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A

Research Report

On

Study the reasons for the disapproval of

Health Insurance policies in India

by the young individuals

Submitted by

G. Sahitya Reddy

PGDM-BIF

Roll. No: 39Institute of Public Enterprise


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Acknowledgement:

I would like to thank all the respondents who spared some

time to respond to my questionnaire and provided the data required

for my academic purpose.

I also like to thank Mrs. Jayashree Raveendran for

accounting me for the short term project in the marketing research.

G. Sahitya Reddy

0911PGDM-BIF


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Table of Contents:

1. Introduction

2. Literature Review

3. Research Design

4. Research Methodology

5. Questionnaire

6. Data Tabulation

7. Data Analysis

8.


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Introduction

The conception of insurance is the spreading of risks for a few individuals,

among many. This is done when individuals and businesses pay a premium to an

insurance company to cover them in case of a catastrophic occurrence. In other words, we

all pay premiums in case something happens to one of us.

Health is wealth

Is that true? Of course, everyone wants to be healthy and this is why we say

health is the greatest wealth in the world. Apart from a balanced meal, exercise, and so

on, we need to have a health insurance to be in good health. Health insurance is,

basically, a promise by an insurance company or health plan to provide or pay for health

care services in exchange for payment of premiums.

Insurance policy has started since the 18th century. However, at that time, we had

Accident Insurance. The first accident insurance company was Franklin Health

Assurance Company of Massachusetts which was founded in the year 1850. This

insurance was mainly offered because at that time there were a lot of accidents and

injuries due to railroad and steamboat. Accident insurance agencies soon started sky

rocketing. It was indeed very successful. People had started realising how important

insurance is. In the year 1866, there were around sixty accident insurance companies

which were set up and ultimately, the number of insurance companies kept on

mushrooming.

Health insurance was proposed by Hugh the Elder Chamberlen in 1964. A health

insurance is a contract renewable either monthly or yearly between the insurance

company and the person. The Insurance Company will provide you with a quotation of

the insurance company. In the quotation, you will have the term of policy, that is how


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long are you covered with the health insurance. The duration of the health insurance will

depend on the age of the insurance holder. If he is young, the insurance company may

advise him to take a long term health insurance and if the person is old, it might be the

contrary. Apart from age, there are other factors like health and income which are taken

into consideration when quoting a health insurance. Some insurance companies also do a

medical check up before provide a health insurance policy. In the quote, you will also

find how much you have to pay on a monthly or a yearly basis. The health insurance

quotation all consists of all the benefits which it covers. Certain health insurance covers

the insurer 100% but certain not. There are several conditions which are applied.

Different amount is paid in case of natural death, accidental death, loss of one limb or

two limbs or in case of permanent disability.

There are mainly four different types of health insurance plan, which are namely:

1. Fee-for-Service Plans

2. Health Maintenance Organizations (HMOs)

3. Point-of-Service Plans (POS)

4. Preferred Provider Organizations (PPOs)

These four different types of insurance may have different names however theirgoal is to provide medical care to people. Fee-for-service plan is the more affordable

plan. However it has got some limitations. Preferred Provider Organization has got more

options; however, this is the most expensive. Its up to you to decide which type of

insurance is the best and which one you would like to purchase.

To get a better medical care, it is very important to have a good health insurance

plan. You have health insurance companies all around your country; however, you have

to decide which one is the best and will provide you with the best medical facilities. You

can have health insurance quotes of different companies online. You can compare the

price as well as the medical benefits which are provided by the health insurance company

on the internet along with its quote.


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Since health insurance has now become a necessity, do not waste time, get

connected to the internet, compare prices and benefits and purchase a good health

insurance.

Literature Review:

Health Insurance in India:

SOCIAL SECURITY FOR MEDICAL EMERGENCIES IS NOT NEW TO THE

INDIAN ETHOS. It is a common practice for villagers to take a piruvu (a collection) to

support a household with a sick patient. However, health insurance, as we know it today,

was introduced only in 1912 when the first Insurance Act was passed (Devadasan 2004).

The current version of the Insurance Act was introduced in 1938. Since then there was

little change till 1972 when the insurance industry was nationalized and 107 private

insurance companies were brought under the umbrella of the General Insurance

Corporation (GIC). Private and foreign entrepreneurs were allowed to enter the market

with the enactment of the Insurance Regulatory and Development Act (IRDA) in 1999.

The penetration of health insurance in India has been low. It is estimated that only

about 3% to 5% of Indians are covered under any form of health insurance. In terms of

the market share, the size of the commercial insurance is barely 1% of the total health

spending in the country. The Indian health insurance scenario is a mix of mandatory

social health insurance (SHI), voluntary private health insurance and community- based

health insurance (CBHI). Health insurance is thus really a minor player in the health

ecosystem.

Central Government Health Scheme (CGHS):

Established in 1954, the CGHS covers employees and retirees of the Central

Government, and certain autonomous, semiautonomous and semi-government

organizations.


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Current status of private health insurance in India:

India has lessons to learn from the experience of Chile. India too has a dual

system of carea private fee-for-service based sector where the money is paid out-of-

pocket by individual households and a tax-based public sector where the providers are

salaried. Utilization of insurance under both these systems is partly restricted and

rationed by the affordability of the individual household and availability of the budget.

On the other hand, insurance as a means of financing is a far more sophisticated

mechanism, requiring a comprehensive understanding of the failures that characterize

health insurance markets.

For example, a problem such as asymmetry in information puts the patient and theinsurer at a disadvantage due to their inability to resist or challenge medical opinion

regarding an existing condition or future treatment. Besides, in the absence of knowledge

of prices, the provider can short change the two by overcharging. Second, cashless

insurance creates disincentives to control costs as it appears to be a =free good for the

patient and the provider, often resulting in excessive treatment by the provider (induced

demand) and frivolous use by the patient taking treatment even for a condition which he

would normally have ignored or cured with a home remedy (moral hazard). Third, it is

only the patients who know their health status. Since it is normally those in need of health

care who tend to subscribe to health insurance, this puts the risk on insurance agencies to

resort to extensive processes of risk selection, such as medical examination, before being

given admittance as an enrollee and focusing on lowrisk groups, such as the young or

healthy. Risk selection in individual- based policies however results in increasing the

loading fee and consequently the cost of premium.

This is one reason for the attractive group discounts being as high as 67%. For

these reasons, private commercial health insurance is known to select its customersthe

young, healthy, rich, malesleaving the bad risks to the governmentold, poor, young

women in the reproductive age group, and the ill.


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Health insurance in India is usually associated with the =Mediclaim policy of the

GIC, which was introduced in 1986 as a voluntary health insurance scheme offered by

the public sector. The premium based on the age, risk and the benefit package opted for,

ranged from a minimum premium of Rs 201 for those


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Second, it was also observed that the GIC sets premium on the filing of claims

and not actual amounts settled, giving it a cushion year on year as settled claims amounts

are always lower than those filed, an amount that remains unadjusted. During 1994, 4.4%

of the insured persons made a claim, of which only 75% of claims were settled. The

claims ratio was 45%. However, of late, the claims ratio is growing at a fast rate,

allegedly because of collusion between the patients, insurance agents and hospitals. From

the above discussion, five features that characterize the health insurance system in India

emerge:

By and large, the system offers traditional indemnity, under which the insured

first pay the amount and then seek reimbursement. Under indemnity, all known diseases

or health conditions are excluded and therefore such policies typically have a large

number of exclusions. This also means that those most in need of insurance, i.e. the sick,

get excluded for any financial risk protection against the diseases they are suffering from.

It is a fee-for-service-based payment system. Such a system of payment is advantageous

for the provider since he bears no risk for the prices he can charge for services rendered

by him. Combined with the asymmetry in information, such a system usually entails

increased costs. Policies provide a ceiling of the assured sum. Such a system, and that too

within a fee-for-service payment system, results in shortchanging the insured as he gets

less value for money, as the provider and the insurer have no obligations to provide

quality care and/or over provide/over charge services so long as the amounts are within

the assured amount of the insurance policy. The system is based on risk-rated premiums.

This again puts the risk on the insured as the premium is fixed in accordance with the

health status and age. Under such a system, women in the reproductive age group, the

old, the poor and the ill get to pay higher amounts and are discriminated against. The

system is voluntary, making it difficult to form viable risk pools for keeping premiums

low.


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Reasons for poor penetration of health insurance

Penetration of health insurance has been slow and halting, despite the huge

market estimated to range between Rs 7.520 crores. Some reasons that explain for the

slow expansion of health insurance in the country are as follows:

1. Lack of regulations and control on provider behavior

The unregulated environment and a near total absence of any form of control over

providers regarding quality, cost or data-sharing, makes it difficult for proper

underwriting and actuarial premium setting. This puts the entire risk on the insurer as

there could be the problems of moral hazard and induced demand. Most insurance

companies are therefore wary about selling health insurance as they do not have the data,

the expertise and the power to regulate the providers. Weak monitoring systems for

checking fraud or manipulation by clients and providers, add to the problem.

2. Unaffordable premiums and high claim ratios

Increased use of services and high claim ratios only result in higher premiums.The insurance agencies in the face of poor information also tend to overestimate the risk

and fix high premiums. Besides, the administrative costs are also high over 30%, i.e.

15% commission to agent; 5.5% administrative fee to TPA; own administrative cost 20%,

etc. Patients also experience problems in getting their reimbursements including long

delays to partial reimbursements.

3. Reluctance of the health insurance companies to promote their products and lack

of innovation

Apart from high claim ratios, the non-exclusivity of health insurance as a product

is another reason. In India, an insurance company cannot sell non-life as well as life

insurance products. Since insurance against fire or natural disaster or theft is far more


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profitable, insurance companies tend to compete by adding low incentive such as

premium health insurance products to important clients, cross-subsidizing the resultant

losses. With a view to get the non-life accounts, insurance companies tend to provide

health insurance cover at unviable premiums. Thus, there is total lack of any effort to

promote health insurance through campaigns regarding the benefits of health insurance

and lack of innovation to make the policies suitable to the needs of the people.

4. Too many exclusions and administrative procedures

Apart from delays in settlement of claims, non-transparent procedures make it

difficult for the insured to know about their entitlements, because of which the insurer is

able to, on one stratagem or the other, reduce the claim amount, thus demotivating the

insured and deepening mistrust. The benefit package also needs to be modified to suit the

needs of the insured. Exclusions go against the logic of covering health risks, though,

there can be a system where the existing conditions can be excluded for a time period

one or two years but not forever. Besides, the system entails equity implications.

5. Inadequate supply of services

There is an acute shortage of supply of services in rural areas. Not only is there

non-availability of hospitals for simple surgeries, but several parts of the country barely

one or two hospitals with specialist services. Many centres have no have cardiologists or

orthopaedicians for several non-communicable diseases that are expensive to treat and

can be catastrophic. If we take the number of beds as a proxy for availability of

institutional care, the variance is high with Kerala having 26 beds per 1000 population

compared with 2.5 in Madhya Pradesh.

6. Co-variate risks

High prevalence levels of risks that could affect a majority of the people at the

same time could make the enterprise unviable as there would be no gains in forming large


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pools. The result could be higher premiums. In India this is an important factor due to the

large load of communicable diseases. A study of claims (Bhat 2002) found that 22% of

total claims were for communicable diseases.

Research Methodology:

Research Problem:

To study the reasons for the disapproval of Health Insurance policies in India for

the young individuals.

Dependent Variable:Preference

Independent Variable:

1. Awareness

2. Location

3. Media Exposure

4. Affordability

Sample Size:40

Conceptual Model:

Disapproval

Media

exposure

Affordability

Awareness

Location


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Research Design

Descriptive Research: - Descriptive research includes surveys and fact finding enquiries

of different kinds. The major purpose of descriptive research is description of state of

affairs as it exists at present. The main characteristic of this method is that the researcher

has no control over the variables; he can only report what has happened or what is

happening.

Sampling Design

Population: People under the age of 25 years

Sample Size: 40

Sample Design: Non ProbabilityConvenience Sampling

Non-probability sampling technique has been used because the population which

includes all those people preferring is very large. Secondly, source list of the population

cannot be made available.

Data Collection:

Instrument: Questionnaire

Scaling Technique Used: Likert Scale

Primary Data: Structured Questionnaire

Secondary Data: Online Database, Journals, Surveys

Tools:

Statistical:SPSS

Techniques: Multiple Regressions


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Questionnaire

Strongly

Agree

Agree Neutral Disagre

e

Strongly

Disagree

I feel health insurance policy iscompulsory for every individual.

I feel investing in health insurance

policy is a best available option forsavings.

My family has never needed anyinsurance cover.

I am aware of all the latest health

insurance policies.

I participate in the discussions about

the health insurance with my peergroup.

I feel health insurance companies

are taking many measures for its

promotion.

I feel that the life style of the people

where I stay encourage me to take

health insurance policy.

The location in which I stay is so

hygienic

I feel media is focusing on expert

interview groups, which help peoplein knowing benefits of health

insurance.

I feel advertisements have an effect

on influencing people to opt for

health insurance.

I feel I need health insurance to

cover my risks at this particular age. I feel the term period for health

insurance policy is very small.

I can afford to pay premium on

regular basis.


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Data Analysis:

Reliability:Findings from Questionnaires

Reliability and Descriptive statistics of the Instruments

Reliability can be defined as the extent to which measurements of the particular testare repeatable. In other words, the measuring procedure should yield consistent results on

repeat tests.

The most highly recommended measure of internal consistency is provided by coefficient

alpha () or Cronbachs alpha as it provides a good reliability estimate in most situations.

The nearer the value of alpha () to 1, the better the reliability. If the value is low, either

there are too few items or there is very little commonality among the items

The reliability of 0.50-0.60 is sufficient, although a coefficient of 0.70 or above is

desirable

Reliability Analysis Scale for Preference

Case Processing Summary

N %

Cases Valid 40 100.0

Excluded(a) 0 .0Total 40 100.0

a Listwise deletion based on all variables in the procedure.

Reliability Statistics

Cronbach'sAlpha N of Items

.404 3

Reliability scale for preference alpha is 0.404 which is less than 0.6 that means the data

about preference of health insurance is not reliable.

Reliability Analysis Scale for Awareness

Null Hypothesis: Awareness of health insurance has no impact for the preference of

health insurance.


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Alternate Hypothesis: Awareness of health insurance has impact for the preference of

health insurance.


N %Cases Valid 40 100.0

Excluded(a) 0 .0

Total 40 100.0



Cronbach'sAlpha N of Items

.537 3

Reliability scale for awareness of health insurance alpha is 0.537 is slightly less than 0.6

that means the data about awareness of health insurance is reliable for measuring the

preference for health insurance.

Reliability Analysis Scale for Location

Null Hypothesis: Location where the person stay has no impact for the preference of

health insurance.

Alternate Hypothesis: Location where the person stay has impact for the preference of

health insurance.


N %

Cases Valid 40 100.0Excluded(a) 0 .0

Total 40 100.0



Cronbach's

Alpha N of Items

.092 2


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Reliability scale for location alpha is 0.092 that is very less than 0.6 that means the data

about location where a person stay is not reliable for measuring the preference for health

insurance.

Reliability Analysis Scale for Media exposure

Null Hypothesis: Media exposure has no impact for the preference of health insurance.

Alternate Hypothesis: Media exposure has impact for the preference of healthinsurance.


N %

Cases Valid 40 100.0Excluded(a) 0 .0

Total 40 100.0a Listwise deletion based on all variables in the procedure.


Cronbach's

Alpha

N of

Items

.366 2

Reliability scale for media exposure alpha is 0.366 that is less than 0.6 that means thedata about exposure to media is not reliable for measuring the preference for health

insurance.

Reliability Analysis Scale for Affordability

Null Hypothesis: Affordability of the person has no impact for the preference of health

insurance.

Alternate Hypothesis: Affordability of the person has impact for the preference of

health insurance.


N %

Cases Valid 40 100.0

Excluded(a) 0 .0Total 40 100.0



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b Dependent Variable: DVMean

Coefficients(a)

Model

Unstandardized

Coefficients

Standardized

Coefficients t Sig.

B

Std.

Error Beta B Std. Error

1 (Constant) -.676 1.165 -.580 .566

Awaremean .315 .140 .342 2.247 .031LocationMean .482 .292 .236 1.649 .108

MEmean .215 .145 .224 1.484 .147

AffordMean .203 .146 .203 1.397 .171

a Dependent Variable: DVMean

The sample R squared tends to optimistically estimate how well the model fits the

population. Small values indicate that the model does not fit the data well.

The values of R squared range from 0 to 1. R squared is the proportion of variation in the

dependent variable explained by the regression model. Larger values of R indicate

stronger relationships .The values of R for models produced by the regression procedure

range from 0 to 1.

R, the multiple correlation coefficients, is the correlation between the observed and

predicted values of the dependent variable.

The unstandardized coefficients are the coefficients of the estimated regression model.

The t statistics can help you determine the relative importance of each variable in the

model. As a guide regarding useful predictors, look for t values well below -2 or above

+2.

From the above analysis it implies that the adjusted R square value which is 0.207 and

the significance of ANOVA which is 0.016 is very good.

From above data analysis through regression model, we can see that:

The awareness has 96.9% confidence on the accuracy of the data.

The location has 89.2% confidence on the accuracy of the data.

The media exposure has 85.3% confidence on the accuracy of the data.

The affordability has 82.9% confidence on the accuracy of the data.

Correlations


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A correlation analysis was conducted on all the variables to explore the relationship

between variables. In interpreting the strength of relationships between variables, the

classification of the correlation coefficient (r) is as follows:

0.0 to 0.2 Very weak, negligible

0.2 to 0.4 Weak, low

0.4 to 0.7 Moderate

0.7 to 0.9 Strong, high marked

0.9 to 1.0 Very strong, very high

Correlations

DVMean AwaremeanDVMean Pearson Correlation 1 .381(*)

Sig. (2-tailed) .015

N 40 40

Awaremean Pearson Correlation .381(*) 1

Sig. (2-tailed) .015N 40 40

* Correlation is significant at the 0.05 level (2-tailed).

The preference of health insurance and awareness of health insurance are weeklycorrelated.

Correlations

DVMean LocationMean

DVMean Pearson Correlation 1 .264

Sig. (2-tailed) .100N 40 40

LocationMean Pearson Correlation .264 1

Sig. (2-tailed) .100N 40 40

The preference of health insurance and location where the person stay are weekly

correlated.

Correlations

DVMean MEmean

DVMean Pearson Correlation 1 .324(*)


N 40 40


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MEmean Pearson Correlation .324(*) 1


N 40 40

* Correlation is significant at the 0.05 level (2-tailed).

The preference of health insurance and media exposure of the person are weeklycorrelated.

Correlations

DVMean AffordMean

DVMean Pearson Correlation 1 .115

Sig. (2-tailed) .481N 40 40

AffordMean Pearson Correlation .115 1


N 40 40

The preference of health insurance and affordability of the person are weekly correlated.

References:1. National Commission on Macroeconomics and health, Government of India, New

Delhi

2.

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