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1
Company Name CONFIDENTIAL
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Policy Paper
for
Enhancing
Healthcare Accessibility
through
Financing
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Enhancing Healthcare Accessibility through Financing
Contents
A. Executive Summary 1
B. Preamble/Objectives 1
C. Environmental Analysis 2
D. Issues in Healthcare Financing 12
E. Medical Requirements of the Population 13
F. Newer Health Financing Options 15
G. Recommendations 19
H. Conclusion 21
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Acknowledgements
The white paper on Enhancing Healthcare Accessibility through Financing has been prepared under thepurview of CII Healthcare Sub-Committee on Accessibility. Valuable contributions from the followingmembers of the Sub-Committee have been the guiding force behind this white paper:
1. Mr N Rangachary, Advisor to Government of Andhra Pradesh and Chairman of the CII
Healthcare Sub-committee on Accessibility
2. Dr Ajit K Nagpal, Chairman - Executive Council, Batra Hospital & Medical Research Centre
3. Mr Nimish Parekh, Founder & President, Cecilia Healthcare Services Pvt. Ltd.
4. Dr T Jagannathan, Chief Administrative Officer, Sir Ganga Ram Hospital
5. Ms Rajni Sekhri Sibal, Director - Health Insurance, Max Healthcare Institute Ltd
6. Ms Ujjaini Dasgupta, Head Health Insurance, Bajaj Allianz General Ins. Co. Ltd.
7. Mr Chandrashekhar, Chief Marketing Officer, Apollo DKV Insurance Co. Ltd
8. Dr Ashoke Bhattacharjya, Executive Director - Health Outcomes & Policy, Johnson & Johnson
Ltd
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Abbreviations
CGHS Central Government Health Scheme
CHI Community Health Insurance
ESIS Employee State Insurance Scheme
GDP Gross Domestic Product
GIC Government of IndiaGOI Government of India
HAS Health Savings Account
HMO Health Management Organisation
IRDA Insurance Regulatory and Development Authority
MSA Medical Savings Account
NBFC Non- Banking Financial Company
NGO Non-Government Organisation
NSSO National Sample Survey Organisation
PPF Public Provident Fund
PPO Preffered Provider Organization
RSBY Rashtriya Swasth Bima Yojna
TPA Third party Administrator
UHI Universal Health Scheme
US United States
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A. Executive Summary
Accessibility to Healthcare pertains to the populations ability to reach, obtain or afford entranceto the healthcare services. India being the second most populous country with a pronounced
fragmentation in its social, economic and demographic structure, accessibility to healthcare to
the population has become a matter of concern. The growth of the healthcare sector per se has
been rather slow to address the need of the society.
The purpose of this document is to discuss the various options available in the binging of health
care within common reach to and suggest that health care, if properly financed, can be a major
impetus for improving accessibility among all the sections of the society. A multiprongedapproach by the government in partnerships with banks, micro finance institutions, Non-Banking
Financial Companies (NBFCs) and Third Party Payers is required. Participation across all the
services, modes and participants at all the levels of care designed to promote health from
preventive to trauma care, whether directed to individuals or to groups is equally vital.
The growth in the health insurance area has been slow and it is thought that insurance being
only one of the modes of accessibility, various other possible options that could meet the
unique needs of the different segments should be seriously considered. Measures such ashealth savings account, government grants, risk pooling insurance, capitation and other
provider risk sharing, borrowing and self financing have been discussed in the main study. For
a country where more than 25% of the population lives below the poverty line it becomes
necessary to find out of the box solutions and not stick to traditional measures which prima
facie have proved ineffective.
A single system / limited approach to health financing may not work in a country of 1.2 billion
with such diverse needs.
The country needs viable alternatives to the existing pattern of accessibility to healthcare
including possibly a medical investment account to be operated as a running account over a
period of time enhanced by conditions and depleted by accessibility This document gives a
preview to the approach which suggests how future policy needs to be formulated in order to
encapsulate the role of each stake holder.
B. Preamble/ Objectives
The CII Healthcare Subcommittee on Healthcare Accessibility has been constituted under the
chairmanship of Mr. N. Rangachary, for understanding the issues related to health manpower
and to crystallize governments plans of action
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C. Environmental Analysis
Today India spends around 4.8% of its GDP on healthcare. Around 78% of healthcare spent
in India is done from private funding. The voluntary (private) insurance cover is still limited to
only 1.4% of the total population of India. The Government (central and state) spends is
around 1.2% of GDP on health care. The focus of Government is today on primary
healthcare and healthcare awareness programmes.
India is still among the few of the least spending countries on healthcare. It lags behind most of the
developing countries in this aspect - except for certain emerging economy nations like Pakistan,
Bangladesh Afghanistan etc as can be seen from the exhibit above. Comparable countries like
China, Brazil and Mexico along with the developed world have a much better coverage of public
spending on healthcare as a percentage of GDP. United States approximately has three times the
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Coverage of health care in India is limited to a small fraction of the population. The private fundingstill plays quite a vital role in filling the financing gaps, through out-of-pocket spending, insurance,
employee benefit schemes etc.
Sources of Health Financing in India
Health financing is by a number of sources as depicted below.
1.2%
2.0%
3.4%
2.9%
3.2%
6.4%
6.8%
3.6%
3.6%
4.2%
3.3%
5.2%
3.1%
8.4%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%
India
China
Brazil
Mexico
South Africa
Australia
United States
Public Health Expenditure (% of GDP) Private Health Expenditure (% of GDP)
Health Insurance Insurance-social andi b d h
Employers BenefitSchemes, the not-for-profit
sector (NGO andCharitable hospitals)organizing and financinghealthcare;
Households:out-of-pocket
Local, State and CentralGovernments, in addition to
numerous autonomouspublic sector bodies;
PublicFinancing
PrivateFinancing:
Risk PoolingOthers
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1. Public Financing of Healthcare in India
Health is primarily a state responsibility in India. State governments mostly take care of healthcare
delivery and central government works more on the preventive and on national disease control
programs.
State Government Healthcare Spending Distribution
Health care functions % Distribution
Services of curative care 47.6
Rehabilitative or long term nursing care 0.2
Ancillary services & therapeutic appliances 1.9
Reproductive and child health services 12.2
Drugs control 0.3
Nutritional program of State Dept of Health 0.1
Control of Communicable diseases 6.2
Control of non-communicable diseases 0.4
Public health or RCH education/training 0.5
Other public health related activities 1.3
Health administration 8.4
Capital expenditure 4.7
Medical education and training of health personnel 8.7
Research and development 0.2
Food adulteration 0.2
3528, 39%
5455, 61%
Government Expenditure on Healthcare in India (US$ Million)
Central Government
State Government
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2. Private Healthcare Financing in India
Private Financing constitutes of: (1) Public and Private Employer financing, (2) Out of Pocket
spending, (3) Non-Government Organizations etc.
As discussed earlier, this constitutes around 78% of total healthcare financing in India. Around 5% of
financing is done by private and public employers. Others such as not-for-profit organization, non-
government organization etc constitute 2.4% of total healthcare spend. Around 69% of total
financing in India is purely out of pocket.
Employee Benefit is another way of private financing happening in India, which is still in a very
limited scale in India, primarily due to the reasons:-
Most people work in the vast unorganized sectors in India and in these sectors the
companies dont give any health benefit to employees
The original schemes presently run do not cover self-employed personnel, professionals,e tc.
This sector, because of the tremendous growth of the service sector in the recent times
constitutes on major chunk of employed population still not governed by any health
protection measures as part of employer-employee relationships.
The daily wage workers are given very little or no benefits by employers and a large
proportion of employee fall under these category.
There is no mandatory regulation or legislation by government for enforcement of medical
benefits for employee.
Recent statistics shows a major fraction of the private healthcare funding in India is financed out ofpocket. The rising costs are and will pose major challenges to its sustainability in the times to come,as major hospitalization especially during emergencies often mean a huge financial burden onindividuals.
7.2%
14.4%2.2%
68.8%
2.0%3.0% 1.4%
2.4%
Sources of Finance in Health Sector in
India
Central Government State Government
33%
26%
19%
18%4%
Composition of World health
expenditures
General Social Insurance Private Insurance
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3. Risk Pooling - Health Insurance
With rising health care costs, risk pooling by health insurance is one of the significant modes of
optimizing efficiency of health care financing and delivery. Health Insurance is still in its infancy, with
a current meager coverage of approximately 2% in India.
Evolution of Health Insurance in India
1850
Triton Insurance Company Ltd., the first general insurance company established in Calcutta by the British-Advent of General insurance business in India
1907
The Indian Mercantile Insurance Ltd. set up, the first company to transact all c lasses of general insurance
business.
1938Insurance Act,1938 for effective control over the activit ies of insurers
1957
General Insurance Council, a wing of the Insurance Association of India, formed & framed a code of conduct forensuring fair conduct and sound business practices.
1968
The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory
Committee set up.
1971General Insurance Corporation(GIC) incorporated as a company and commence its business on 1st Jan,1973
1972-
73
The General Insurance Business (Nationalization) Act, 1972 nationalized general insurance business with effectfrom 1st January 1973. 107 insurers grouped into four companies viz. the National Insurance Company Ltd., the
New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India InsuranceCompany Ltd.
1986Introduction of first mediclaim Insurance Scheme by GIC
1993
Malhotra Committee Set up to propose recommendations for reforms to complement the reforms initiated in
the financial sector
1994
Malhotra Committee recommended that Govt stake in insurance companies to be brought down
Pvt companies be permitted to enter the insurance industry
Foreign companies be allowed to enter by f loating Indian companies in a joint venture
1999-
2000
Insurance Regulatory and Development Authority (IRDA) constituted as an autonomous body on
recommendations of Malhotra Committee and incorporated as a statutory body in April, 2000
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Functioning of Health Insurance in India, the flow of finances and services has been depicted the
exhibit below.
The coverage of health insurance has been gaining ground in India since its evolution d but the
growth trajectory in terms of population covered has been quite gradual. 17 out of 1000 hospitalisedcases are reimbursed as of now. This can be further bifurcated as 7 in rural and 39 in urban per
1000 cases, as per NSSO 60th Round Morbidity, Health Care and Condition of the Aged (Report
507, 2006).
0
5
10
15
20
25
30
0
100200
300
400500
600700
800
900
1000
Health Insurance
0.10% 0.17%0.20%
0.30%0.46%
0.80%1%
1.55%
2.20%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
Percentage of Population Covered
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Types of Health Insurance in India
I.
Voluntary health insurance is provided by all insurance companies in India - both public and
private companies. Buyers pay premium to an insurance company that pools people with
similar risks and insures them for health expenses. The premium is set at a level, which
provides a profit to third party and provider institutions and they are based on an assessment
of the risk status of the consumer and the level of benefits provided.
Voluntary health insurance schemes or for-profit schemes
Since last few years the health insurance market in India has been growing somewhat
rapidly. Not only the premiums collected by the insurance companies have been growing but
also the coverage of population has increased but not to those levels that promises
universal coverage.
The premiums of health portfolio has increased by 55% (year on year) in 2006-07. The
reasons for this growth have been increased awareness and knowledge amongst the
consumers. With more stand alone health insurance coming up the focus on healthinsurance is increasing. So it is expected that the industry will bring more innovative health
insurance products which will push further the coverage of health risks. .
II.
o Employee State Insurance Scheme or ESIS
Mandatory Social Health Insurance Schemes or government run schemes
o Central Government Health Scheme or CGHS
o Universal Health Insurance (UHI) scheme
Employee State
Insurance Scheme
The Employee State Insurance Scheme (ESIS) is a social insurance
scheme which provides protection to employees against loss of
wages due to inability to work due to sickness, maternity, disability
and death due to employment injury. It offers cash benefits,
preventive care and health education. Medical care is also provided
to employees and their family members without fee for service.
The monthly wage limit for enrolment in the ESIS is under
Rs.10,000, with a prepayment contribution in the form of a payroll
tax of 1.75% by employees, 4.75% of employees' wages to be paid
by the employers, and 12.5% of the total expenses are borne by the
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state governments, with total expenditure of Rs. 1,27,896 Lakhs.
Central Government
Health Scheme
This scheme entitles Central Government employees medical
facilities for which comprehensive provisions are contained in
Central Services (Medical Attendance) Rules 1944. Presently, it
covers employees in 30 cities including almost all state capitals,
with more than 4,32,000 beneficiaries.
Benefits offered include all outpatient care preventive and
promotive care in dispensaries. Inpatient facilities in governmenthospitals and approved private hospitals are also covered.
This scheme is mainly funded through Central Government funds,
and a very small premium is collected from employees.
Insurance offered by
NGOs / communitybased health
insurance
There are 20 documented Community Health Insurance (CHI)
schemes in India. The members prepay a set amount each year forspecified services. The premiums are usually flat rate (not income-
related) and therefore not progressive. The purpose of these funds
is improving access to services rather than making profit. Quite
often there is a problem with adverse selection because of a large
number of high-risk members as premiums are not based on
assessment of individual risk status. Typically targeted at poorer
populations living in communities, in which they are involved in
defining contribution level and collecting mechanisms, defining the
content of the benefit package, and/or allocating the schemes,
financial resources. These are generally run by trust hospitals or
nongovernmental organizations (NGOs).
The schemes that are normally on offer are group insurance
schemes and not much of an encouragement is found to cover
individuals for obvious reasons.
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Coverage under Various Insurance Schemes
Critical Issues in Health Insurance
There are many crucial issues associated with health insurance both from the supplier or insurers
side as well as from the demand or the insured individuals side. The consequences faced and the
possible corrective measures have been discussed in detail below:
Issues Consequences Corrective Measures
Supply side (Risk posed by Insurers)
Supplier induced demand Increased demand by patients.
Raises costs of care
User provider payment like
capitation, pre-payment, case
payment etc
Risk Selection (Skimming) No insurance for sick, poor and
elderly
Open enrolment, Community
rating, Risk adjusted premiums
for individuals
17.6
4.4
35.5
30.0
0.7
Lives Covered (Millions)
Voluntary health insurance CGHS (Centre Government Health Scheme)
ESIS (Employee State Insurance Scheme) Community Based Insurance
Micro Insurance
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Demand side (Risk posed by
the insured)
Moral Hazard
Over-use of services by patients Deductible, Co-insurance, Co-
payments, Gatekeepers
Adverse SelectionLittle risk pooling.
Insurance market to be
adversely affected
Tax subsidy, Group Coverage
Under-utilization of healthcareservices
Under use of health services
due to lumpy costs, mainly by
the poor and also for preventive
care
Education and awareness, Free
or subsidized care, networking
with hospital through TPAs to
facilitate cashless hospitalization
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D. Issues in Healthcare Financing
Certain crucial concerns associated with healthcare financing affect the accessibility to
healthcare in India. The issues that need to be addressed are enumerated below:
a) Health Insurance coverage
Health Insurance has been able to cover less than 2% of population in India as of now. A
better coverage can play an important role in addressing the societal burden of financial
catastrophe that many Indians face when facing health problems.
b) Private Financing primarily out-of-pocket spending
More than 78% of the population still meets the healthcare costs from their own resources -
94% of this being out-of-pocket.
c) People spending a lot even while accessing services from public providers
Studies reveal that people especially the vulnerable individuals end up spending more thanthe required fee-for-service, even while accessing services from public providers, which
might be primarily due to improper mobilization of the available limited resources.
d) Low awareness
Low awareness level about health financing mechanisms such as insurance, financing
options, available products, role of TPAs, associated organizations etc contribute to a
considerable extent to the problem of inadequate coverage. Even in terms of existingschemes in the organized sector, there is the phenomenon of information inadequate
information amongst the vast majority of the population. Community financing schemes
usually require training and education of all those involved.
e) Lower Outreach
Outreach of financing options as well as their modes has not been very significant, taking
into account the vast differentiated population across the geography of the country.
f) Insurance Malpractices
Malpratice in insurance pertains to unfair trade practices, faulty claims, overcharged bills etc.
g) No other financing option
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E. Medical Requirements of the Population
Health care embraces all the goods and services designed to promote health, including preventive,curative and palliative interventions, whether directed to individuals or to populations. The various
services and their modes are described in detail below.
1. Tertiary care, Critical care, trauma care
This level offers super-specialist care, provided by regional or central level institutions. This
is largely covered by most insurance products with certain selective clauses.
Tertiary care is provided by many large Government and Charitable Hospitals spread across
the country. Though these hospitals mostly provide services at highly subsidized rates, but
the cost of medicines and consumables is mostly borne by the patient, which is often very
high and unaffordable by many.
2. Secondary Care, Maternity, Geriatric Care, Pre and Post Natal care
Tertiary care, Criticalcare, trauma care
SecondaryCare, Maternity, Geriatric
Care, Pre andPost Natal care
Primary care, Pharmacy, Diagnostics, MedicalTransport
Nutrition, Safety Sanitation, Hygine
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Most of the deliveries in India take place in houses by untrained people (Dai) rather than in
hospitals or by trained medical personal. One of the reasons for that is affordability and
accessibility of medical services. The current public infrastructure is unable to reach
everywhere and cater everyone with its limited infrastructure and at the same place private
healthcare facilities cannot be afforded by all.
3. Primary care, Pharmacy, Diagnostics, Medical Transport
These are the first levels of contact between individual and the health system where
essential healthcare is provided. A majority of prevailing health complaints and problemscan be satisfactorily dealt with at this level. This level of care is closest to the people and
basically represents outpatient clinical care by general physicians. In the Indian context, this
care is provided by the primary health centers and their sub-centers, in the government
sector and by general physicians and clinics in the private sector.
In todays insurance regime, the out patient services are not covered largely and so primary
care is mostly out of pocket except for certain employees whose employers cover the cost as
reimbursement, though this is still considered as part of the employees overall remuneration.
Mostly the cost of medicines is paid by the patient from pocket. This gives rise to the practice
of self purchase without prescription and is expected to change if medicines get covered by
insurance or some other mechanism. The patients then buy them only with prescription, to
get the reimbursement / availing coverage.
As in primary care and pharmacy coverage, the diagnostics segment also does not getcovered by any insurance mechanism except being taken care of by some employers
providing for reimbursement.
4. Nutrition, Safety, Sanitation, Hygiene
The Indian government has focused increasingly on improving the nutrition safety and
sanitation standards for the majority of the population.
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F. Newer Health Financing Options
Appropriate and sustainable financing mechanism with a multi-pronged approach to alternative
options in financing are required, as insurance coverage alone is not always sufficient to ensure
healthcare accessibility, in a country like India with varying geographical, demographical,
infrastructural and epidemiological patterns. Different possible financing options that can be
feasibly used in India are:
1. Health Savings Account
2. Risk pooling - Insurance
3. Capitation and other provider risk sharing4. Borrowing
5. Government grants
1. Health Savings Account
Around 78% people pay their medical bills from out of their own pockets in a way comes from
either savings or borrowers. A way to get people to invest in their health by a mandatory Health
Savings Account for Employees might be helpful.
The Mechanism of HSA
HAS accounts should be similar to the PPF (Public Provident Fund) accounts. The salary of an
provident fund employee will have a deduction similar to deduction an amount equal to the
employees contribution should be contributed by the employer.
The accounts and the contributions are to be handled by a trust or a central organization which
also shall take care of the application part of the process.
The deposits to Health Savings Account would be totally tax free. The depositor will be able to
use the money in the account for certain stated needs - medical needs of persons covered (self
and members of the family).
The deductions from the salary can be put at anywhere between 5-10% of their basic salary and
an equal contribution will come from the employer.
In case of the self employed and professionals, the contributions will be paid by them individuallyto the account such contributions will be.
Funds deposited in the HSA by individuals or employees shall be completely free of any tax and
a higher interest should be given on it.
U f HSA F d
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Whether medical savings accounts would be mandatory and universal (Singapore) or
private and voluntary (US).
Whether universal MSAs would be funded by payroll contributions (Singapore) orthrough general tax revenue allocated by the government to individual accounts (and if
so, how the allocations would be made).
What restrictions there would be on eligible expenses and whether/how to use
deductibles and co-payments to ensure fiscal solvency and to further restrain demand
(as in Singapore).
Whether MSA funds would be managed centrally (as in Singapore) or by private fund
managers.
Funding Vehicles
The Funding Vehicles for this could be
1. Banks
2. Post offices
3. Public Provident Fund Organisation
2. Risk Pooling Insurance & Capitation
Funding of healthcare by risk pooling is done through Health Insurance and Capitation.
Health Insurance
Both Public and Private Companies provide Voluntary Health Insurance. Buyers pay premium to
an insurance company that pools people with similar risks and insures them for health expenses.Premium is set at a level, which provides a profit to third party and provider institutions and is
based on an assessment of the risk status of the consumer and the level of benefits provided.
Capitation and other provider risk sharing
Capitation is defined a fixed sum per person paid in advance of the coverage period to a
healthcare entity in consideration of its providing, or arranging to provide, contracted healthcare
services to the eligible person for the specified period.
For example, a hospital may receive a capitation premium per month for every member of a
particular health plan. In return for this capitation (or per capita rate), the hospital agrees to
provide hospital services to all members of that health plan, regardless of what the actual cost of
these services ends up being.
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structure, the Prefered Provider Organisation insurance company assumes and retains all
insurance risk. The healthcare providers are paid on a fee-for service basis, typically pre-
negotiated at a discount off of normal charges, The providers bear little risk except for the fact
that they have agreed to receive lower rates in the hopes that their volume of business will
increase.
In a staff model Health Maintenance Organisation (HMO), the healthcare providers assume no
insurance risk. Under this model, healthcare providers are employees (staff) of the HMO. The
HMO collects a fixed premium per member in return for a promise to provide healthcare services
to those members. The HMO assumes and retains all insurance risk.
Funding Vehicles
The Funding Vehicles for this could be Health Management Organisations etc.
3. Borrowing
In India, many people who cannot afford the ever-increasing costs of extended hospitalisation,medical tests, surgeries etc. borrow money from friends and relatives, as this seems to be the
only way to ensure that the care for themselves or their families is not compromised at the time
of need.
According to NSSO 60th Round survey, 308 individuals in every 1000 hospitalized, funds their
hospitalization through borrowing. An estimated 3.3% of the population is estimated to be getting
pushed below poverty line on account of medical treatment. The interest rates in India are so
high that most people cannot take loan for their illness and repay it.
We need to have a system of Health Benefit Loans at much lower interest rates than personal
loans. There could be various tax benefits attached the loan.
Funding Vehicles:
1. Banks
2. Post offices
4. Government grants and Subsidies
With more than 25 % of the population living under poverty line the government has to intervene
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Utilization of these funds:
i. In creating healthcare infrastructure (Government Hospitals)
ii. Funding for in hospital cure and care of the Below poverty line hospitals.
Few Government initiatives are already available and in place to pool the risks of these
population, of which few important ones are enumerated below:
Rashtriya Swasthaya Bima Yojna is a Central Government scheme, a health insurance for the
Below Poverty Line (BPL) families in the unorganized sector. It was formally launched onOctober 1, 2007. The objective of RSBY is to provide the insurance cover to below poverty line
(BPL) households from major health shocks that involve hospitalization.
Rashtriya Swasthaya Bima Yojna (RSBY)
The majority of the financing, about 75 per cent, is provided by the Government of India (GOI),
while the remainder is paid by the state government. State governments engage in a competitive
bidding process and select a public or private insurance company licensed to provide health
insurance by the Insurance Regulatory Development Authority (IRDA).
National Rural Health insurance programme is also specifically aimed for the BPL families.
National Rural Health Mission
Aarogyasri is a Community Health Insurance scheme implemented in Andhra Pradesh. The
scheme provides financial protection to families living below poverty line up to Rs. 2 lakhs in a
year for the treatment of serious ailments requiring hospitalization and surgery.
Aarogyasri
Healthcare Needs and Sources of Fund
Tertiary
care, Critical
care, trauma care
Secondary
Care, Maternity,
Geriatric Care, PreandPost Natal care
P i Ph
Savings, Borrowings, Insurance
Savings, Borrowing, Insurance
Fundin Sources
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image of health insurance. Thereby they need to be educated on how to choose the
right product/service, importance of age factor and the understanding of exclusions
and claims process.
b. Communication needs to focus also on providing clarity of products / services,
grievance re-dressal system.
c. Public awareness campaigns needs to be undertaken by government and non-
government organizations through print and electronic media.
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H. Conclusion
India is a large country with huge population and immense diversity. It makes it very difficult to cover
everyone under one scheme. One scheme like health insurance may not be the best way to cover
this huge population.
A Multi- Channel Healthcare Funding Model
I di d l i h l H l h f di h i d b i l d i I di A i f
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Company Name CONFIDENTIAL
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