Sustainable Healthcare Financing through Health Insurance

Swiss Re Healthcare Services Pvt. Ltd. Blr.

Slide 2

A Balanced System is the Answer ( PPP )

Income

Age

Very Poor

Near Poor

Moderate

Wealthy

Young Working Ages Retired

Public Health Insurance

Private Health Insurance and some Out-of-Pocket Payments

Slide 3

Current Scenario of Healthcare Spend in India

Even among the BRIC countries India lags behind on Public and Private per capita spend as a % of GDP

75% Out of Pocket (OOP) spending - Too high by far and definitely not a healthy model of financing

40% of hospitalised are pushed below poverty line or into life long debt due to lack of financial planning

85% of In-patient Care delivered on the Private Hospital platform with unregulated and variable pricing methods

Slide 4

Pattern of healthcare financing in India

Total health spend per capita

Composition of health spend – India vs.World

Source:: National Health Accounts, WHO

0% 20% 40% 60% 80% 100%

Out-of-pocket Private InsuranceGovt Expenditure Social InsuranceOther

2,900

6,096

2,823

359

293

290

245

43

36

33

424

277

943

30

31

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000

UK

USA

Japan

Chile

Thailand

Brazil

Russia

Sri Lanka

Philippines

Indonesia

Mexico

China

Singapore

Vietnam

India

World

IndiaOOP

Slide 5

Healthcare Market in India - Size and Growth

Indian healthcare market currently estimated at US$ 37.03 bn

Healthcare delivery and pharmaceuticals account for nearly 75% of the total market.

Private healthcare is estimated to be the largest component of the healthcare sector

The Indian Healthcare market is growing at a CAGR of 20%

Market is expected to grow to US$ 104 bn by 2010-2011.

Healthcare spending is expected to scale up to about 5.5% of GDP, by 2009

Indian Healthcare Industry Projections

Physicians per 1,000 population 0.60

Nurses per 1,000 population 0.80

Hospital Beds per 1,000 population 0.70

India’s Health Indicators

Source: WHO

Source: Ernst & Young, IBEF

CAGR -20%

24.6327.27 29.87

33.2137.03

60.32

-

10

20

30

40

50

60

70

2002-03 2003-04 2004-05 2005-06 2006-07 (E) 2007-08 (E)

Total Health Spend (US$ bn)

Slide 6

Public and Private expenditure on Healthcare - Asia

Spending benchmarks - Asia - 2002

0.70

1.301.40 1.40

2.13

1.30

2.43

1.101.00

0.40

1.00

1.58

2.30

2.97

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Indonesia Phillipines Sri Lanka Malaysia Thailand Singapore South Korea

Country

%ag

e

Public expenditure on health (% GDP)

Private expenditure on health (% GDP)

Source: Health Insurance and Health Services in ASEAN – Asia pacific summit on health insurance and managed care 2003

Slide 7

The need for better healthcare financing

The “Uncertainty” of the occurrence and the intensity of Health problems in any individual – a barrier to planning

Changing Disease burden in the community – longevity, new infectious disease outbreaks and lifestyle diseases

Changing Healthcare seeking behaviour as affluence puts access to care within the reach of more people

Medical Inflation – very high in India and a harsh reality

Global experience analysis and the learnings from more developed nations reinforces this urgent requirement

Slide 8

Healthcare risk structure

Frequency of Occurrence

Cost of Medical Care

MA

JOR

SU

RG

ER

IES

INTE

RM

ED

IATE S

UR

GER

IES

MINOR SURGERIES MEDICAL MANAGEMENT

Medical Services currently financed by Health Insurance

CI

IN - PATIENT TREATMENT OUT - PATIENT TREATMENT

Slide 9

Law of large numbers is the basis for risk pooling

Mean Loss per Exposure Unit Mean + 1.96 SDMean - 1.96 SD

1000 Exposure Units

10000 Exposure Units

Probability

True Mean Sample Mean

Slide 11

Healthcare Systems Perpetual Stresses

demands good Stewardship

To create and manage a balanced healthcare system that addresses different needs, wants, interests, and perceptions of

various stakeholders and is sustainable.

Feasibility: Achieve simultaneous balance among Cost-Quality-Access goals and objectives in a society

Sustainability: Provide financing mechanism and healthcare resources needed to maintain balance among Cost-Quality-Access goals and objectives over time

Satisfaction: Fulfill all the key stakeholders’ expectations as healthcare and healthcare systems evolve

Slide 12

Healthcare Demand and Cost Drivers

Personal, Family, Medical and prevalent Social Ethics

Preventive care, Emergency care, Lifestyle Medicine, Long term care and End of Life care

Awareness, Access, Affluence and Affordability all modify the health-seeking behaviour of the masses

“Corporatisation” of Hospitals and Healthcare delivery

Health Insurance penetration and spectrum of benefits

Medical Tourism catering to overseas patients needs

Slide 13

Medical Inflation contributors

Medical Science advances

Higher cost of trained resources

Rapid technological development

Change in disease patterns and prevalence

Longevity and changing Health seeking behaviour

Early onset of many Chronic / Lifestyle diseases

Slide 14

Insurability / Infrastructure

Insurer’s involvement

Life only

Critical illness

Hospital cash

Full reimburse-ment

Managed care & Wellness

Administration Underwriting, Product

devtActive claims management

Risk not insurable - No

opportunity

Stay away

Regulatory burden, little incentive

Increasingly mature market and

sophisticated buyers

Integrated state and private offering

Source: Swiss Re Economic Research & Consulting; Swiss Re L&H

Evolution of Medical Insurance Business

No marketAll paid Out of

Pocket

Basic Product supplements state system

Indemnity product – may be IP first.

Cost containment – PPO & Discounts

Full managed care / HMO

Market Development

India Market

Slide 15

Product platform – Health Insurance

Range of coverage

SimpleSimple ComplexComplex

Comprehensive Indemnity

Surgical Expenses

Crit. Illness

HCB

Surgical Expenses

Crit. Illness + TPD

HCB

Surgical Expenses

Crit. Illness + TPD

Catastrophic Event

Full Indemnity

Surgical Expenses

Crit. Illness

Catastrophic Event

In /out patient only

Cancer only

Ancillary services

Fixed BenefitsLink to savings

prod

Accel.Rider Benefit

Addl.Rider Benefit

Stand alone health insurance (Defined Benefit)

Slide 16

The Macroeconomics of Healthcare Financing

Sources of revenue for health care financing

– General revenue (taxation)

– Social health insurance

– Voluntary or private health insurance

– Out of Pocket payments (OOP) and

– Internal donation (private borrowings)

In Asia, health expenditure is funded as follows

– Taxation – 30%

– Social health insurance – 25%

– Out of Pocket (OOP) – 30%

– Private health insurance - 15%

* In India OOP is as high as 75%

Without the

developed markets of Japan and Australia,

the contributio

n of private

insurance would be

significantly lower

Slide 17

Economic Value of Insurance

Social Value of Insurance

Political process moves towards

consistency between:

Insurance Market

Behavior

… and …

external social, ethical and economic

considerations

Insurance Market Behavior Structure Consumer Behavior Insurer Behavior

Alternatives

Public - PrivateOpen - Closed

Characteristics Government rules

Consumer choice Competition

Demand driven by Risk Aversion

… and …

Consumer Behavioral Problems

Adverse Selection

Moral Hazard

Supply driven by Risk Management

Tools

designed around Consumer Behavioral

Problems

Feasibility Problems

Strategies & Tactics

affecting costs and profit

Insurance Market Failures

Slide 18

Current Scenario of Health Insurance in India

Source: World Health Organisation. Figures in year 2004

Low penetration of Insurance and low government expenditure in India has resulted in high Out-of-Pocket spend

Sources of Health Spend (India vs. World)Health Insurance Penetration in India

Uninsured82.65%

Community Insurance4.19%

Pvt. sector Enterprise (Self

Funded)4.61%

Indian Railways0.59%

Pvt.Health Insurance1.42% CGHS

3.35%

ESIS3.19%

Source: Business World (India) – Oct 2007

A Huge Opportunity

A Huge Opportunity

Slide 19

Challenges to development of the medical insurance market in India

Healthcare infrastructure

Mis-alignment of physical and human infrastructure at the point of demand for healthcare

Systems for provider accreditation, clinical protocols and medical coding standards for utilisation data are almost non-existent

Limited engagement of providers with insurers /TPA to pre-agree terms of business

Private medical insurance

Little focus to date on data management to steer the business

No systematic practice of re-pricing the business to account for claims cost trend

Lack of clarity on the health insurance regulatory landscape

Level playing field for all types of insurance Co. to write medical business does not yet exist

Role of the government

Elderly population face unaffordability of health insurance premiums; aggravated by historic under-pricing & high trend

Insurance is viewed politically as a panacea for ‘health for all’, but the poorest sections of society cannot afford products to meet even basic health needs

Fiscal incentives do not support pre-funding of healthcare costs

Slide 20

Future scenario of Health Insurance in India

Number of mass affluent urban households projected to increase

Increasing proportion of Working Age Population

Source: McKinsey Global Institute Source: Extrapolated from Census of India

Demand for quality Healthcare and affordability will increase significantly generating additional demand for innovative mechanisms of financing

healthcare

Slide 21

Solutions for Profitability & Sustainability

Fixed Benefit may show better profitability than reimbursement in unregulated and immature markets

Robust and reliable dataset a must for accurate pricing / re-pricing

Claims and IBNR (incurred but not reported) analysis is vital

Ability to accurately estimate medical inflation and cater for it

Annual price increases more sustainable than wild fluctuations

Key Aspects of PMI – most services provided by TPAs

Medical Underwriting

Network Management

Preauthorisations

Claims Adjudication

Slide 22

The Three-Pronged Solution

Sustainability of Medical Ins

P

R

O

D

U

C

T

P

R

I

C

I

N

G

P

A

Y

O

U

T

S

Slide 23

An optimal competitive health care system will NOT necessarily perform to the most preferred social state

No simple single solution can meet ALL the needs for healthcare access and financing in India.

Optimal use of Private and Public Health Insurance is the BEST OPTION for sustainable healthcare financing

Effective Government intervention is needed ESPECIALLY for the poorer sections and for the vulnerable extremes of age groups

Conclusions

Slide 24

A Balanced System is the Answer ( PPP )

Income

Age

Very Poor

Near Poor

Moderate

Wealthy

Young Working Ages Retired

Public Health Insurance

Private Health Insurance and some Out-of-Pocket Payments

Thank you

Dr. Nilima Kadambi

9th May 2008

Slide 26

Questions?

Nilima_Kadambi @ Swissre.com