Access to quality healthcare in the private sector till now is limited by the high cost for the vast majority of India’s population. However, this is changing dramatically with the advent of health financing as a preferred tool to cover for most healthcare expenditures.

Health financing essentially involves arranging for payment of a health service that has been arranged for under the financing contract.

Health insurance forms a major part of financing. It is growing exponentially with large and diverse players having entered the fray and enticing consumers with an ever-growing array of schemes. This is proved by the fact that healthcare insurance premium collected in 2005-06 registered a growth of 35% over year 2004-05.

The entry of pure Health Insurance companies into the marketplace in 2007 promises a plethora of innovative products. Swiss Re estimates a potential of US$ 7,700 million in health insurance premium by 2015.

Foreign Direct Investment (FDI) limit in health insurance has rose from 26% to 49%, which would result in surge of international players & even more customized offerings targeting all sections of society. In the event of the minimum capital requirement of US$ 25 million being reduced to US$ 12 million, a number of stand-alone players like Atar Health, Apollo DKV have come into being, as is the trend across the world for health insurance.

Less than 10% of India’s population today has some or the other form of health insurance covers: either voluntary or as a part of the Employees State Insurance, Central Government Health Scheme or Community Insurance.

The existing models of health financing are:

Government Funded

In theory, this system is a universal pooling arrangement that involves the entire population. It provides access to publicly provided services financed through general revenues. In practice, it usually coexists with one or more of the other risk pooling arrangements.

State-funded systems are suitable for most countries having the capacity to raise taxes, establish an efficient network of providers, and need to target the poor.

It is a simple mode of governance and a potential for administrative efficiency and cost control. It provides:

A comprehensive coverage to the population, and

A large scope for raising resources

Government supported

Social health insurance

Social health insurance system is established in approximately 60 countries.

It can be easily differentiated from general systems by independent or quasi independent insurance funds, a compulsory earmarked payroll contribution, and a clear link between the contributions and defined rights for the insured population.

The main features of social health insurance are

Financing mainly through employee and employer payroll contributions.

The efficient management by nonprofit insurance funds.

The existence of a benefits package.

This provides

More resources for the health care system.

Less dependence on budget negotiations than state-funded systems.

High redistributive dimension.; and

A strong support by the population.

Community based health insurance

Community-based health insurance schemes are also referred to as health insurance for the informal sector, mutual health organizations, or micro-insurance schemes. This was the basis for the creation of social health insurance systems in countries such as Germany, Japan, and Korea and the overall health financing strategy in a number of countries.

Today in low-income countries, community-based health insurance plays an increasing role in providing medical coverage to populations without access to other forms of formal medical protection. These schemes are also slowly penetrating the rural market.

It provides better access to health care for low-income people and has also been proved as useful as a component of a health financing system involving other instruments.

Micro financing

Private

Voluntary health insurance

“Voluntary” or “Private” health insurance is a health financing model that is predominantly prevalent in high-income countries as a complement to the publicly financed systems.

In practice, voluntary or private health insurance arrangements cover a wide spectrum of voluntary financing mechanisms and share diverse relationships with public and private health sector inputs.

It provides:

An affordable financial protection (compared with out-of-pocket expenditure)

An enhanced access to health services

For an increased service capacity and promotes innovation, and

Towards financing health care services not covered publicly, as in the case of supplementary private health insurance.

Healthcare systems can function effectively and efficiently under the ambit of structured & organized financing mechanism. In terms of expenditure on health, the private and public investment is roughly in the ratio of 80:20 respectively. With regards to healthcare and services spending, 62 per cent is self-sponsored. The Government contributes 24 per cent, employer provides for 9 per cent and only 5 per cent comes through insurance. This is dismal, when we discover that only Rs 250 crore is being collected for health insurance, whereas life insurance gets Rs 25,000 crores and even non-life items get Rs 9,000 crores towards insurance.

Private financing is gaining momentum, with about 70 % of the healthcare expenditure is out-of-pocket, which is increasing much more higher than the per capita income growth.

 

Due to advancement in technology, improvement in infrastructure and emphasis on quality etc, the cost of healthcare services is escalating. This is affecting the Indian middle and lower class directly. With passage of time alternative health financing mechanisms like Healthcare Insurance come into being to streamline & address the issue of inequitable and unaffordable healthcare delivery.

Benefits of Health Insurance:

Protection against catastrophic financial burden in case of unexpected illness or injury

Pooling of resources Limitations:

Hospitals tend to overcharge

Absence of regulatory framework for providers

Difficulty in handling fraudulent claims for insurance companies

Third Party Administrators or TPAs came into being to address these limitations. They are intermediaries that coordinate between Insurance companies and hospitals. From here emerged the concept of cashless hospitalization. While the insured is benefited by better service, insurers are benefited by reduction in their administrative costs, by outsourcing their management administrative activities, including settlement of claims at a certain cost. They come under the purview of Insurance Regulatory and Development Authority (IRDA), India. There are at present 27 TPAs registered under IRDA (as on 31^st August 2007).