THE ROLE OF INSURANCE IN HEALTHCARE SYSTEM IN DEVELOPING COUNTRIES

R.Qaiser, Professor, NIA, Pune

Introduction: Health is wealth. Thus goes the old saying. The economic status of a country is directly linked to the health status of its people. This is as much true for individuals and families as for nations. Therefore all developmental and poverty alleviation efforts must necessarily focus on health issues also. Along with education, health remains the most important focus area for a country to make progress. Healthcare, in fact, is one of the basic needs of humanity and it has been there in some form or the other ever since the dawn of civilization. Good health is one of the most important pre-requisite to human productivity which in turn leads to overall development of a society. Providing good health care system to its population is one of the basic duties of any government and what percentage of the GDP the government is spending on health care is indicative of the governments commitment in fulfilling this duty. But the task is onerous. Whereas the developed countries are faced with challenges like health care for ageing population, changing life-style

disease, rising health care cost, etc., the challenges for the poor and developing countries are different in nature. Nevertheless, cost containment and funding the health care remain a big challenge for both the developed and developing countries. However, the developing countries can learn lessons from the developed countries for they have also passed through the predicament that the developing countries are passing through now. Therefore it will be a worthwhile exercise to examine and evaluate the various models that have been used or are in use in developed countries and their suitability & adaptation in developing countries. Learning from others experience is always a good cost effective strategy.

Health is at the center of global agenda and there is now a real concern to reach out to the poor and vulnerable section of the society with an appropriate, cost effective and sustainable health care system which would address the concern both at the preventive and curative level. World Health Organization (WHO) is at the forefront to address the problems. 1

An attempt has been made in this article to examine the role that health insurance system can play as a supplement to the governments effort (or in partnership with the government) to provide health care services to the population as a social and economic upliftment measure. The family is devastated if the bread earner falls sick more so if this sickness is critical in nature. There is some relief available if he is working in an organized sector for there is organizational support in some form or other. But the number of person working in organized sector is very limited, especially in poor & developing countries. The cost of staying alive for most of the people in poor countries is in itself a big concern. There is, therefore, an urgent need to provide access to affordable healthcare in a sustainable manner. Developing such a system and maintaining it is indeed the biggest challenge for developing countries. This calls for multi pronged approach strategy. Insurance can be part of such strategy and there is need for proper synergy between the various approaches to tackle various problems associated with health care. Lets examine the issues & concerns on account of healthcare and how these can be addressed through health insurance initiative. The idea is of establishing health insurance system that can truly serve the social goals of improved health, reduced financial insecurity and greater equity. Agreed that good health is a pre-requisite to harness the potential of human resource to ensure productivity and economic growth of the country. But what do we mean by good health. Is it absence of disease only or does it go much beyond that? How do we define good health? What is the role and duty of the society and that of individuals within the society for promoting good health and healthy living?

WHO defines health as the complete physical, mental, social and spiritual well being of a person and not merely absence of disease and infirmity. It is considered a crucial factor in determining the human development index of a country and investment in health sector is therefore a major social investment linked to social goals. We find that advanced countries, that have in the past invested in health care system are now showing better result in health related parameters. In fact, Scandinavian countries have scored even better and the main reason is that they have invested more in health, sanitation and education and less on defence. There 2

are lessons to be learnt for developing countries. The issue is - shall we lament for the lack of fund and place the blame on poverty far all the problems or shall we try to find a way out?

The present healthcare system: Issues and Concerns In India and other developing countries health care system is witnessing huge growth and has undergone a sea change. In the not two distant a past the entire system was doctor centric. This is true even today in rural and remote areas. But with the advancements made in medical science and other related discipline, we are now living in the age of specialization. The diagnosis is now more technology driven. The patients want comprehensive health care under one roof. So we now have multi-specialty hospitals. We are also witnessing growth of corporate hospitals as against government run or charitable hospitals. Corporate hospitals are business enterprises and hence their ultimate goal is making profit. These hospitals need high investment and long gestation period to break-even before they make profit. The return on investment may not therefore be quick. But it appears the sector has a promising future and we will continue to see growth. Obviously these hospitals will provide health care to only the wealthy section of the society who can afford the high cost of treatments. But our concern here is the poor and vulnerable section of the society which cannot afford high cost treatment in these hospitals on their own. For this section the issues are many e.g. good living conditions (sanitation), food (nutrition and calorie needs), basic education inclusive of health and hygiene, etc. Each issue needs to be addressed for they are interrelated and an integrated government approach is called for where health insurance system will play its own supportive role. The fact is majority of people in developing countries; especially those residing in villages and remote areas are dependent on the village doctor who is not professionally qualified to render medical service. He may be using indigenous system of treatment / medicine which at times may be very bizarre. Can something be done to integrate them with the main system? Again most of the medical facilities are concentrated in urban areas. Going there and staying for treatment adds to the burden. These government facilities even in urban areas are finding it difficult to cope with the existing patient load (both inpatient & OPD). So 3

ultimately the biggest of all issues and problems is Health Financing, to ensure availability of healthcare facilities within means of citizen. This involves: 1) Generation of fund for a) Establishing medical and allied science institution for education and training purposes b) Establishing health care infrastructure (dispensary / clinics/ general hospitals/ specialty hospitals), etc. at strategically selected places c) Allocations of funds region wise and for specific types of health care e.g. polio drops, AIDs control, etc., on the preventive side.

2) Working out sustainable mechanism for paying health care cost.

Obviously, the government must have to step in and provide the budgetary support. It can also provide tax relief and other incentives for investment in creating health care infrastructure. International fundings are also available. NGOs and other

donors provide fund for fighting diseases like TB/Malaria / HIV / AIDs, etc. It should be appreciated that for a poor person, health care is not a basic need in his need-hierarchy. Health Insurance: With the existing health infrastructure, lets us now examine insurance as a mechanism for paying health cost. Bust before that lets understand that insurance companies are commercial organization and at the end of the day, they must earn reasonable profit to sustain themselves and, therefore, their genuine concern must be understood, appreciated and addressed.

Health care delivery can be segmented into Primary health care Secondary health care Tertiary health care (Treatment on outpatient basis) (Hospitalization treatment for non-critical illness) (Hospitalization treatment for critical ailments Requiring high-tech expensive facilities and Equipments)

Basically health insurance comes in the picture at secondary and tertiary level which are expensive in nature and beyond the reach of common man, if the providers are private hospitals. The government in developing countries has its own limitation. Public health expenditure as a share of GDP is very low. They are not in a position to open new hospitals / health facilities to cope up with the requirement. They are finding it difficult to sustain the existing facilities. The cost of medicine, equipments and training of staff is going up. There is dearth of qualified & trained doctors, nurses and other para-medico. At primary level, ensuring the continued presence of doctors at primary health center in rural and remote areas is the biggest problem. This often results in the cases falling into secondary / tertiary stages. However, missionary and NGOs are running such facilities more successfully. The government of developing countries, therefore, though willing to provide funds for health care, does not want to be burdened with the actual operation of running the system. The government machinery unfortunately is corrupt. Much of the money is siphoned off. The government is therefore looking for private partners who are willing to invest money for establishing hospitals/ other health facilities and are willing to run the same also. But in a system like this, paying capacity of the patient becomes very critical. In developing countries, for most of the people, even a single episode of hospitalization may cost the family about 60% of annual income and may at times result in borrowing at high interest with the distinct possibility of the family slipping below poverty line on account of health care costs. But before discussing health insurance as an instrument to meet the health care cost, lets examine the following issues first for they have direct bearing on health insurance. 1) Establishment of hospitals and their role in health care and other related issues 2) Non-insurance source of health financing 3) Changing disease profile and patient profile 4) Increasing life-span and demographic profile of the population.

Based on ownership the hospital can either be under government ownership or private ownership. Under private ownership it can belong to an individual or partners. It can belong to charitable trust / cooperative. It may have been floated as corporate entity or it may belong to an industrial house to take care of the health needs of its workforce. Depending upon the ownership the goal of hospital may 5

change in terms of scope of operation and focus of attention. But basically the function of any hospital include prevention, early detection, diagnosis, treatment and rehabilitation. Hospitals are also involved in education, training and medical research. The following aspects need special mention from the point of view of health insurance. Rapidly changing medical technology resulting in increasing cost of treatment. Diagnosis and treatment are becoming more and more technology driven. Higher cost means higher insurance premium. Lack of standardization of charges and quality of service. e.g. cataract operation in India may cost anything between Rs. 8000/- to 20,000/-. The variation is even more pronounced if insurance comes in the picture. This is reflected by the adverse claim ratio of insurance company. Lack of uniform system of accounting which has a bearing on working out the profitability of hospital and hence the pricing aspect of hospital services. Lack of a system to maintain proper medical statistics and accessing the same. Insurance companies need statistics to base their pricing on sound actuarial principle. They need statistics, age-group-wise, gender-wise, disease-wise,

geographical location-wise, etc. The probability of falling sick and average stay in hospital has to be evaluated. So also is to be evaluated the chances of recovery / mortality / relapse after recovery.

As for the financing of health cost, in developing countries mostly it comes from out of pocket. Government, local bodies, corporate and organized sector and community help at best provide assistance to a very limited section of the population. Hence there is a need to work out health insurance scheme which are viable, sustainable and is made available to the population at large. There is a need to move the user from out of pocket to pooling.

Modern day lifestyle is bringing its own health challenges. While the advances made in medical science has ensured cure of infectious disease, life-style ailments such as cardiovascular disease, diabetes, asthma, cancer, etc., pose new challenges and increased health care cost. In developed countries, because of better health care system and awareness, lifespan is increasing and this is changing the demographic profile of the 6

population in the country. New challenges are emerging as to how to provide for medical needs of the aging population. In most of the developing countries, we have relatively younger population.

Lets now examine how health insurance works and who are the other stakeholders in the system and what are their concerns. We shall also examine some of the initiatives taken in India in this direction and shall also critically evaluate some of the schemes already in operation here. We shall also study their replication aspects in other developing countries.

As in other classes of insurance, the principle underlying health insurance remain the same that is from the total pool of premium contribution the fortunate take care of unfortunate. But this pre-supposes the adequacy of number of persons covered (law of large numbers) and premium. Adequacy of premium vs. the paying capacity becomes the most critical issues. Then there is always the possibility of multiple claims during the currency of the policy. There can be various ways to address the issue. i) The premium is directly linked to the cost of treatment and therefore minimizing the cost is the most important and immediate task. In developed countries this has been addressed by what is called managed health care system. Developing a system of maintaining disease-wise / age group-wise / duration-wise, gender-wise, etc. statistics will be of help in proper analysis to workout the premium. ii) The other way could be to design products linked to the paying capacity of the policyholders. iii) iv) Bringing in subsidy for the vulnerable section of the society. Market competition may also bring down the premium and hence opening of the sector could be an option. v) vi) Preventive health care aspect cannot be ignored. Built in system of reward / punishment in health insurance products.

Health Insurance basically consists in paying for the cost of treatment either by providing cashless service to the insured or by reimbursement of expenses incurred. Basically the stakeholders are the insured, the insurance company and the medical 7

service providers. Each has its own interest to be protected. The government also becomes a stakeholder in the whole process, as it will be failing in its duty of good governance if it does not provide health care to the population. Therefore, all the stakeholders must work together to evolve a system which is fair to all. For the insurance companies adverse selection and pre-existing disease are the biggest concerns. The insured must understand that abuse of system will have adverse all round impact. For the misdeeds of a few, the whole insured population will suffer. The government may think in terms of creating some kind of a pool to tackle this issue by involving all the stakeholders and by providing some kind of monetary support to this pool. The service providers (hospitals) have the tendency to jack up the cost the moment they come to know of the existence of health insurance. This again creates adverse impact on the system. The hospitals must evolve a voluntary code of conduct and must standardize the cost of different procedures and bed-charges. Networking of hospitals and managed health care can be a way-out. For this purpose the institution of TPAs (Third party administrator) can be developed and utilized. The insurance companies have limited geographical reach and manpower. The whole scheme can be administered by TPAs. The government can act as a catalyst in the whole processes. Some of the initiatives that the government can take are: Providing tax benefits and subsidized land for constructing hospitals & health care related infrastructure. Levy special taxes to meet healthcare funding. Making it mandatory for insurance companies to invest a certain percentage of their investible income in health infrastructure project e.g. hospitals, pharmaceutical company, their R&D efforts besides sanitation and safe drinking water project etc. Organizing medical camps for screening and awareness creation. Insurance Companies can chip in their efforts as part of their loss control measure. Starting of mobile medical unit, ambulance service and other disease prevention initiatives. Big corporate entities can be roped in as part of their corporate social responsibility. Ensuring the availability of health professional by establishing medical and allied educational institutions.

It should be appreciated by all the stakeholders that they all stand to gain and benefit from the sustainability of system and therefore, it is in their own interest to involve and contribute to the smooth working of the system. Health insurance is good business opportunity for hospitals.

The Indian Scene The medical insurance offered by insurance companies in India started with the introduction of medi-claim policies in the year 1986 by government owned general insurance companies at a time when the insurance sector was fully nationalized. However, there were government schemes in existence before this, where the individual members, their employer and the governments were the contributor to the health scheme. These schemes included1) ESIS Employees State Insurance Schemes - covering employees of organization meeting criteria for enrolment. Under this scheme

comprehensive health services (both OPD & IPD) are provided through network of hospitals and dispensaries. 2) CGHS Central Government Health Scheme - A contributory health

scheme to provide comprehensive medical care to the Central Government employees and their families.

For obvious reasons, these scheme covers only a very small fraction of the total population of India. At government initiative some special low cost policies catering to the poorer section of the society for small sum insured and very reduced premium were introduced e.g. Jan Arogya, Universal Health Insurance Scheme, etc. There have been other local level initiatives also providing cover for senior citizens, members of rural cooperative, BPL families (below poverty line), etc. With the opening up of insurance sector is in 2000, there is surge in the introduction of new innovative products. New stand-alone health insurance companies have also come in the market. In India, due to regulatory reason we do not have composite insurance companies transacting both life and general insurance business. Health insurance is traditionally underwritten by nonlife insurance companies. However, life insurance products also offer health coverage for critical illness as riders to the main policies as benefit insurance and not as

reimbursement. Health sector is showing good growth but there is concern on account of high claim ratios.

The following government initiatives needs special mention 1) Rashtriya Swasth Bima Yojana: This is smart card based cashless health cover for BPL WORKERS / FAMILIES. The premium is to be fully borne by the government based on open tendering system where insurance company can bid to provide health insurance. 2) National Rural Health Mission talks about using health insurance to remove financing barrier and access to health care for population in rural areas. 3) The government of India is in the process of coming out with a comprehensive legislation, National Health Act, to regulate both public and private health care system and will take care of patients, rights e.g. right to emergency care and other such concerns including the rights of health service providers. This bill is expected to improve the standards of health care service. 4) The national health policy of India talks about funding and restructuring for more equitable access to health facilities. It is recognized now that in order to provide health for all a very comprehensive all pervading approach is called for and health insurance will be a dominant part of it. The various approaches tried in India and the experience gained can be of help to other developing counties for the similarities that exist. 5) In Indias the concept of community underwriting is being talked about in respect of micro health insurance products. The village headman is being involved for he has knowledge about the families residing in his village.

The Shape of things to come and future challenges: With the advancement made in information technology, medical records in advanced countries are going digital. Medical history, health information of patients is now being digitized and uploaded to a secure on line account. These on line repositories also have other health related feature. While in poor and developing countries it may not be possible for individuals to go in for this, but hospitals/ dispensaries / doctors can 10

go in for such a system and keep records in respect of patients. Such database can be of great help in health care management and pricing of insurance products. Progress made in medical science, IT, Biotechnology, genetics, etc. have brought in the concept of innate underwriting which makes use of innate code revelation arising out of bio-signal processing, genetic tests (DNA smear), identifying genetic origin of disease, etc. These can be of great help in assessing physiological phenomena and life style consequences and hence in better assessing life insurance and health insurance proposals. Though ethical and legal issues may come in the picture but the point remains whether we can make use of the advances made in medical science in health underwriting. With the advancement made in technology, the human dependency in all our activities is getting reduced. This is true for health management and health insurance sector also, where technology can be leveraged with advantage. However, this will involve initial investment. In developing countries where employment is a critical social and political issue, a balance is to be struck between technology and human dependency. Yet another area which is emerging is tele-medicine, which is nothing but utilization of Information Technology and customized medical software integrated with computer hardware and medical diagnostic instruments connected to commercial V-SAT (Very small aperture terminal) for diagnosis and treatment. It can be used to treat patient in remote areas without the actual physical presence of doctor. Video conferencing technique is also being made use of in this system. When we are insuring health and wellness, must we place a cap of sum insured? This is a question now being asked. Will we see innovative health insurance product to take care of this concern? Time alone will tell. But innovation is key to survival and market demands have to be met. The government of the day is reflective of peoples collective will. Healthcare is a big political and social issue everywhere. WE will see lot of government initiative coming in this sector. 11

Conclusion: In todays world, health care cannot be even thought of without health insurance coming in the picture. But how the system can be adapted to meet local needs is an area which needs attention of the government of the day in terms of legislation and regulatory initiatives and budgetary allocation for funding. Even Obama presidency is faced with not only the challenge of economic downturn but also that of health care related issues. Promises of guaranteed health care will be put to test now. Wealth creation is the economic goal but first wealth is health. This should not be forgotten.

#####

12