechanisms are recognised as powerful methods to ensure adequate financial protection for all against healthcare costs, and are compatible with the goal of fairness in financing. In tax-funded systems, the population contributes indirectly via taxes, which then form part of the general revenues to be used in the provisioning of healthcare. In employmentbased social health insurance systems, it is the employees and employers who pay in their contributions, with or without additional state support. These are then used in funding healthcare for the employees, sometimes also covering their dependants. Such employment based contributions could take diverse forms, like a mandatory, earmarked, patrol tax, or a voluntary, tax-deductable contribution to a health plan. Internationally, many European nations healthcare is financed by employee-based social health insurance. The employees and employers contribute to a sickness fund. The contribution may range from 5 to 15% of the annual income. This sickness fund is used to finance the healthcare of the entire population both employed and unemployed. Germany, Belgium, France are examples from Europe, while Japan, Thailand and the Philippines are good examples from Asia. In India, various forms of employment-based health coverage already exist, such as the widely recognised Employees State Insurance Scheme (ESIS) for employees in the formal sector, the Central Government Health Scheme for serving and retired civil servants, the schemes for serving and retired employees of the Armed Forces, Railways, Paramilitary forces and other governments organizations and the various health coverage schemes and benefits provided by banks, insurers, other public sector companies and private sector employers. Together, they make up about 7 % of the total health expenditure in the country. Objectives of ESIS

Employment based insurance schemes aim at : Ensuring adequate financial protection for all Reducing adverse selection Providing cross-subsidization Effectively pooling health risks, bringing in efficiencies from bulk purchasing of health services. The Employees State Insurance Scheme Employees State Insurance Scheme (ESIS), one of the oldest health insurance schemes in India, is aimed at targeting the formal sector to provide a social security mechanism for the lower paid industrial workers. Established vide the ESIS Act in 1948, the scheme gives both cash and medical benefits to the employees of factories and service establishments who earn less than a specified wage ceiling, currently capped at Rs. 7500 per month. All eligible members must contribute a share based on their wages (currently 1.75% of wages, but exempt for those earning less than Rs. 40 per day) while the employer contributes a larger share (currently 4.75% of wages of all eligible employees, including the low paid ones). The state government also contributes a minimum fixed amount. The scheme is managed by the Employees State Insurance Corporation (ESIC), a statutory body established under the Union Ministry of Labour, comprising representatives from the ministries of labour, health and employees federation. Benefits under ESIS These include: Free, comprehensive healthcare at ESIS facilities. Cash compensation for loss of wages due to illness. Maternity benefits. Disability benefits. Survivorship and funeral expenses in the event of death of the worker.

Healthcare includes preventive, primitive, curative and rehabilitative service. ESIS has its own dispensaries, hospitals and medical staff. It also empanels select private practitioners to provide medical care to its beneficiaries. Patients requiring treatment from specialists not available at the ESIS hospitals can receive it at the specialty facilities, with the ESIS reimbursing the expenses. Presently, the scheme is spread over 677 centres in 25 states and Union territories across India, covering 7.8 million employees and more than 25 million beneficiaries. One main limitation of the scheme is its coverage. Currently the scheme is mainly aimed at the low-paid, non-supervisory industrial worker. Expansions The proposal of the formal sector being covered by expanding the ESIS could lead to many advantages as listed below 1. Such an expansion would build upon an existing scheme which already has in place legal mandate and provisions, structures to collect the contributions, provider networks, claim settlement and payment mechanisms and a management body. It could be easier to scale up this structure than to create a anew one, thus saving time and effort. 2. In the ESIS the current scope of risk pooling is only between the healthy and the sick. All the beneficiaries are low-paid industrial workers and their dependents and so there is no risk sharing between the rick and the poor. Expanding coverage would bring larger numbers and all classes of wage earners into the risk pool. 3. A large purchaser and provider of health services like the ESIS could be a more efficient mechanism of financial the health needs in the formal sector than prevalent modes of out-of-pockets payments by individuals or the smaller group insurance plans purchased for employees by their employers. For universal coverage of healthcare, more funds would need to be generated in a more organized manner, for the health service needs of the covered population. By providing a social insurance

mechanism for the formal sector, these funds can be utilized in a more efficient manner. 4. There is a growing demand for medical insurance and risk protection for health needs, even among those earning well. The ESIS with its long years of experience, its healthcare institutions, statutory sanction and government backing would gain more credibility and accountability. 5. Expanding the sc ope of ESIS will allow existing hospitals, facilities and human resources of ESIS to be better utilized. Enhancing the scope of the scheme will help to bring down administrative costs of ESIS. 6. As higher paid workers are enrolled into the scheme, the same percentage of wage3s will get converted into higher contributions in rupee terms, raising the average rupee contributions per member of the scheme. This increased contribution provides the scope to improve upon the benefit package or to reduce costs of the scheme in percentage terms. Pre requisites for Expansion of the ESIS Before considering expansion of the scope of the ESIS, the following pre-requisites will need to be addressed. To create widespread consensus on this matter. Large industrial houses, chambers of commerce and federations of industry should be involved. The main advantages which could be highlighted to them are: social security for their human resources, ease of administration of health benefit schemes, standardization of coverage, etc. They will also have to be assured that the quality of services and accessibility of services shall receive due attention in this expansion. Efforts will also be needed to reassure the industry that rather than being a payroll tax without any direct returns, this scheme is an important mechanism for social security and staff welfare for employees in the formal sector. To convince the ministries of commerce, etc. about the rationale of the scheme. This move would be associated with a marginal increase in input costs and would have some impact on the cost of Indian goods in the international market. At a time when the USP of India is its cheaply produced products and servi9ces, expanding the ESIS

might reduce this competitive edge. On the other hand, this can also be taken as the actual cost of production even now. So far the industrial houses have been benefiting by passing on this cost, either to their employees or to the government, and this scheme only makes them partially share the burden of healthcare of at least their employees. Last but not least, this can also actually be a tool to enhance the productivity of the employees by keeping them healthy. The employees association and unions must not regard this arrangement as a diversion of their members funds. Rather, they should be convinced of the benefits for their members s such move would increase the funds into the ESIS and provide better quality of carte for them. Once a consensus has been reached, suitable amendments will need to be made in the current ESI Act to include necessary changes. The Central Act could be amended in a manner which allows the individual states to expand the scope of the ESI Scheme according to their local requirements, without compromising on the schemes basic principles. Some of the main changes that need to be considered for revision in the Act include: Establishing the ESIC as an autonomous body, with independent management. Removing the wage ceiling limits for eligibility. Identifying the establishments that are eligible (along the lines of the EPF) or empowering the states to expand the list of covered establishments. Strengthening the capacity and powers of the ESIC to 1. Collect dues from the establishments including penal provisions for defaulting establishments or those not disclosing the true numbers/wages of their employees. 2. Contract with and purchase care from private providers. Already, ESIS uses various payment mechanisms, including prospective payments mechanisms, and enabling provisions will help ESIC to control costs and keep care accessible. 3. Purchase re-insurance from public or private insurance companies. This will limit the exposure of the scheme and keep its costs predictable.

An expanded ESIS will improve its capacity to provide good health insurance through a mix of its own facilities, facilities taken over for administration from PSUs and other employers hitherto running their own facilities for their employees, as well as by purchasing good quality care from providers. Beneficiaries in an Expanded ESIS Currently the ESIS only insures the low-paid industrial workers who are working in: Power using non-seasonal factories and employing 10 or more persons. Non-power using factories and employing 20 or more employees. Service establishments like shops, hotels, restaurants, cinema, road transport and newspaper establishments employing 20 or more persons. It is recommended that the coverage of the ESIS is expanded in an incremental manner, e.g. in the initial phase, the scheme could be expanded within the existing ESIS covered establishments to cover all the staff (including those who are earning more than Rs 7500 per month) and their dependants. In the next phase, an expansion to other establishments not presently covered by ESIS could be undertaken, while reducing the minimum number of employees required being within the scope of the scheme. In the final phase, the rest of the formal sector, including contract workers, construction workers, and the self employed, etc. could be covered by the scheme. The eligibility criteria until Phase II could be all permanent employees in these establishments, along the lines of provident fund contributions. Retired employees can continue to remain in the scheme if they contribute a fixed amount, depending upon the last salary drawn. All dependents (to be defined) are to be eligible for the benefits. In Phase III, the eligibility criteria would need to be further relaxed for the sake of contractual workers holding contracts longer than a defined period, say 3 months. The first phase would contribute greatly to an increase in the number of members, as most of the higher-paid, or white collar workers would be covered. This would take care of a constant complaint of the ESIS that when an employee gets a raise in pay, it disbars him/her from the ESIS and its benefits. At the same time, it is clear that the higher paid workers presently do not see any benefit in contributing to the ESIS. In the

last decade or so, while the scope of ESIS has been expanded from those earning from Rs. 3000 per month to Rs. 7500 per month, the utilization of services continues to be made mainly by those belonging to the lower income strata within the covered groups. Thus, despite contributing higher amounts per month, the relatively higher paid workers seem not to be availing of the ESIS benefits to the same extent as the lower-paid workers. This could be the reason for the income surpluses in the scheme in recent years. However, by covering all the staff members, risk-protection and risk pooling for all is taken care of, and all employees continue to benefit throughout their employment period and even after. Covering all employees has another advantage. Presently, under the Act, to opt out of ESIS, any establishment needs to show a better coverage already existing for its employees and to seek specific exemption from ESIS. Thus, even if an establishment chooses not to be covered by ESIS, adequate health coverage of all its employees would continue to be ensured. The risk effect is greater when funds are pooled across establishments, e.g. if the IT industry contributions are pooled with that of a small factory, if managed properly, there would be money transfer from the better-off to the poor workers and their dependents. On the other hand, this could also be interpreted by the higher paid workers as an additional tax on their wages, if they do not see any advantages from the contribution. Design of the ESIS The employees, their employers and the government would contribute to a common pool called for the purpose of this paper, Employees Health Insurance Fund (EHIF). The fund represents the pooled contributions of all employees across all establishments participating in the scheme, and is the corpus which would be utilized to provide the benefits under the scheme. To provide an element of choice and help facilitate the process of consensus for the expansion of the scheme, the employees could be provided with three options as regards their health coverage: to enroll with the ESIS, to enroll with a private health insurance scheme, or to remain in the institutions health care scheme (in the case of

those institutions that provide their own health services for its employees). The incentive to choose ESIS rather than the private health insurance would be the lower premium and the higher coverage offered by the ESIS as compared to the private health insurance. Thus, enrollees would opt for non-ESIS insurers only if these alternative insurers give them better coverage or better quality of services than ESIS. Competition would also inspire the ESIS to provide better services so that it does not lose the enrollees to competing insurance companies. Employers with existing health facilities could either continue with the same or hand them over to ESIS for administration. The ESIS could then use these facilities for any of its beneficiaries. If the employers choose to continue with their own facilities, as to opt out of the ESIS, they would still need to contribute the difference of the contribution they would otherwise be paying into the EHIF, and the equivalent riskadjusted average premium amount which EHIF would have paid to any of the private insurance schemes for covering all the employees of the establishment. Also, the employers must ensure better coverage than ESIS to be able to opt out. Such an arrangement prevents mis-utilisation, ensures comprehensive coverage for employees, yet lets employers choose to run their own facilities, if they so desire. If the employee enrolls in the ESIS and requires care, he/she can receive care at any of the impaneled hospitals or providers of the scheme, and the provider will be reimbursed or otherwise paid by the EHIF. On the other had, if the employee enrolls in a private health insurance scheme, and requires care, he/she will be subject to the policy conditions and coverage provided by the insurance company. Even for enrollees of the ESIS, there could be a provision for purchasing add-on or supplementary covers from private insurers, which could provide them with services that are not part of the standard ESIS benefit package. This could include, for example, stay in special/private wards, where the difference between the costs of the general ward and the special ward could then be paid by the insurer providing the supplementary cover. The availability of this choice will also ensure that higher-paid workers can avail of high-end or non-essential services if they so desire, by purchasing the appropriate add-on insurance covers over and above the contributions

they make to the ESIS, and the availability of this option will help achieve industry and employees consensus.

HEALTH INSURANCE MARKETING

Any marketing exercise starts by addressing a few basic questions like, who are our real customers. What is the value delivered to the customers? And for whom do we exist? Any industry that wants to grow, develop and sustain itself must definitely address these

vital questions. When we look at the health insurance scenario in India, its difficult to understand who the real customers of health insurance providers are. VALUE POSITIONING AROUND RESTORATION/WELLNESS The point that needs to be looked at is what we really do to catch up the imagination of the customers. When somebody buys Health Insurance, why does he buy it? At the cost of sounding repetitive, these questions are of utmost importance. Does a customer in health insurance buy reimbursement of his medical expenses or does he buy recuperation of his health? According to Michael Porter, health Insurance should not be measured by the premium collected but by the health value delivered to a patient. In fact, Health value creation is a bigger picture of health insurance, the later is just a by product of the health value creation. He is very correct when he says that the success of the health insurance doesnt lie in the volumes it creates, but it lies in the fact to what extent it has been able to deliver the value the customer is looking for. Value creation mechanism Value creation and delivery sequence has undergone massive changes. Insurance industry in India is still forwarding the traditional way which believes in making a product and the selling it. Such process works at the time of scarcity and economic hardships and not at the time of fierce competition when customers are full of choices. According to a famous marketing strategist, choosing, providing and communicating the value is the new mantra of success. Choosing the value for lots of planning, for it must look for a target market, which it wants to serve? Customer segmentation is something with which all successful service providers begin with, then they go about focusing on this segment and the target audience. The success lies on how well a service provider goes about the value positioning of its offer. It seems the current value positioning around reimbursement of medical expenses is sending wrong signalsand needs immediate attention and correction. It should be

built around restoration or wellness of health. With the current positioning, the insurers end up paying huge medical expenses and the end result is also not rewarding. The customers are a disgruntled lot with this type of value positioning. They now have the inking that the service providers, particularly the mushrooming nursing homes and hospitals, are duping them very badly. They feel trapped in a vicious circle the moment they require medical attention. And in the entire process, the insurance companies play the role a hapless and helpless spectator by not coming to the rescue of the miserable customers. He poor customer unfortunately, does not find a place in the current value positioning. Here most of the health insurance companies have either gone wrong or have not given the kind of attention it should have given. Value positioning is very important. Even the US Healthcare System suffers on count of this. It is also trying to move towards a valuebased system The government at the helm of affairs needs to play a very constructive role. It should come out with a practical and comprehensive vision statement articulating in clear terms the kind of healthcare system the country needs? The central theme should be how to increase the value delivered to patients, measured in terms of money spent. Some how the impression that one gathers is the value positioning has failed miserably in India. Once this is not clear, the question of providing the value (which includes developing the product around the value (which includes developing the product around the value chosen, servicing, pricing and most importantly distributing the service is of great importance and the parties involved in this service are the Nursing Homes and Hospitals, TPAs and insurance companies. The companies with excellent network have distinct competitive advantages. These companies try to align their value chain with the suppliers, distributors and ultimately the customers. Companies today believe in forging partnership with the related members of supply chain to enhance the performance of customer value delivery system. Unfortunately in India the various players of health insurance delivery system are not working as partners rather than they are working as adversaries. And this has led to heightened customer dissatisfaction.

The insurers shift their responsibility to TPAs and TPAs always blame the insurers for not providing them with funds, policy particulars and other needed support which delay their authorization and in turn delay the settlement of claim. The hospitals in turn, blame the TPAs for not releasing funds for months and thus putting them in great financial strait. This vicious circle goes on and on and the poor customer invariable faces the music. Value measurement The proponents of value delivery system (Michael Porter) on the other hand believe in increasing value delivered to the patients measured in terms of health results/recovery achieved per rupee spent. A good delivery system relied on wide or all-encompassing health insurance coverage and restructures the care delivery system around this. However, the success of delivery system depends on the fact how well the above stated coverage is designed and woven around the medical needs of a subscriber. The existing health insurance coverage normally pays for in patient expenditure and day care expenditure for certain selected ailments. The patient himself invariably finances the other health related expenditures, which is quite heavy in magnitude. This imbalance needs to be sorted out at the earliest. In India people lack both primary and preventive care and affects the functioning of value delivery system. Any expanded delivery access without quality value delivered is most likely to fail. This is where the health insurance growth in India is likely to suffer. The growth in health insurance is witnessing an indiscriminate growth of a delivery system completely bereft of value. The growth of this delivery system is only aimed at skimming away the revenue, the insurance industry is likely to generate and cough in days to come. Any coverage that we design must be built around the delivery system. In any competitive market an insurer can survive only if they improve the health of its buyers. The delivery system even for the policies marketed for BPL population is, therefore, a matter of great worry. The growth of government-sponsored insurance schemes will witness unimaginative growth of health service providers in districts where it is being introduced.

Their only motive would be to make filthy lucre. In an effective delivery system, the benefit of insurance must travel to the patients and not elsewhere and this is the reason, this delivery system should be built around restoration/wellness of health and not at reimbursing medical expenses. This will sound somewhat phony or unrealistic but this will at least arrest the leakage pervading the current system. The current system rewards people for exaggerated bills mostly not linked with the services rendered thus denting the revenue earning capacity of insurers who in turn, prices the product higher to recover this loss. The customer is the ultimate looser. The value position centered on the health of customers must ensure high delivered value to a customer needing health care. In case of reimbursement, while the insurer thinks only in terms of reducing the cost on each medical intervention, the service provider thinks just other way. His intention is to milk as much revenue as possible. There is thus a noticeable role conflict. Neither of them is thinking in terms of maximizing the value. Therefore, the value positioning should b configured around the value delivered to the health insurance buyers. The whole approach has to be holistic. The difficulty arises, however, how to measure this value delivered. Linking the value delivered with the health outcome/recovery results can do it. Communicating health outcome should be the focus of an efficient value delivery system. If a system cannot measure health outcome, it cannot possibly manage it. The success of health insurance lies in measuring health outcome and then move on to managing it. Developing parameters to measure health outcome thus is a complex process and if this can be developed, then its management can become much easier. The parameters can be built around correct diagnosis, standard treatment, amount of health recovery achieved, time needed for that recovery, degree of care suffered and maintainability of recovery

Value audit This exercise needs a thorough process. There has to be value orientation audit to measure the value delivered to the customers. The value chain of a company (consisting of TPAs, Hospitals/Nursing homes, the insurers) must be activated through its processes

and people to make customer value the main purpose of its functioning. The value audit should elicit information like how powerful is the customer value pervasive or palpable in the functioning of the company or in its various processes. The above question can generate many answers but in an efficient organization all processes are aligned in such a way as to always result in generating customer value. A vibrant organization develops parameters to track customer value systematically and then develops a benchmark to measure its performance around it. Generating customer value becomes the objective of every marketing activity and all other activities like HR, Finance and Production are integrated with the marketing activity towards achieving this goal. The activity of the company should be configured around its people, processes and partners aimed at fostering customer value. When one thinks in terms of measuring value, it has to be linked also with the appraisal system of each player participating in the value chain. The insurance company needs to go for value orientation audit for not of its own processes but also that of TPAs and Hospitals/Nursing Homes with which its working. One can capture the perceptions of the persons needing health care by developing a feedback system, which record their experiences on various parameters. If these records are honestly shared by the service providers including insurers it can go a long way to improve the delivery of health care. Even where we go for reimbursement system, that reimbursement system should work around improving the health of patients and must take into consideration the interests of every stakeholder for that system. The current reimbursement system only takes care of certain stakeholders and leaves in the sway. The chances of leakage under reimbursement system increase when its fragmented. The above spawns a chain of greedy operators.

PROBLEMS OF HEALTH INSURANCE IN INDIA

Health Insurance cannot be a problem but a blessing to the insurers to serve the society in particular and the nation at large. But why now health insurance in India is equally cursed by the insurers and the insuring public. For insurers, Health Insurance is a bleeding portfolio and it bleeds to that extent, Insurers are not willing to underwrite health insurance portfolio generously, whereas for the insuring public, they are unable to get the insuring public, they are unable to get the settlement of their claims promptly from the insurers and this also leads to more and more grievance from the insuring public, who in turn take help of Ombudsman, Consumer Redressal forums for settlement of their claims. Its certainly pathetic that Health Insurance has invited curse and only curse, which is considered as the most highly loss making portfolio and eventually it can put some of the insurers in a state of bankruptcy. Who are the culprits to bring down the health insurance e in such a state of affairs? Let us discuss the problems of Health Insurance in India in nutshell before going into improvements in the health insurance products by bring about drastic rules and regulations to regulate the health insurance products in India. Mediclaim Health Insurance is second largest insurance business in India after Motor Insurance constituting 33 % of the total business in India. Mediclaim health insurance, a vital insurance for the health security of the people of our country introduced in 1987 has undergone dramatic change in the recent past. The beginning of the mediclaim health insurance does have the finer aspects which should be analyzed in right perspective. Initially Mediclaim insurance was governed by the tables of benefits with specified limits, subject to maximum limit of Rs. 96,500/- on various heads as under: (A) 1. Room, Board & Nursing expenses provided by the Hospital/Nursing home including service Charges : up to 1 % of Sum insured per day 2. Of admitted to ICU : Up to 2 % of sum insured per day. (All admissible claims under (1) and (2) during the policy period up to 30 % of sum insured per illness/injury).

Surgeon, Anesthetist, medical practitioners, consultants, specialist fees up to 30 % of sun insured per illness/injury. (B) Anesthetists, blood, oxygen, operation theatre charges, surgical appliances medicines and drugs, diagnostic materials and X Ray, Dialysis, Chemotherapy, Radio Therapy, Cost of pacemakers, artificial limbs. And any medical expenses which is integral part of the operation : up to 40 % of the sum insured per illness/injury. With the result, claims cost was limited to certain amount per hospitalization. There are other conditions such as preexisting conditions of any disease/illness should not be existing at the time of contract of insurance and also no hospitalization claim was payable if a pre-existing disease occurs within 12 months from the date of inception of insurance. This was really worth appreciating as this had done a great justice to the insuring public as well as insurers. In 1994, Mediclaim policy underwent certain modifications in its conditions thereby excluding the preexisting disease. Later on in 1997, drastic change were introduced to Mediclaim insurance policy, introducing sum insured as a maximum limit of liability f the insurance company. It did away with tables of benefits existing prior to the new introductions which had given immense benefits orientation for the general insuring people, raising the limit to Rs. 23 lacs, doing away with sub-limits and restrictions under the heads and subheads of the expenses of the Mediclaim. It also subsequently defined preexisting disease as the disease which the insured has not contemplated or the insured is not aware of the pre existing disease. The salient features of Mediclaim insurance, 1997 are as under :1. Table of premium arrived as per Age and Sum Insured. 2. Maximum liability of the company i.e. sum insured to Rs. 3 lacs. 3. The liability of the company was restricted to policy sum insured including cumulative bonus. Once the sum insured was exhausted during the currency of the policy, no further hospitalization claims were entertained. 4. Hospitalization period should exceed 24 hours except for the specified ailments viz. Dialysis, Chemotherapy, Radiotherapy, Eye surgery, Lithotripsy (kidney stone

removal), Tonsillectomy, D & C, Fracture due to accident which is proved by X-Ray, Anti rabies vaccine taken in the hospital/nursing home and the insured is discharged on the same day the treatment will be considered to be taken under Hospitalization benefit. Further this condition will also not apply in case stay in hospital of less than 24 hours under the following circumstances. (a) The treatment is such that it necessitates hospitalization procedure involves specialized infrastructural facilities available in hospital. (b) Due to technological advances, hospitalization is required for less than 24 hours only. (c) Surgical procedure is involved. Certain additional exclusions were also introduced in the revised Mediclaim policy, 1997. Any disease contracted during the first 30 days from the commencement date of the policy. However, this exclusion shall not apply if in the opinion of panel of medical practitioner constituted by the company for the purpose of the opinion that the ailment must have contracted after the commencement of the policy and the insured could not have known the existence if the disease or any symptoms or complaints thereof at the time of making the proposal for insurance to the company. During the first one year of the operation of insurance cover, the expenses incurred on treatment of diseases such as cataract, benign prostrate, hypertrophy, hysterectomy for menorrhagia or fibromyona, hernia, hydrocele, congential internal disease/defect, fistula in anus, piles arthritis, gout and rheumatism joint replacements, sinusitis and related disorders are not payable. Cost of spectacles and contact lenses, hearing aids not covered. Even the preexisting diseases are defined as the pre existing even if the insured is aware or not aware of such pre existence. (Subsequently limit under the Mediclaim insurance was increased to Rs. 5 lacs from Rs. 3 lacs).

With the above modifications in the Mediclaim insurance, the claim ratio under this department started increasing at an alarming rate. In order to arrest the claim ratio Mediclaim insurance, a novel health insurance scheme was devised viz. Hospitalization health plus insurance. Hospitalization (Health Plus) Insurance Policy: Salient Features: The existing Mediclaim insurance policy was revised and replaced with an objective to protect the interests of the insuring public and insurers. It aimed at arresting the alarming claim ratio and checking inflated billing, fraudulent claims and last but not least to achieve the objective of social welfare concept. This policy covered not only hospitalization expenses arising out of illness/disease/injuries sustained, which includes pre and post hospitalization expenses but also to the extent of 30 days\/60 days respectively. In the event of any claim becoming admissible under this scheme, the company will pay to the insured person the amount of such expenses as would fall under the different heads mentioned in the table of benefits and as are reasonable and necessarily incurred thereof by or on behalf of such insured person but not exceeding the limits as prescribed under different heads, but however, not exceeding the sum insured in any one period of insurance. With the privatization of insurance, initially about 17 insurance companies started operating in Indian Soil and now there are about 21 (No-life) insurance companies operating in India. Initially the private (Non-life) insurers were reluctant to issue health insurance since it was a most loss making portfolio. Selectively they used to issue order to promote growth they had no alternative but to grab more and more health portfolio. Indian insurers tried their best to bring about new health policies. For instance, Hospitalization (Health Plus) insurance which was introduced had least impact on the Mediclaim insurance. It was a failure as this new policy did not click in the insurance

market, despite increasing the sum insured to Rs. 10 lacs, doing away with Third Party Administrators services. After introduction of IRDA (Insurance Regulatory & Development Authority) Act, 1999 various changes have taken place in the Health Insurance sector. One of the changes is nomination of Third Party Administrators in 2001 to provide prompt claims settlement and cashless services to manage health insurance effectively and efficiently in India. Entire health portfolio of the public sector was outsourced to T.P.A. Some of the private insurers have engaged their in house staff to monitor and settle the health insurance claims. But with the introduction of T.P.A. there was a drastic hike or about 25% in expenses towards hospitalization and Medical bills. Hospitals, in turn, resorted to malpractices and corruption by over charging, issuing bogus bills, misusing cashless facilities, etc. Health claims ratio shot up from 80% in 1987 to 250% in 2005. Despite the efforts taken by the public sector companies adopting various methods, even introducing new health policies, they could not control the claims cost which was increasing at an alarming rate. The Honble Finance Minister, Shri P. Chidambaram had presented the budget for the year 2007-08, giving due consideration to the social welfare scheme for the Aam Admi. In the process, the Honble Finance Minister had hiked Tax exemption under IT section 80-D for Mediclaim (Health) Insurance from Rs. 10,000/- to Rs. 15,000/-. It was certainly a right step in the right direction for the welfare of the common masses, but it was disastrous for the Public sector units (Non-life) insurers whose treasure was getting emptied rapidly due to high claim ratio under the Health Insurance. The problems of health insurance industry in India are worsening day by day. IRDA after introduction of File and Use procedures w.e.f. 1.11.2006. After this introduction, each insurer has to file various certificates along with proposal form, policy form and prospectus in respect of the products to be introduced in the insurance market.

With this File and Use Method, ech insurer has filed their health insurance products doing away with the earlier health products in 2007. The question now at stake relates to pre existing disease/ailment and/or conditions. As such the consumer courts have ignored the exclusion of pre existing and invariably awarded the case of pre existing in favour of the insured. The court has projected that it is very difficult to identify the symptoms of pre existing by the insured and it is wrong on part of the insurance company to decline the claim merely because the disease is pre existing. An example in light of this condition is given below in a legal case of one policy holder Mr. Praveen Damani filed against Oriental Insurance Company, wherein the Consumer Court of Bilaspur District came to the rescue of the policyholder. In this case, a health insurance of Rs. 26,747/- was repudiated by the Insurance Company on the grounds of pre existing disease under exclusion clause 4.0 and 4.1. The case was represented by the policy holder to the commission. According to the commission the District Forum also relied on Clause 4.1 of the policy that it was immaterial whether the insured has knowledge of the disease or not and even existence of symptoms of the disease before the effective date of insurance enabled the insurance company to disown the liability. If this interpretation is uphold, according to the commission the insurance company is not liable to pay any claim whatsoever because e very person suffers from symptoms of a disease without the knowledge of it. This policy is not a policy at all, as it is just a contract entered only for the purpose of accepting the premium without the bona fide intention of giving any benefit to the insured under the garb of pre existing disease. Most of the people are totally unaware of the symptoms of the disease that they suffer and hence they cannot be made liable for it because the insurance company relief on clause 4.1 of their policy in a malafide manner to repudiate all the claims. Since it is not material to show that the petitioner had any symptoms like chest pain etc. before the contract of insurance, the National commission set aside the orders of the state

commission and the district forum and directed the insurance company to pay the claim with the cost and interest @9 % p.a. So pre existing exclusion took a new direction in 2007, when all the insurers filed their health insurance product with the IRDA. Various insurers allowed pre existing disease after four years and also imposing loading on the pre existing conditions such as diabetes and hypertension. Even exhaustive health check-up became compulsory after 45 years. Some companies fixed a minimum sum insured of Rs. 1 lac for Mediclaim Insurance. They in turn introduced Janata Mediclaim Policy with a sum insured of Rs. 50,000/- and Rs. 75,000/keeping the limits of liability per ailment to a reasonable amount per hospitalization viz. Cataract and other minor ailments to Rs. 10,000/-. In no case the liability will not exceed Rs. 25,000/- per hospitalization claim. Most of the insurers fixed their liability per ailment under their various health insurance policies. This certainly can reduce the liability of the insurers. Even cancellation clause was introduced under various health insurance policies. Despite these efforts, claims ratio under the health insurance continues to increase at an alarming rate. Why this problem is lingering in the minds of the insurers as to how to control the alarming increasing in the Health insurance claims? It seems that neither IRDA not the TPAs nominated by the IRDA could do anything in arresting the claim ratio. It seems that neither IRDA not the TPAs nominated by the IRDA could do anything in arresting the claim ratio. Apart from the functioning of TPAs as decided by the IRDA under the existing Mediclaim (Health) insurance policy an also servicing of health insurance policies for cashless services and claim processing and settlement with effect from 1.10.2002, certain additional features are also to be included in the Role of TPA in processing of health insurance policies:

1. Auditing of TPA claims are to done periodically once in six months by the respective insurance companies and their audit reports should be submitted to IRDA for their scrutiny. If IRDA find TPA not functioning up to their expectations, IRDA may take suitable action against such TPA and to the extent they can blacklist and debar such TPA. This in turn may bring about effective claim control measures. If needed, loss control measures can be done effectively by IRDA in consultation with the insurance companies. 2. A list of hospitals, its tariff rates for various charges should be displayed on the web site and such list can be provided to the insurers along with the pre authorization prior to the admission to any hospital. This will facilitate the insuring people to select the hospital/nursing home of their choice to meet with their requirements. 3. Fund management should be done by the TPA scrupulously and carefully giving no scope for misutilization or mismanagement of funds disbursed by the insurance companies.

RISK MANAGEMENT IN HEALTH INSURANCE

Health is the best gift from God to the Human. It is the ardent duty of the individual to take care of Health at any cost.

If wealth is lost little lost IF health lost everything is lost For maintaining wealth one has to incur some expenses to prevent the risk to theft, pilferage, anxiety and so on all the time and even insurance at times can not compensate all the losses. Similarly everyone must keep good care of his health and see that he has health habits, physique, mind so that he can lead a good life. Following are the process of risk management. 1. Risk identification 2. Risk avoidance 3. Risk reduction 4. Risk retention 5. Risk transfer One must identify the potential hazards that he is exposed to. Identification is very important as most people fail to recognize the risks. For e.g. smokers, they fail to recognize the risk that they are continuously taking that could lead to cancer. The next step is to avoid risk. Once the risk is identifies he must try and avoid it. This will save him from the risk of contracting diseases. However if complete avoidance is not possible he must try to reduce it. For e.g. if a chain smoker is unable to leave smoking instantly he must try gradually reduce the consumption so that chances of contracting diseases lessens. As we say habits die hard. Even after knowing he risk of contracting diseases some people take it lightly and leave the matter on fate. This refers to the retention of risk which is not at all advisable.

The last step in risk management is risk transfer. Risk can be transferred by purchasing a health insurance policy. Now a days a variety of insurance products are available in the market. But taking a health insurance policy should not be the ultimate aim of an individual. Health insurance should be seen as an added protection. Nobody would like that he suffers diseases.