Need to expand health insurance

Health care costs in developed and developing countries are becoming prohibitively high. A Pricewaterhouse Cooper’s study examining the drivers of rising health care costs in the US pointed to increased utilisation created by increased consumer demand, new treatments, and intensive diagnostic testing, as the main drivers.

Population in developed countries are ageing and a large group of senior citizens requires more intensive medical care than a young healthier population. Advances in medicine and medical technology can also increase the cost of medical treatment.

Life style related factors, such as increases in obesity caused by insufficient exercise and unhealthy food choices, excessive alcohol use, and smoking can lead to increased health services utilisation. The supplier induced demand resulting from over medication, expensive prescription drugs, unwanted diagnostic procedures and the adoption of new technologies also escalates medical care costs. Even the middle class find it extremely difficult to cover these expenses by out-of-pocket payments. Inability to pay medical bills was behind 62 per cent of personal bankruptcies in the US  in 2010.

Health insurance policy is a contract between an insurance company and an individual or his sponsor. The type and amount of health care costs that will be covered by the health insurance company are specified in advance. Health insurance protects against ‘derived risk’, ie the financial loss due to an illness episode. Our society does not possess the technology to insure health. So we must accept the second best alternative of insuring against the financial risks associated with buying medical care.

Government support

India planned a massive Universal Health Care (UHC) programme under the 12th Five Year Plan that commenced on April 1, 2012. Significant government support would be required to make progress on a national programme offering free treatment under the UHC.  Private providers have to add and assist public systems in the provision of such services. Some form of insurance is the most cost effective way to deliver such services.

A thriving health insurance sector is essential for a country where social security coverage –particularly health care and pension payments are inadequate. As the recent study by the rating agency Fitch says 80 per cent of Indians pay for medical expenses from their own pockets and medical cost is one of the main reasons for people going in to debt in India. Given the health care financing and demand scenario, health insurance has a wider significance in India.

There is a need to have more insurance penetration in India. According to a recent study only 10 per cent of the health insurance market is exploited in India. It is only a $3 billion industry now. Health insurance in India is growing at 20 per cent and will reach around $13 billion by 2020. More competitive insurance pricing and reduction in insurance will reduce insurance prices. But the centre has decided to defer an increase in FDI limits for insurance companies from 26 per cent to 49 per cent. There is a strong case for early passage of the insurance bill seeking to raise the FDI limit. The insurance sector desperately requires fresh infusion of capital, estimated at about $12 billion in the next five years.

Of late the insurance sector in India has been undergoing major changes. The monopoly of public sector is broken and there is now a regulator -IRDA. There are now 24 life insurance and 27 non life insurance companies in India. Most of them have partnerships with multinational insurance companies. There is also the emergence of micro insurance schemes for the poor initiated by several NGOs.Joining a health insurance scheme would be an intelligent decision.

While most health insurance policies are sponsored by employers there is a growing trend in taking individual policies.Two main challenges in the health insurance industry are adverse selection and moral hazard. Adverse selection results from the tendency of some people to hide their true health condition in taking up insurance with the intention of passing on medical bills to insurance companies. Moral hazard relates to the attitude of some who do not behave responsibly, because ‘the insurance is there to pay the bills.’ Both can adversely affect the insurer’s profitability.

The government can provide smart cards with health insurance provided by the government. In the USA, the government and private insurers are the biggest providers of health care who also dictate cost of treatment. In India too, the government can become the largest health insurance provider and hospitals will have to provide treatment within the cap provided by the medical insurance policy.

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