It is globally identified in economic and developmental literature that good health is one of the most important determinants that contribute to an improved standard of living. Therefore, focusing on the provision of proper and timely healthcare services is often identified as one of the most important policy discussions globally. The pandemic has helped in identifying the weak links in the healthcare industry and therefore has presented the system with an opportunity to make lasting changes that can lead to a more inclusive healthcare system for all and make the dream of universal healthcare a reality. 

Illnesses and accidents more often than not are unpredictable events. Health Insurance is based on the microeconomic concept of unpredictable risk and the ability to shift this risk to others is viewed as a benefit that many are willing to pay for. Not only do random events of sickness and accidents disable a person and create financial distress through loss of wages/ income but it is also accompanied by massive and volatile medical costs. In such a circumstance, a well-developed and inclusive health insurance industry becomes a necessary step in ensuring Universal Health Coverage. For the last two decades, the expenditure on healthcare as a percentage of GDP has been below 4.5 per cent. An increase in public expenditure on healthcare can be just what is needed to deal with the current problems associated with constrained capacity and subpar quality of healthcare services offered. These problems have been pushing more and more individuals towards private sector healthcare facilities which are characterised by exorbitant out-of-pocket expenses. As per NSSOs 75th Round survey, in India, the private healthcare sector delivers and services 60 per cent of all hospitalisations and 70 per cent of out-patient services.

A report titled “Health Insurance for India's Missing Middle” by NITI Aayog estimates that 30 per cent of the population (~approx. 40 crore individuals) are lacking any means of financial protection. While the hospitalisation costs of the bottom 50 per cent are covered under AB-PMJAY (Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana) as well as other state government schemes and the top 20 per cent are covered by voluntary private insurances, the middle 30 per cent are devoid of insurance protections largely because of problems of either affordability or overlaps between schemes. 

Chart 1

This segment of the population that is unable to access and avail the benefits of government schemes and who are unable to afford private facilities is spread out in both urban and rural areas and comes from varied backgrounds. Majorly characterised by self-employment (agriculture and non-agriculture) in rural areas and informal, semi-formal, and formal in urban areas. Therefore, it becomes clear that a large segment of the uninsured is occupied in occupations whose nature is precarious, with unstable income and no formal work contracts, let alone insurance coverage benefits. 

Chart 2Chart 3

Apart from difficulties in accessing insurance benefits and schemes, there are other problems that plague the insurance industry such as complaints related to either claim redemption or lack of clarity in the policy structure of the insurance products available. 

Key Challenges Faced by Healthcare Insurance Industry in India

Low penetration and density rates are of major concern for the industry. These measures are often used to determine the penetration of the insurance industry in a country as well as the development of insurance sectors. According to IRDAI, the body responsible for regulating, promoting, and ensuring orderly growth of the insurance industry, the non-life insurance segment (healthcare industry forms the largest part of the non-life insurance segment, accounting for 33.33 per cent) has experienced low density and penetration rates (<1 per cent between 2001 and 2017), leaving large portions of the population with risk coverage. This problem is especially prominent in rural area where the participation of citizens in voluntary insurance schemes is low. Also, it has been increasingly observed that the private sector has been more focussed on urban centres which further reduces the options available to a large chunk of the population still residing in rural areas. This lack of accessibility not only results from problems of affordability but also comprehension. The convoluted terms and suggestions which form part of the official contract often leave most of the customers unclear about what they are getting into. Furthermore, as per the Household Finance Committee report of 2017, across India approx. 5 per cent of the income is held in the form of financial assets (insurance being only a subpart of this bucket) which is one of the major contributors to low penetration rates. Most households still consider land and gold as a more secure form of storing their hard-earned money. This disparity is also a result of low levels of financial knowledge and literacy among a large chunk of the population. Furthermore, the industry as a whole has also been facing a capital crunch. With low levels of capital available, their financial health has been deteriorating with many concerned if this might lead to a crisis situation in the economy. There are also increasing concerns regarding pricing problems and overcrowding in certain segments. 

Need for Healthcare Insurance

Over the years, there has been an increasing need for a more robust and inclusive health insurance sector in our country. The major reasons for this have been a change in the lifestyle of the citizens, making certain segments more disposed to falling ill. Global changes have also resulted in rare non-communicable diseases becoming more common. Now although this is in tandem with medical breakthroughs, the cost of healthcare has also skyrocketed. Lastly, inadequate financial planning on account of a lack of financial literacy further necessitates the need for healthcare insurance among citizens.

This article has been authored by Karishma Sharma and Nehal Kaul.

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