Special Correspondent The All India Anna Dravida Munnetra Kazhagam has charged that the State Government is trying to impose a new health insurance scheme on its employees from June this year.

The scheme, to be implemented in coordination with Star Health and Allied Insurance Company, will also cover the employees of public sector undertakings, statutory corporations, local bodies and universities.

In a statement here on Monday, party general secretary Jayalalithaa said under the scheme Rs 25 would be deducted every month from the employees’ salary to cover their medical expenses up to Rs 2 lakh in a block of four years.

The Government decided to remit an annual premium of Rs 75 crore to the insurance company immediately. The Director of Treasuries would be in charge of implementing the scheme. A government order had been issued.

Ms.Jayalalithaa questioned why the Government preferred a private health insurance company when nationalised insurance companies were offering such services. Again where was the need for paying the premium urgently to the company even before it released the list of hospitals where employees could avail themselves of the medical facilities. Moreover, the company did not have branches in 12 districts in the State.

The AIADMK leader also said as per the GO several conditions had been laid down which would create problems for the staff in availing the benefits of the scheme. The GO had provided ways for the company to have its representatives in committees being set up for enquiring complaints preferred by employees but the same facility had not been provided to the employees.

The Government should consult employees unions and modify the scheme so that the procedures were simplified, the statement added.

In a country where the demand for health insurance is growing by 25% every year, and where health insurance penetration is less than 0.02% of the GDP, there is no specific expertise for health insurance in the insurance industry, according to a report commissioned by USAID.

The report, which was released on Monday, to study the impact of private life insurance on health coverage in Focus on claims control hurts health insurance

India has said that the focus in India is on controlling claims pay-out by following strategies designed to minimise insured person’s ability to collect claims. “There is excessive emphasis on disqualification because of pre-existing conditions and post-claim underwriting,” it said. No wonder then, that it is one of the largest litigation areas for insurers. The report has suggested a slew of measures to improve the regulatory framework for health insurance.

For IRDA, the report has a separate prescription for health insurance. Separate reserving rules should be considered for the different categories of health insurance, taking into account the short-term versus long-term nature of contracts, whether polices provide indemnity or assured benefits and the loss experience of varying health insurance products.

It has also asked IRDA to promulgate specific regulations for the sector. These include a minimum regulatory definition of pre-existing illness or condition to provide clarity in interpretation —spelling out maximum ‘look-back’ and ‘look-forward’ periods. Further regulation is needed to prohibit post-claims underwriting, making it mandatory for insurers to offer both group and individual policies among others.

Taking into account medical inflation, the report called for higher public health care spending. Effective primary care and prevention, safe maternity care and chronic disease management should be a part of public and private insurance, it said. “The burden of disease as measured by disability adjusted life-years could be reduced significantly if both health insurance coverage and publicly provided care included these services,” it said.

The country has a dismal record of even hospitalisation coverage — the basis for health insurance, it said. Quoting a recent census, it said only 1.7% of admissions were reimbursed and the average reimbursement was only Rs 258 (or 3.6% of the average hospitalisation cost of Rs 6,225).

Private insurers’ administrative costs are 40% of total premiums, double the target benchmark of 20%. Policy holders pay higher charges for healthcare services than those without insurance, because the mediclaim product has been modified in ways that make it less a program to control the cost of care and more a reimbursement target for providers.

The report forsees a more dynamic third party administrator market going forward, where TPAs could partner with insurer organisations. To encourage competition, it is recommended that mutual insurance companies and non-profit companies should be allowed to enter the market. Although IRDA can retain licensing TPAs, parts of regulation of TPAs should gradually come under the contractual relationships that insurers have with TPAs.

Pointing to central government-sponsored insurance schemes in attracting the uninsured, the report said that poor marketing, low enrolment and adverse selection have all contributed to the relative failure of these schemes. It has been suggested that microinsurance products and services should be tax-free in all respects, including investment taxes of reserves, service taxes and income taxes.

Financial incentives

While the desire to protect savings by itself is a strong motivator, India may well consider proposing enhanced tax treatment of insurance costs for individuals (some of which exists.) Another path not currently present in India is structuring financing alternatives such as medical savings accounts, which combine higher-deductible insurance coverage with money set aside in tax-favored accounts for future health costs.

Competitively priced products with choice

To make prudent purchases, consumers should be able to choose among hospitals and other healthcare providers, along with coverage scope and insurers. Not every family situation is the same, nor does every person need or want the same coverage. Likewise, providing for non-inpatient services encourages smarter buying: Fairly priced, affordable products will ensure accessibility to the greatest number of people.

Understandable information

Educating consumers about health insurance, in general, will be extremely important. Beyond awareness of insurance coverage, information on disease, cost of treatments, alternative treatment options, and the quality of the treatments provided must be available to consumers to make informed choices.

Employer-sponsored programs

Financing of health insurance through employer-sponsored programs is likely to improve access to insurance for some. Employers would have to be motivated to provide such coverage; again, more favorable tax treatment might be a motivating force.

While it is important that health insurance provide sufficient protection to make it attractive to the buying public, care must be taken to design coverages that sufficiently involve the consumer in the cost of care, so that individuals are encouraged to behave in a cost-conscious way. A health insurance policy that provides 100% coverage for all services removes the patient entirely from the economic consequences of his course or place of treatment. The patient, then, has no incentive to pursue cost-effective treatment options.

Historically (and internationally) this almost always leads to the over-utilization of services and very high costs, which in turn leads to high premium rate increases and, ultimately, to an unstable health insurance market. Relevant here is the big lesson from the U.S.: Individuals must remain responsible for their health and care treatment. Notions of paternalism and entitlement do not work well in a private, voluntary health insurance market.

This feeling of responsibility could easily be overlooked in a rush to create broad coverage for today’s Indian health insurance policies.

Tie-ups with general insurers help families that lack access to formal credit or costly health care.

Micro finance institutions (MFIs) such as SKS Micro finance, Basix-both Hyderabad-based and the Kath-ir Foundation of Tamil Nadu are gearing up to provide health insurance products to the rural and urban poor.

These MFIs are entering into partnerships with private sector insurers to offer micro health insurance to families, which do not have access to formal credit and cannot afford expensive treatment at private hospitals.

Take the case of women such as Sharanamma, who goes by one name and lives in Sultanpur, a village in the Gulbarga district of Karnataka. When her son Sidilinga, a rickshaw driver, was detected with a hernia and had to be operated, the family’s only option would have been to go to a moneylender for the Rs7,000 it would take.

Reluctant to get trapped in high interest rates, Sharanamma kept postponing the operation, jeopardizing her son’s health.

But, during a routine field visit, the loan officer of SKS spoke to Sharanamma and her peers about Swayam Shakti a health insurance programme for the MFI’s clients through which they could insure an entire family for an annual premium of Rs525. Sharanamma signed up and Sidilanga was operated at a private hospital in Gulbarga. The entire hospital expense of Rs6,570 was covered by the SKS health insurance scheme.

SKS tied up with ICICI Lombard General Insurance Co. Ltd to offer the insurance and other MFIs, such as Awareness and Biswa, both based in Orissa, are also providing health insurance products in association with ICICI Lombard. For an annual premium ranging from Rs200 to Rs500, private insurers are providing a medical cover of Rs20,000-50,000.

They are also willing to take alternative proofs from customers, such as declaration of age by community members or self-help groups. Policy conditions have been simplified in micro health insurance to enable policyholders to get admitted and treated at any registered hospital in a rural area. According to the regulator, normal health insurance policies recognize only those hospitals that have at least 10 beds.

A survey conducted among 248 urban and rural below poverty line families by SKS before it began offering health insurance showed that 67% of the respondents had used private medical facilities. On average, they spent Rs2,340 per family per annum on consultation, diagnosis, treatment and transportation. Some 45% of the families surveyed borrowed money to meet health emergencies. Nearly 94% of the families had borrowed less than Rs5,000 and only 3% had a health insurance cover.

For private insurers trying to get a foothold in rural areas, this kind of arrangement works out well, especially in rural areas.

Pranav Prashad, head-rural and agriculture business at ICICI Lombard, said working with MFIs also gives insurance companies “a wealth of data” (as) there is very little data about the bulk of the families living in poverty. We do have to tailor-make products for every different MFIs or NGO that we work with and we use these experiences and replicate them in other geographies across the country,” he said.

S.K. Alaghusundaramani, a senior manager at the Kathir Foundation, that has been offering health insurance in partnership with Reliance General Insurance Co. Ltd for the past six months, says his loan officers go on field visits and speak to pregnant women to convince them to enroll for their health insurance scheme.

Under the plan, a woman could get herself and her entire family a Rs20,000 insurance cover for an annual premium of Rs325. She would get an extra cover of Rs10,000 for normal childbirth and Rs15,000 for a Cesarean section operation. Out of the 10 claims that the foundation has received so far, three have been maternity claims, Mani said.

As per a new index brought out by the Asian Development Bank, India is ranked above China and Malaysia in providing social security like health care, education and child welfare to its people.

In a list of 31 Asia-Pacific countries, India ranked at 10th place, above China and Malaysia, but below Uzbekistan, Mongolia, South Korea and Japan, which topped the ADB’s Social Protection Index (SPI).

Apart from China and Malaysia, the countries, which are ranked below India, include Philippines, Nepal, Indonesia and Bangladesh. Pakistan was ranked at the bottom, next only to Papua New Guinea.

The ADB, in the new Index, has established that providing social protection is not subject to the wealth of a nation. Even poor countries like India can afford to provide social cover in the form of health insurance, labour market, child protection, education among other things, if there is government will.

On a scale between zero and 1, India has scored 0.46 points, with Japan topping the chart with 0.96 points. However, the ranking of India shows that although people are getting some level of social protection, the impact of social protection programs on the incomes of the poor is low.

Social protection is basically a term coined for showing the extent to which Asia-Pacific countries provide for welfare, labour market, social security, health insurance, micro-credit, child protection, education, and health support programmes to their citizens, mainly to those living below the poverty line.

The ranking is expected to have some effect on international donors who work for supporting social protection activities.

With health insurance expected to grow 50% annually, several specialized health insurance companies are waiting to launch business in India. The Insurance Regulatory and Development Authority (IRDA) has said that there are several specialized companies looking to set shop in India.

Already two specialized companies — Apollo DKV Health Insurance and Star Allied Health Insurance have received permission from the IRDA to do business in India. Another French insurer BUPA is understood to be in advanced talks.

Speaking on the sidelines of the First Health Insurance Summit organized by CII, Rao told reporters that health insurance was expected to continue growing at 50% making it the fastest growing business.

This growth is despite the fact that most insurance companies have been complaining of the lack of profits in this line of activity. At the same time the number of consumer complaints is the highest in health insurance.

According to Mr Rao, the premium collected under health insurance was only about Rs 600 crore when he took over as chairman of the regulatory body in 2003. Whereas, during 2006-07 the premium collection was about Rs 3,200 crore, having grown 35% over the previous year. The figures for 2007-08 have so far not been released but are expected to be well over Rs 4,000 crore.

“The health insurance business is likely to grow by about 50% per an-num,” he said. Rao, who is close to completing his tenure as chairman of IRDA said: “The health insurance segment has been growing much more than the overall general insurance industry and collection of premium of health insurance now accounts for about 16-17% of the total collection of the general insurance industry.”

He, however, pointed out that the overall penetration made by the industry segment is still low. At present, there are quite a few players offering health insurance and the IRDA chairman indicated that a few more are planning to enter the sector.

Referring to the high claim ratio witnessed by health insurance companies, he said the ratio could come down if the volume of business goes up. Besides, he felt if the health policies are sold to different age groups, particularly young, the claim ratio could go down.

For the second year in a row, the Andhra Pradesh government has chosen the city-based Star Health and Allied Insurance Company, a stand-alone health insurance firm, to provide accident cover to BPL (below poverty line) families in the State.

Star Health has collected a premium of around Rs.13 crores to provide one-year accident cover to 7.87crore people in the age group of 18-69 falling under the category of BPL families, which are given white ration cards.

V. Jagannathan, Managing Director, said Star Health had landed this order against some stiff competition. The country’s first stand-alone health insurance company had also collected the second instalment of premium worth Rs. 33 crores for providing surgical intervention cover for five specified diseases to BPL families in three districts of Andhra Pradesh. The company had already collected a similar amount as first instalment, he added. The Andhra Pradesh Government was planning to bring five more districts under the insurance cover, he said.

Mr. Jagannathan said Star Health was also in talks with the Puducheery Government for replicating similar insurance schemes for BPL families in at least two districts of the Union Territory. Answering a range of questions, he said Star Health was now toying with the idea of creating an independent vertical for Government business.

The Managing Director said the company had collected premium income worth Rs. 99 crore up to September this year. He was hopeful of collecting premium income of Rs. 200 cores this year. Star Health, he said, had a pan-India presence now, with the opening of a number of branches in the North. Star Health today has 104 offices across the country with staff strength of around 1,500. The company has tie-ups with about 2,900 hospitals.

Mr. Jagannathan said Star Health had raised the capital to Rs. 108 crores from Rs. 105 crores earlier. He said the capital was adequate to support growth in business up to Rs. 500 crores.

 Star Health, as a consortium leader, has bagged the new health insurance scheme for 50 lakh family members of government employees of Tamil Nadu, its undertakings, corporations and universities. This scheme will come into force by June 3, says a release from the company. The cover granted is for Rs. 2 lakh per family for a span of four years against specified surgeries and some specified diseases.

Five major challenges faced: Potential for outliving one’s assets; threat of rising living costs; impact of increasing health-care costs; uncertainty about future level of social security benefits; and damage to long-term financial security

With so much at stake when planning a retirement income stream, it pays to take a step back and see whether your plan takes into account the major obstacles to retirement income adequacy.

When you take this big-picture view, consider the five major challenges most retirees face: the potential for outliving one’s assets; the threat of rising living costs; the impact of increasing health-care costs; uncertainty about the future level of Social Security benefits; and the damage to long-term financial security that can be caused by excessive withdrawals in the early years of retirement.

Understanding each of these challenges can lead to more confident preparation.

Standard & Poor’s suggests you consider these five risks to your retirement income, including outliving your assets and higher health-care costs.

Points to Remember

• Today’s retirees have to assess several threats to enjoying a financially comfortable retirement. These include the potential for outliving their assets and the corrosive effects of inflation on future income.

• A sound retirement income plan needs to address specific risks, such as longevity, rising health-care costs, and excessive withdrawal rates, that can lead to premature depletion of assets.

• Demographic trends are likely to put added stress on government-run programs, including Social Security and Medicare, which help retirees balance their budgets.

• The goal of retirement income planning is to create a sustainable, predictable stream of income that also has the potential to increase over time.

Examining the Issues

Longevity. While most people look forward to living a long life, they also want to make sure their longevity is supported by a comfortable financial cushion.

As the average lifespan has steadily lengthened due to advances in medicine and sanitation, the chance of prematurely depleting one’s retirement assets has become a matter of great concern.

Inflation varies over time, as well as from region to region and according to personal lifestyle. Through many ups and downs, Indian consumer inflation has averaged around 4% over the 50 years ended December 31, 2006.

If inflation were to continue increasing at a 4% annual rate, a Rupee would be worth 44ps in just 20 years.

Conversely, the price of an automobile that costs Rs 3,00,000 today would rise to more than Rs 5,00,000 within two decades.

For retirees who no longer fund their living expenses out of wages, inflation affects retirement planning in two ways: It increases the future cost of goods and services, and it potentially erodes the value of assets set aside to meet those costs—if those assets earn less than the rate of inflation.

Health Care

The cost of medical care has emerged as a crucial element of retirement planning in recent years.

That’s primarily due to three things: Health-care expenses have increased at a faster pace than the overall inflation rate; many employers have reduced or eliminated medical coverage for retired employees; and life expectancy has lengthened.

In addition, the nation’s ageing population has placed a heavier burden on Medicare, the federal medical insurance program for those aged 65 and older, in turn forcing Medicare recipients to contribute more toward their benefits and to purchase supplemental insurance policies.

Because of the higher cost trends affecting private health insurance, the same retiree relying on insurance coverage from a former employer will have to allot nearly $300,000 to pay health insurance and Medicare premiums, as well as out-of pocket medical bills, according to a Money magazine report.

Excess Withdrawals

The decision about how much money may be safely withdrawn each year from a retirement nest egg should take into consideration all the risks mentioned above.

But retirees also must consider the fluctuating returns that their personal savings and investments are likely to produce over time, as well as the overall health of the financial markets and the economy during their withdrawal period.

Addressing the Risks

While the risks discussed above are common to most people, their impact on retirement income varies from person to person.

Before you can develop a realistic plan aimed at providing a sustainable stream of income for your retirement, you will have to relate each risk to your situation.

For example, if you are in good health and intend to retire in your mid sixties, you may want to plan for a retirement lasting 30 years or longer.

And when you estimate the effects of inflation, you may decide that after you retire you should continue to invest a portion of your assets in investments with the potential to outpace inflation.

Developing a realistic plan to address the financial risks you face in retirement may seem beyond your capabilities. But you don’t have to go it alone.

An experienced financial professional can provide useful information, as well as valuable perspective on the options for managing successfully what may stand in the way of your long-term financial security.