Athesis Submitted To The University Of Magalore For Award Of The Degree Of Degree Of Doctor Of Philosophy In Economics

Health Insurance Schemes in India: An Economic Analysis of Demand Management under Risk Pooling and Adverse Selection A Thesis Submitted to the University of Mangalore for Award of the Degree of Doctor of Philosophy in Economics By Sukumar Vellakkal Research Supervision by Gopal K Kadekodi Professor and Former Director, ISEC INSTITUTE FOR SOCIAL AND ECONOMIC CHANGE N A G A R A B H A V I, B A N G A L O R E -5 0 , I N D U December 2007 This small piece o f work is dedicated To My Beloved Wife Remya & To The illiterate iandiess agricuitura! iaborers o f Indian land through my beloved parents INSTITUTE FOR SOCIAL A N D ECONOMIC CHANGE N a g arb h av i PO: BANGALORE-560 072 DECLARA TIO N I hereby declare that the present thesis titled ‘Health Insurance Schemes in India: An Economic Analysis of Demand Management under Risk Pooling and Adverse Selection’ is a result o f the original research undertaken and carried out by me under the guidance and supervision of Prof Gopal K Kadekodi, Professor and Former Director of Institute for Social and Economic Change (ISEC), Bangalore I have properly acknowledged the sources from which I may have borrowed ideas declare that the material of the thesis has not formed, in any manner, the basis for awarding of any Degree or Diploma previously o f University of Mangalore or any other University Date: U‘ December 2007 Sukum ar Vellakkal (Ph D Fellow) INSTITUTE FOR SOCIAL A N D ECONOMIC CHANGE Nagarbhavi PO: BANGALORE-560 072 CERTIFICATE This is to certify that thesis entitled ‘Health Insurance Schemes in India: An Economic Analysis of Demand Management under Risk Pooling and Adverse Selection’ submitted by Mr Sukumar Vellakkal for the award o f the degree o f Doctor o f Philosophy in Economics is based on the candidate’s own research work under my guidance and superv ision during the period of the study It has not been previously formed the basis for the award o f any Degree/Diploma/Associateship/Fellowship or other similar titles to any candidate Place: Bangalore Date: 31 -) i Gopal K Kadekodi (Ph, D Supervisor) Acknowledgement I sincerely express my heartfelt deep sense of gratitude to Professor Gopal K.Kadekodi, my mentor and supervisor for the thesis It is a great privilege to complete this thesis under his guidance and supervision He was kind enough to find sufficient time to guide me although his days were busiest as the Director of ISEC His way of guiding me in this thesis work was unique; it gave me enough confidence to think in depth on my research topic His moral support, constant encouragement, and above all, his love and affection have been an instant tonic for me to carry out this research work I also express heartfelt gratitude to Mrs Savitha Kadekodi for her love and affection, and moral support I am grateful to Ms Kamala Aunty for all her moral support throughout I would like to take this opportunity to express my deep sense of gratitude to Dr K K Hari Kurup, Lecturer, Govt College, Kasargod It was he who introduced me to the research world and guided me to get admission to ISEC His moral support, guidance and constant encouragement are invaluable to me, I am short of words I express deep sense of gratitude to Mrs Deepa Kurup And also, respecful thanks and gratitude to Narayanettan I cherish the memory of late College, Kasargod Mr.Chandrasekharan, Lecturer, Govt His immature death was a big shock and loss to me I greatly acknowledge his support and concern towards me I have greatly benefited from my academic association with Prof David M Dror, Erasmus University, Netherlands I use this opportunity to express my deep sense of gratitude to him His methods and approaches to research have influenced me a lot I am fortunate enough to work with Prof, Ruth Koren, Tel Aviv University, Israel I have learned a lot from her, I express my gratitude to her My respectful thanks to Dr Marion Danis, NIH, USA, for guiding me in the CHAT tool since for a long time I greatly acknowledge her moral support and affection rendered towards me I am fortunate enough to meet an eminent personality, a good academician with a great heart: Prof, J F Wen, University of Calgary, Canada I have benefited a lot from the discussion with him I am fond of Prof J F Wen and his wife Gabrille who made my stay at Canada during my PhD works a wonderful one I thank Prof Anil Gumber, senior faculty, Warwick University, UK for his guidance through out my PhD research He was kind enough to timely respond to my queries and also showing much interest on my research work I use this opportunity to express my heartfelt gratitude to him It was great to learn from Prof Shashanka Bhide, Professor, NCAER and former RBI Chair Professor, ISEC I greatly recall his advice, suggestions and comments as a Doctoral Committee member of my PhD research Back to ISEC, the comments and suggestions of the doctoral committee members of my PhD research were very constructive and useful for me I owe to Prof Madheswaran for his academic and personal support Special thanks to Prof KNM Raju, former professor of PRC unit, ISEC The critical and constructive comments and suggestions of the panel members at various bi-annual seminars in the institute were very helpful in bringing the thesis to the present shape Here, I specially thank Prof James, Head, PRC unit at ISEC, Prof.Indrani Gupta, Institute of Economic Growth, New Delhi, Prof Rajashekhar, Head, Center of Decentralization at ISEC, Dr Mathiyazhakan and Dr Gayathri I am grateful to ISEC for selecting me for the PhD programme I thank the ISEC fraternity for the support throughout the period I am very much fond of Prof Govinda Rao, the then Director of ISEC His ideology has influenced me a lot I greatly acknowledge his advice and personal support rendered towards me, it really helped in my PhD research The faculty members of the institute were high co-operative and supportive My Whole hearted thanks to Prof K N Ninan, Prof M R Narayana, Prof Sangeetha, Dr Venkatachalam, Prof.Meenakshi Rajeev, Prof Usha Devi, Dr Gaythri Devi, Dr V P Vani, Dr G S Shastri, Dr T V Sekhar, Dr Madhusree Sekhar, Dr Sivakami, Prof R S Deshpande I have greatly benefited from the discussion with Prof D Narayana of CDS, my respectful thanks to him I gratefully recall my teachers during my MA programme at Govt.College, Kasargod: Prof Joseph Lopez and Prof S N Holla I express my deep sense of gratitude to them for all guidance and encouragements I enjoyed the friendship of Subodh, who made my stay at ISEC very interesting and lively I heartfelt respect and thanks to Dr Jyothis and Dr Jeena Jyothis for their inspirational academic and personal support throughout the period I greatly acknowledge the friendship and academic association of Ms Erikka, Erasmus University, Netherlands and Alex, University of Cologne, Germany It was wonderful to work with them, their collaboration made the CHAT exercise conducted in various Indian villages and slums very interesting I also thank Mr Ralf Rademacher for his constructive suggestions and comments on CHAT tool My special thanks are due to Mrs Olga and Mr Hugo for their personal and moral support through out The support they extended towards me made my stay in the Netherlands very much comfortable Thanks are due to Mr K S Narayana, AR (Academic) for his careful and efficient administrative help, and also for language editing of this thesis I also thank Mrs Margaratte, Accounts section, Mrs Santha, Reception and Mr Srinavasamurthy, Director Office, ISEC I sincerely acknowledge the help and assistance received from Mr Krishna Chandran, Mr Satish Kamath in the computer center and members of Library staff of ISEC, especially Mr.Kalyanappa I take this opportunity to thank my friends at ISEC: Bikas, Badri, Poulomi, Nisha, Anitha, Somasekar, Bhanumurthy, Ashish Das, Emil, santhosh, Anand Vadi, Pratheeba, Venu, Sathyasiba, Durba,Sabuj, Biplab, Manojit, Avinandan, Rajdeep, Akshay, Jaganath, Sitakantha Sethi, Rishi, Dukhabandha sahoo, Geethu, Pattu, Sarbhani, Gnadhari, Kalid Wasim, Malini, Smitha, Tunga, Subir, Sachi, Nithin, Yogeswari, Kannan Discussion with my friend Mahesh was very productive; I greatly acknowledge his support at various stages of my PhD research Thanks also to Prashobh for his personal and academic help at various stages of my PhD work My special thanks to Naveen, Anantha and Srikant for giving a nice friendship at ISEC The friendship of Mainak Majumdar, Lija, Sunitha, Sarala and Binitha helped me to ease the pressure and difficulties at various stages of this work, special thanks to them, I also thank my friends at CDS: Rajesh Puliyara, Shyjan, rajesh Kommath, Anil, Abdul, Achan, Hari, Syam, Subratho, Harilal My special thanks to Nirmal Roy, Krishna and kunhikrishnan for extending their help in data collection and also for the nice friendship throughout I greatly acknowledge the support extended to me by Mr Sanjeev, PhD fellow, CMDR Dharward I greatly acknowledge the fellowship given by ICSSR for my PhD research I also acknowledge SICI, New Delhi for awarding me the fellowship and giving me an opportunity to research in Canada I thank the staff of SICI Further, I thank the staff of University of Calgary for their support during my stay at Canada The friendship of Abdu, Blake, Omar and Julia and John made my life more comfortable there I express my deep sense of gratitude to faculty members of Institute of Health policy and Management, University of Erasmus, Netherlands, for formally teaching me the essence of Health economics The support received from University of Mangalore is great; I wish to thank Prof Joshi and Dr Jayasheela for their kind help constant encouragement I also use this opportunity to express my sincere thanks to Ms Soni, Ph.D section, for her help and kind co-operation Back to home, I cherish the memory of my father (late) who left this world during the initial stage of my PhD research I recall the moral support extended by my family towards me, my deep sense of gratitude to them: Mohan, Vijayan, Sureshan, Rameshan, Saro, Sumathi, Divya, Vineetha, Sreeja, Kunhi krishnan, Nisha, Babu I also express my gratitude to my Father-in-law and mother-in-law And also, special thanks to Renjith and Reshmi Last but not least, Remya, my beloved, for ail she is to me, I am short of words TABLE OF CONTENTS Declaration Certificate Acknowledgement Abbreviations List Tables List o f Figures Chapter Introduction Page No, 1-14 1.1 M otivation for the study Relevance o f Health insurance Schem es for India 1.8 Taxonom y o f Health Insurance in India Public (social) Health Insurance Schem es Micro Health Insurance (M H I) S chem es The Private Health Insurance (PHI) schemes Research Problem s and Q uestions Objectives o f the study Main Research H ypotheses Scope o f the study Organisation of Thesis 7 10 12 12 13 14 Chapter Concepts, Review of Literature and Methodology 15-48 2.1 Introduction Health Insurance; Basic concepts and principles Health Insurance M arket M arket Failures in Health Insurance Mai’ket Selection Bias Moral Hazard Dem and for Health Insurance Some selected study on Health insurance schem es in India Data sources and M ethodology of the Study Data sources Primary Data on PHIs EC C P Household data on M H IU s Primary data on Clients Preferences on Health Insurance Benefits (Choosing H ealthplans All Together (C H A T -1 )) M ethodology of present research 15 15 18 21 21 24 29 34 36 36 37 40 41 Chapter Equity Aspects of the Health Insurance Coverage in India 49- 3.1 3.2 Introduction Equity in Health Care and Equity in Health Insurance Coverage Health Insurance Schem es and their target population Inter-income class distribution o f health insurance coverage 49 49 1.2 1.3 1.3.1 1.3.2 1.3.3 1.4 1.5 1.6 1.7 2.2 2.3 2.4 2.4.1 2.4.2 2.5 2.6 2.7 2.7.1 2.7.1.1 2.7.1.2 2.7.1.3 2.7.2 3.3 3.4 42 52 54 3.5 3.6 Intra-income class analysis of health insurance coverage Econometric Estim ation on the probability to have M H I coverage for various incom e class households Prem ium Burden on H ouseholds Chapter Sum m ary 3.7 3.8 Chapter 4.1 4.2 4.3 4.4 4.5 Factors Determining Micro Health Insurance Coverage Introduction Factors Determ ining Health Insurance C overage Educational Profile Household Size Health Insurance C overage and the role o f S elf H elp Groups (SHGs) Econometric Estimation Chapter Sum m ary 4.6 4.7 Chapter 5.1 5.2 5.3 5.3.1 5.3.2 5.4 5.5 5.5.1 5.6 5.7 5.8 Chapter 6 6.2 6 Information Asymmetry, Market Failure and the Health Insurance Coverage 57 60 66 69 67-92 71 71 74 77 79 85 92 93-119 Introduction Conceptual and theoretical frame Familiarity of different aspects of Insurance Awareness about the Insurance System Role o f ‘Insurance HabiP A sym m etric information and Information D issem ination Channel on Health Insurance Coverage 91 94 98 98 102 104 A model o f insurance ag en t’s rational choice Insurance A gent and Selection Bias Empirical estimation on the presence of adverse Significance o f Health Risk Econometric Estimation Chapter Sum m ary 106 109 113 selection: Selection Bias in Micro Health Insurance Schemes Introduction Adverse selection in M HI schem es Role of SHGs in A dverse Selection Chapter Sum m ary 115 119 120-132 120 120 130 131 Chapter Preferences for Health Insurance Benefits and Health Insurance Schemes 133-153 7.1 7.2 7.3 Introduction Analytical Aspects Preferences of the people for different health care benefits without budget constraint Preferences o f the people for different health care benefits with budget constraint 133 133 135 7.4 138 LIST OF FIGURES Figure Title page No 3.1 3.2 3.3 4.1 4.2 4.3 4.4 4.5 4.6 4.7-a 4.7-b 4.7-c 4.8-a 4.8-b 4.8.c 4.9 5.2 7.1 7.2 7.3 Classification of households in to different income classes Impact of Equity in health insurance coverage on Equity in Health Target Population of the Health Insurance Schemes Mediclaim premium for various age groups Determinants of Micro Health Insurance Coverage Proportion of the educational qualification among the Insured and the Non Insured in the 'Rural MHI’ schemes Proportion of educational qualification among the Insured and the Non Insured in the 'Urban MHF schemes Household size across different income classes in the case of Rural MHI schemes Household size across different income classes in the case of 'Urban MHI’ schemes Micro Health Insurance Model The SHGs membership status of the Insured households of the 'Rural MHI' schemes The SHGs membership status of the Non Insured households of the 'Rural MHI* schemes Proportion of Insured and Non Insured among the SHG members in Rural MHI Schemes The SHGs membership status of the Insured households of the 'Urban MHI’ schemes The SHGs membership status of the Non Insured households of the 'Urban MHI’ schemes Proportion of Insured and Non Insured among the SHG members in ‘Urban MHI' Schemes Probability to have health insurance coverage for each income with SHG membership PHI model (Partner-Agent model) Households reporting bad health or bad medical situation at least one among the members in the household in PHI scheme (%) Preferences for various health Ccire benefits among those who are willing to pay for health insurance (N=2390) Preferences for various health care benefits among those who are willing to pay for health insurance (N=2390) CHAT Board 44 52 53 69 73 76 76 78 79 80 81 81 82 83 84 84 91 105 115 136 137 139 CHAPTER ONE INTRODUCTION 1.1 M otivation for th e stu d y Improvement in health statu s is vital for the enhancem ent of hum an capabilities Illness is an im portant source of deterioration to hum an health Of all the risks facing poor households, health risks pose the greatest threat to their lives and livelihoods A health shock adds health expenditures to the burden of the poor Even a minor health shock can cause a major impact on poor persons’ ability to work and curtail their earning capacity Moreover, given the strong link between health and income at low income levels, a health shock usually affects the poor the most (Dror and Jacquier 1999; Cohen and Sebstad 2003b) Non-availability of necessary finances is a major obstacle in the health care attainm ents of people in many developing countries, including India With the continuing resource constraints of the government and competing sectoral dem ands, the Eillocation needed in the health sector may not increase to adequate level in the near future Nonetheless, the present trend of cut in government subsidies as a part of the ‘new economic reforms' is likely to put more pressure on this sector It is in this context th at many countries are looking forward to the alternatives to the tax based resource mobilization for health care financing Two broad methods such as cost containm ent and cost sharing method can be proposed as alternatives on resource mobilization for health care (World Bank, 1987) Privatization and community participation strategies are proposed for cost containm ent Cost sharing m ethods include User Financing and Health Insurance^ There is a growing awareness that access to healthcare cannot be free-of-charge, due to the low level of government spending on health, nor funded mainly out-of-pocket by care-seekers, due to the regressive effect of this financing mode [James et al., 2006] Health insurance (HI) has emerged as p£irt of the reform drive in many countries, both as a way of augm enting financial ! resources available for care, and as a m eans of better linking health dem and to the provision of services (Dror and Preker, 2001) HI is becoming a major policy preoccupation as it can provide risk m anagem ent th at respects the complexity of the risks and is one of the best financial tools to prevent a situation whereby people with income above the poverty line would fall under it Promoting HI is a rational and powerful response as it serves the insured well even when the insurance is a very hum ble local micro health scheme, as evidenced from some of the micro schem es’ increasing access to health care, significantly (Dror et al,, 2005) HI m echanism is getting more popularity even in developing countries backed up by the evidence from the successful experience of the developed countries where HI system is an integral part of the health care system Notwithstanding the view th at HI is a viable solution [Churchill 2006], HI is nearly nonexistent among poor communities in rural India The HI coverage (i.e the num ber of people covered by HI) in India, in some form or the other I.e., w hether in public or private sphere, is abysmally low and is only around 3% of the total Indian Population (IRDA, 2004) At the same time, interest in taking steps to spread insurance coverage is growing Private insurance companies are propagating marketing methods and products which should enhance access to insurance among the wealthier segments of the population Commercial companies are also aiming at selling insurance to people living closer to the poverty line, in part compliance with the regulations th at impose a quota of “social” and “rural" contracts Community orgcinizations and other bodies have also contributed to the growth of health insurance, notably by supporting the development of India’s micro insurance m arket among the poorer It can be seen that Privatization, Community participation and User fees involve a kind of out-of-pocket expenditure burden on the households which is perhaps minimized by the introduction of Health Insurance as a risk pooling mechcuiism segm ents of population In this backdrop, the present study is an attem pt to understand both the Private Health Insurance (PHI) and Micro Health Insurance (MHI) Schemes in India 1.2 R elevance of H ealth In su ran ce for India Several recent papers and reports have critically reviewed the Indian health care delivery and financing system As indicated by the World Development Report 2003, the total world health expenditure is 9.0 percent of the Gross world income out of which the share of both public and private sector is 5.3 percent and 3,7 percent, respectively For developing countries as a whole, expenditure on health accounts for about percent of total public expenditure and, on an average, to percent of the GDP (WDR 2003) As against this, the total health expenditure in India is 5,2 percent of the GDP, and out of this the public health spending account for less th an 20 percent and the rest is the contribution by the private sector (WDR 2002) In India, the Per capita total expenditure on health at average exchange rate (US$) though increased from $ 22 in 1998 to $ 30 in 2002, the Per capita government expenditure on hesdth at average exchange rate (US$) was $ through out the period (WHR 2005) It has reported th at 40 percent of the hospitalized having had to borrow money or sell assets, during the decade 1986-96, there was a doubling in the num ber of persons who were unable to seek healthcare due to financial reasons (NSSO 1996), and alm ost 24 percent of the hospitsilized Indians fall Idc I o w poverty line because they are hospitalized (Peters et al 2002), A recent World Bank (2001) study on India concludes th at out-ofpocket medical costs (estimated to be more than 80% of the total medical expenditure) alone may push 2.2% of the population below the poverty line each year Many studies indicate th at Indians tend to use health care services more frequently (Duggal and Amin 1989; Berman 1996) According to the NSS data (1996), the percentage of ailing persons treated during 15 days is 83 in rural area and 91 in urban area and among those who have not sought medical care in spite of their illness, around 24 per cent in rural and 21 per cent in urban areas have cited their lack of financial capacity as the reason for not seeking treatm ent Recent household-level studies carried out in India, both at national and regional levels, have indicated th at the proportion of patients th at pay for services can be quite high, ranging from 64 to 90 per cent (Duggal and Amin, 1989; George, 1997; Sundar, 1992) Out of the total health expenditure in India, the public health spending accounts for less th an 20 percent, and the remaining is the contribution by the private sector (WDR, 2002) Peter Berman (1996) revealed that almost all of this private spending is on curative care - consultations, diagnostics and in-patient care In contrast to this, a lion's share of public health expenditure is on preventive and promotive health care, which is at the expense of curative care (Phadke 1994) Moreover, a slight majority of people who are ill or sick seeks care from public providers for in-patient care, th at is, the most common outpatient episodes are treated before the private provider^ Furtherm ore, it is im portant to note that, as revealed by the recent household-level studies on utilization on health care, even public care is not all th at 'free' after all; there are many incidental expenses that consum ers have to bear on their own (Uplekar and George 1994, Sundar 1995) Sundar (1995) points out th at average spending per out-patient episode at the public facilities is about 40 percent of the average expenditure on visits to the private sector, while the public in-patient treatm ent expenditures average about a quarter of the private in-patient treatm ent costs Dissatisfaction with the quality and quantity of curative services, under funding and lesser access is the limitations of India’s public health care system and the majority of the consum ers of the public health system are the weaker sections of the society, and there is a growing preference for health care services being provided by the private sector In short, the treatm ent from both public and private facilities imposes considerable fmancial burden on individuals in the form of out-of-pocket expenses However, approximately 65 percent of all spending on curative and diagnostic care in India consists of direct outof-pocket expenses, which are not reim bursed (Peter Berman, 1996) As already mentioned above, the people used to approach both the public and private sector health care provider for treatment As far as India's public health care system is concerned, dissatisfaction with the quality and quantity of curative services, under funding and lesser access is the limitations pointed out by the studies The adoption of ‘new economic policies’ and the subsequent reforms such as sector reforms escalated the cost of health care further The present trend of imposing user charges in the public hospitals in many states and reduction in public health subsidy may lead to an increase in the health care burden of the population Making this issue more vulnerable, 80% of the public health subsidy goes to the richer sections of the society (Mahal, A, et.al., 2000) The financial burden of health care is, however, unduly heavy for the households belonging to the informal sector indicating a potential for voluntaiy comprehensive health insurance schemes for such sections of the society (Gumber and Kulkami, 2000) The health care expenditure is on an increase in India; the annual rate of inflation in the health sector is estim ated to be 31 per cent and 15 percent for inpatient and outpatient care, respectively (cited in S ujatha Rao, 2004) As a result, the out of pocket expenditure of the people has increased more th an proportionately during this period Further, we are in an era of the rapid technological progress, which makes it possible to treat more diseases with new potential areas for treatm ent and prolong life expectancy with resulting increases in need and dem and for health services, which will put more pressure on the health care financing front India is at the door front of the transition from the second to third stage of demographic transition characterized by low birth rate and low death rate The fact here is th at the life expectancy of the people is increasing aiid, as a result, the num ber of ageing or elderly population too is proportionately increasing The basic theory of the inverse relationship between age and health statu s states th at as people get aged, their health statu s will deteriorate, and has ample empirical evidence to substantiate giving a strong message of an overall increase in the health care burden of society due to high medical care consum ption of these groups (Omram, 1971) It can also be observed that India is moving towards an epidemiological transition, and some states like Kerala have already begun to experience such a transition Major epidemiological studies (Jamison et al 1993: Murray and Lopez 1996) have documented im portant changes in the burden of disease and mortality in developing countries As a population undergoes a demographic transition, it also experiences a shift in its characteristic patterns of disease Omram (1971) believed this pattern is unchanging and labeled it as epidemiological transition and described it as a shift away from diseases of famine and pestilence to receding pandemics to an age of generative and m an made diseases Epidemiological transition Implies a change in the morbidity profile from acute, infectious, and parasitic diseases (e.g plague, smallpox, and cholera) to non-communicable, degenerative, and chronic diseases (e.g cardiovascular specifically, diseases, cancer, three fundam ental diabetes, and neoplasm) More changes in the configuration of a population’s health profile take place during epidemiological transition: (i) mortality decline due to infectious diseases, Injuries, and m ental Illness: (ii) shift of the burden of death and diseases from the younger to the older groups: and (ili) change in health profile from one dominated by death to one dominated by morbidity Differing epidemiological patterns between town and country coexist and continue to widen In such a situation of polarization, the danger is th at of the scarcity of resources for diagnostic and curative services available to the rural and the urban poor Thus, the demographic change in term s of increase in the num ber and proportion of elderly people in the population, and epidemiological transition in the form of new types of diseases are the actual and potential sources of higher health expenditure for the people For appropriate societal responses to the requirem ents arising out of the epidemiological transition is a concomitant health care transition (Caldwell, 1990) Hence, one of the issue that emerges out of the above discussion is that the cost of treatm ent poses severe constraints for both who are seeking health care and those who are not Largely, the cost of treatm ent is significantly influencing the health seeking behavior of Indians Some sections of the society are able to afford the health care services while others can ill-afford it Certainly, this scenario calls for an alternative cost sharing m echanism where health insurance is considered as an efficient m echanism through pooling of the health care burden between the rich and the poor, between healthy and unhealthy, and between young and aged Recently, there is a growing interest and consensus among policy makers, community organizations and researchers in India on health insurance as an efficient and equitable social security m echanism to ensure universal access to high quality health care to all sections of the society 1.3 Taxonom y of H ealth In su ran ce in India The health insurance situation in India can be understood un d er the following headings: 1.3.1 Public (Social) Health Insurance Schem es The most prom inent among the protective schemes are the Employees’ State Insurance Scheme (E^IS) for workers in the organized private industrial sector and the Central Government Hccdth Scheme (CGHS) for its employees The beneficiaries of the above schem es are the salaried class who belong to formal sectors Some “Employer-managed health facilities” and the "reimbursements of health facilities" are also avcdlable in India which are limited to only a few The 2003-04 Union budget proposed introduction of a universal health insurance (UHI) plan for people below the poverty line in tie-up with Insurance Companies Micro Health Insurance (MHI) Schem es MHI schemes are based on not-for-profit principle and targeted to the underprivileged sections of the society In India, currently there are more than 20 MHI units and many organizations are coming ahead with various proposals to introduce HI from getting inspiration from the successful stories of the existing MHI units Table; 1.1 Locations and size of membership o f some selected MHI Units Name of MHIs Location Size of Membership 1) ACCORD-1992 Gudallur, Nilgiris (Tamil Nadu) 2) BAlF-2001 Pune District, villages around Uruli-Kanchan(M aharashtra Buldhana (M aharashtra M ayiladumparai block, Theni District(Tamil Nadu T.Narasipura taluk, Mysore Dt & Bailhongal taluk, Belgaum Dt (Karnataka) Wardha, M aharastra 3) BULDHANA 4) DHAN 5) KARUNA TRUST 6) MGIMS HOSPITAL 7) NAVSARGJAN TRUST 8) RAHA 9) SEWA 10) STUDENTS HEALTH HOME 11) VHS 12) YESHASWINI TRUST 13) NIDAN 14) UPLIFT (Number of Individuals) 13070 1500 175,000 19,049 634,581 30,000 Patan District, North G ujarat Ralgarh, Ambikapur, Jash p u ran d Korba ts of districts of Chattisgarh 11 districts of G ujarat West Bengal 92,000 1,067,348 5,60,0000 Chennai, Tamil Nadu Bangalore, K arnataka 104,247 25,00,000 Patna, Vaishali, Muzaffarpur, Khagrla, Nawadah, Begusaria locations in Bihar Pune, M aharastra 1,020 10,966 Sources: ECCP data Devadasan et al Documents from various MHIs 3 Private Health Instirance (PHI) Schem es The private health insurance (PHI) schemes, often called Private Voluntary Health Insurance schemes (PVHI), are the schem es offered by insurance companies in the open m arket in which enrolment Into the scheme is not determined by legislation In India, the public and private sector companies provide the PHI (voluntary) The General Insurance Corporation (GIC), which comprises of four insurance companies namely NIC, NIAC, OIC and UIC, is the largest public sector organization of providing the PHI in India The various policies introduced by the GICs are Mediclaim Policy (group and individual), J a n Arogya Bima, Personal Accident Policy, Nagarik S uraksha Policy and Overseas Mediclaim Policies (employment and study/corporate frequent travel/business and holiday) Among these policies, the Mediclaim policy is relatively popular After the establishm ent of Insurance Regulatory and Development Authority (IRDA), many private corporates also have entered the HI market The Bajaj Allianz, Royal Sundaram , ICICI Lombard, Cholamandalam, Tata and Reliance are the prom inent private insurance companies An im portant peculiarity of these corporations is the tie-up with some health care provider having super specialty facilities Table: 1.2 Private Health Insurance Sector in India Public/Private sector Name of the Insurance companies Title of the health insurance policies Public sector companies The Oriental Insurance Company Ltd 1.Mediclaim Policy Jan Arogya Bima Policy Mediclaim Policy 2.J a n Arogya Bima Policy 1.Mediclaim Policy 2,Jan Arogya Bima Policy Mediclaim Policy 2.Jan Arogya Bima Policy Health Shield The New India Assurance Company Ltd National Insurance Corporation United India Insurance Company Ltd Private sector companies Royal Sundaram Alliance Insurance Company Limited Cholam andalam General Insurance Company Limited TATA AJG General Insurance company Ltd Bajaj Allianz General Insurance Company Ltd ICICI Lombard General Insurance Company Limited HDFC Chubb General Insurance Company Limited Basic Health Cover Tata AIG Healtii First Health Guard Critical Illness Group Accident Policy, Hospital Cash (Accident only) Source; Insurance Regulatory and Development Authority (IRDA), 2006 The Life Insurance Corporation (LIC) of India introduced a special insurance programme called ‘Ashadeep’ which covers medical expenses for four dreaded diseases namely, Cancer (malignant) Paralytic stroke resulting in perm anent disability, Renal failure of both kidneys or Coronary artery diseases where by pass surgery has been done Another policy by the LIC, called Jeevan Asha Plan, covers m any surgical procedures But these policies are a kind of savings schemes and the premium is almost equal or more than the insurance am ount, in short, not follow the principle of insurance (risk pooling) in strict sense of the term 1.4 R esearch Problem s and Q uestions In India, the coverage of HI in some form or the other, i.e., w hether public or private, is abysmally low and is only around 3%3 Even though there is no data set to give an accurate figure on India’s HI coverage, a rough estim ate is given in the following table Table: 1.3 Selected health insurance coverage in India Sources of coverage Covered lives (in thousands) Central government Health Scheme 4,276 (CGHS) Employees State Insurance Scheme (ESIS) Mediclaim Policy (voluntary) 31,050 10,000 m Universal Health Insurance scheme Government non-life insurance companies 56 13 N o n -g o v e iiim e n t N on -life in s u r a n c e companies Community health insurance ! 215 S ou rces: In su ran ce R egulatory and D evelop m en t A uthority J o u rn a l, O ctober 0 , an d com piled by th e a u th o r from different so u rces * Not available ^ Different estim ates were being cited by various authors from different sources on health insurance coverage in India: Peter Berman (2006): 10%, M isha Segal (2004); 15%, Susan M athies and Kenneth Cahill (2004): 3%, Indrani G upta (2004); 3% All these authors raised doubts on the reliability of their estim ate; how ever, the estim ate by Indrani G upta (2004) at 3% seem s to be m ore reliable The main m essage o f all these citations is that health insurance coverage is very low in India 10 As mentioned before, the CGHS and ESIS cover the people of the formal sector only by ju s t limiting the coverage to the central government employees and Industrial workers, respectively A majority of Indian population belongs to informal sector and not have any formal social security m easures against the illness episodes It is evident from the literature reviewed th at HI m echanism is a viable solution in term s of promoting efficiency and equity in the health care sector After liberalization and globalization of Indian Economy, it has been assum ed that m arket m echanism may meet the requirem ents of people, and the State can limit its role as a facilitator Even though, the insurance industry is an emerging sector in India and the HI premium contributes to less than one percentage of their total premium revenue, expectation is growing among some com ers th at the voluntaiy HI m arket is one of the options before the public to have health insurance coverage until and unless the government and other organizations come up with a concrete policy soluUon to provide the sam e to its citizens Further, it can be inferred from the policy docum ents that both the Central and State governments of India* cire looking towards a strong private health insurance m arket to meet the increasing huge health care financial burden of the people One of the characteristics of these insurance companies is the presence of branches all over India th at are fairly distributed But, as the PHI schemes Eire being offered by m arket sector, one can not expect that these schemes will cover tlie poorer sections of the society, till such time when specific schemes by these providers to address the poorer sections are in place The government and market sectors have largely failed to develop insurance for the poorer sections of the nation Micro Health Insurance Units (MHIUs) created and operated by local people have been proposed (Dror and Preker 2002) as an approach to insuring health for the poor Some of the studies reveal an impression that tlie MHI Schemes £U'e getting momentum in India and they are able cater to the health care requirem ents of the poor (Devadasan,2004) specifically, the Union budgets and State government's budgets and also the IRDA publications have been highlighUng the promotion of health insurance with the help of insurance companies 11 Thus, two forms of HI such as PHI and MHI schem es are the options before the public Why these schemes have covered only a small fraction of the Indian population? Many studies have indicated th a t Indians are willing to pay for HI (K Mathiyazaghan, 1998: Dror et al, 2007) In a low income country like India where a majority of the people are living in rural areas and working in the informal sector^, this low level of health insurance coverage is not justifiable, especially in a context where any kind of catastrophic illness leads to a high cost of treatm ent and loss of earnings^ As already noted, studies show th at the cost of treatm ent in India is very high in both public^ and private sector hospitals and has been increasing: and also the quality of care in the public sector health facilities are very poor Many people are not able get access to health care mainly because of financial constraints The basic question here is centered on the very low level of HI coverage in India The country has no previous experience of having a situation of high level of coverage and later on falling to the lower level, to give a satisfactory answer to this question It is in this context, the present study is an attem pt to address such a low level of health insurance coverage and issues related to the scale up process of HI with social welfare objectives The following questions are raised in this context 1) Why many people fail to purchase health insurance in India if it is so valuable? What are the constraints for the growth of a sound HI m echanism in India? 2) To what extent both the PHI and MHI schemes have covered the weaker and poorer sections of the society? 3) Between PHI and MHI systems, which one is more equitable and adaptable to the Indian situation? 4) To w hat extent the available HI schemes in India reflect the preferences of the people? It is estimated that about two-fifths of India's GDP originates from the informalsector and almost 90%of families depend on this sector for their livelihood ^ The studies on the use of health care services show that the poor and other disadvantaged sections (also, they are in debt trap) such as scheduled castes and tribes areforced to spend a higher proportion of their income on health care than the better off Recently In India, many state governments introduced User fee In their district hospitals 12 1.5 O bjectives of th e Study The broad objective of the study is to understand the prospective role of PHI and MHI as risk pooling health care financing strategies in India and to point out what are the requisites for the growth of the same to achieve the goal of a universal and comprehensive HI system The following are the specific objectives of the study 1) To examine the equity aspects of HI coverage in India 2) To examine the determ inants of scale up of MHI and PHI schem es on an equity basis 3) To examine the significance of information asymmetry and adverse selection as factors influencing the scale up process of HI coverage in India 4) To analyze the ability of HI schemes to reflect the preferences of people for various HI benefits to enhance the scale up process of HI coverage in India 1.6 Main R esearch H ypotheses The following hypotheses have been considered relevant in this context 1) MHI schemes are not better than PHI schemes In assuring equity In HI coverage In India 2) Information Channels not have significant roles in the coverage of both MHI and PHI schemes in India 3) There is no adverse selection in the HI enrollments in India 4) Tiie prevailing HI schemes not reflect the preferences of the people in India 13 1.7 Scope of th e Study Notwithstanding the view th at HI is a viable solution to ensure access to basic health care services to the m asses, the num ber of people with HI coverage is very low in India We not have a history of spread of HI coverage in the p ast to find answer for the low HI coverage There are some structural issues with the system The present study is an attem pt to find the causes for the low HI coverage and to derive necessary pre conditions for the growth of a sound HI system in India The study addresses the scope and relevance of both the Commercial/Private Health Insurance Schemes and Community/Micro Health Insurance schemes (MHI) th at are organized at the macro and grassroots levels, respectively Given the growing interest on the importance of HI, the outcomes of the present study is considered useful in guiding policy making and other stake holders on the scale up process of HI in India 1.8 O rganisation of th e Thesis The study is organized in eight chapters The introductory chapter presents the context, relevance, research problem and objectives of the study The second chapter deals with the conceptual and theoretical frame including literature review, d ata sources and methodological aspects of the study The third chapter investigates the nature of HI coverage by analyzing how equity is assured in the HI enrolm ent across both PHI and MHI schemes The fourth chapter analyses the determ inant of HI coverage in MHI schemes The fifth chapter discusses the role of information asymmetry through information dissem ination channels and tests for selection bias in both PHI scheme as factors affecting both the equity and scale up process of HI coverage The sixth chapter examines the selection bias in MHI schemes The comparison of the preferences of the people and the prevailing HI schemes is the theme of the seventh chapter The last chapter sum m arises the thesis findings and discusses policy implications 14