A Report on Voluntary Health Insurance in India: A Bridge Towards Universal Coverage?

Executive Summary

This paper presents a detailed review and analysis of India’s health insurance landscape, with a focus on voluntary health insurance (VHI). This review aims to provide various stakeholders (especially providers, employers, insurance companies, pharmaceutical firms, and government and non-government policy thinkers) an assessment of all the factors to be considered when envisioning expansion of health care coverage for the population by enhancing financial protection through insurance. In the quest towards attaining universal health coverage (UHC), insurance has become a dominant financing model globally. Most high-income countries have a national insurance scheme as in Germany and Canada, or a national health service funded through general taxation as in the United Kingdom (UK). In low-and-middle-income countries (LMICs), due to the low priority accorded to health as well as budget constraints, health financing is fragmented. Financing includes a mix of mandatory insurance schemes for the formal sector, voluntary insurance schemes (mostly commercial and privately managed, but could be managed by the public sector as well) for those not covered by a mandatory insurance, targeted insurance schemes for the poor, and a high proportion of out-of-pocket (OOP) spending. Voluntary Health Insurance is therefore, one of the insurance schemes covering the population.

The health insurance experiences of various countries reveal that VHI, in its commercial form, plays a supplementary, complementary or substitutive role. Overall, on an average, 10% of a country’s population is covered by VHI (mostly in its substitutive form). Voluntary health insurance that is subsidised by the government can play a role in increasing demand for insurance, providing coverage to the “missing middle” or the informal sector, especially in LMICs. Country experiences on coverage of the missing middle demonstrate that government subsidies as prepayments are key to creating demand and achieving universal coverage of this section, as seen in China and Thailand. This section concludes that VHI is unlikely to play a dominant role in the path to UHC and needs to be well regulated by the government in order to be integrated with the overall health insurance landscape.

In the section on India’s health insurance landscape, we observe that India has diverse revenue sources for financing health. Health care in India suffers from deep fragmentation, including the fragmentation of financing pools, payers, providers, and governing structures. The system is also cost inefficient, resulting in high out-of-pocket expenditure (OOPE) and health inequities in terms of access and outcomes. Given that in the quest towards UHC, insurance is set to become the dominant form of financing, this section describes and analyses India’s health insurance landscape in detail, and more importantly, the role of VHI in this scenario. We construct this landscape based on various available data sources and find that 46% of the population is covered by some scheme of medical insurance which is mostly indemnity-type plans for in-patient services, and hence shallow. These schemes broadly include: social health insurance, involving employee–employer based pooling, provided by the public sector (CGHS, ESIS, ECHS and so on); voluntary health insurance (VHI) which is commercial insurance purchased by individuals and private sector employers (group insurance) and; government (centre and state)-sponsored targeted insurance schemes for the poor (Pradhan Mantri Jan Arogya Yojana currently being the main central programme).

The health insurance market in India has expanded in the last two decades and has introduced many private insurers. India now has 36 general insurance, 24 life insurance, and 7 standalone health insurance companies that provide health insurance. There are only five public insurance companies (four general insurance and one life insurance company). While health insurance penetration and density has increased over time, the breadth and depth of coverage remains low and shallow. Furthermore, despite the numerous health insurance schemes available across the country, the health insurance market has still not matured enough. There are too many players with weak regulation in place. At present, 46% of the population is covered under insurance schemes, with varying depths of coverage. Those in the formal sector (government and private) enjoy better health insurance coverage than those covered by government sponsored/subsidised schemes (PMJAY and state-sponsored schemes) and individual VHI schemes. Data shows that government-sponsored schemes are poorly funded while attempting to cover a large proportion of the population, resulting in shallow coverage. In contrast, formal sector employees have greater depth of coverage with more robust funding. This indicates the regressive nature of financing and inequities in coverage.

All types of health insurance schemes face regulatory and governance challenges, but these need to be strengthened in order to minimise insurance-related market failures. The space for commercial VHI has expanded over the last few decades with the expansion of the insurance market, but VHI financing is regressive and faces considerable market failures in India. The country’s regulatory mechanisms in health insurance are not robust. Several gaps and challenges in the regulation of commercial insurance schemes continue to exist, along with weak regulation in pricing of premiums as well as costs levied by private providers. As such, there is a growing need for a separate vertical monitoring only health insurance within the Insurance Regulatory Authority of India (IRDAI). Administrative and commission costs for insurance companies and agents exceed 40% which is very high and impacts insurance claims. The public/consumers are ill-informed and lack knowledge about insurance policies; grievance redressal is mostly limited to claim rejections. There is no standardised benefit package. India’s health insurance landscape is therefore fraught with adverse selection and moral hazards, and high costs and inequities across class and region. This defeats the purpose of universal accessibility and equity. These challenges need to be underscored before coverage is expanded with the objective of financial protection through insurance.

Given the consistently low levels of government investment, and that only 46% of India’s population is covered by some form of health insurance, alternative forms of health financing to expand coverage to the missing middle class need to be strategically thought out in order to improve financial protection. India could explore the potential of expanding VHI, making it more accessible, provided that is well regulated and supervised. At present, other country experiences show that VHI (funded either by public and private funds or both) plays a marginal role in total health expenditure, but can be used to bridge the gap in coverage. The paper concludes that only substantive tax-based financing, consolidated risk pools, strong regulation of insurers and providers to minimise market failures, and restructured service delivery, can enable mandatory universal coverage. However, thoughtfully expanded and government-managed VHI could serve as an interim stepping stone towards more comprehensive publicly-financed universal coverage in the long run.

The key takeaways from this paper are –

• • In India, around 46% of the population is covered by some form of health insurance. This includes social health insurance schemes, government-sponsored insurance for the poor, employer-provided insurance, and commercial VHI. However, the coverage is highly fragmented and inequitable.
  • Globally, VHI plays a marginal role in total health expenditure, but can help bridge coverage gaps. It is unlikely that UHC can be achieved through VHI alone, due to challenges like adverse selection, high administrative costs, and inequitable access.
  • India could strategically expand regulated VHI on an interim basis to extend coverage to the “missing middle” that is not covered by government insurance or employer schemes. The government needs to substantially increase public financing, merge insurance pools, strengthen regulation, and restructure health care delivery and other supply-side issues. The reforms have to be systemic.
  • The paper argues that India can expand regulated VHI to bridge coverage gaps in the short-term, but universal mandatory insurance, financed more through taxation and consolidated pools, is needed for equitable universal coverage in the long run.