Sustainable Healthcare Financing through Health Insurance

Swiss Re Healthcare Services Pvt. Ltd. Blr.

A Balanced System is the Answer ( PPP )

Wealthy

Moderate

Private Health Insurance and some Out-of-Pocket Payments

Income
Near Poor

Public Health Insurance

Very Poor Young
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Working Ages

Retired

Age

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

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Pattern of healthcare financing in India

Total health spend per capita
India 31 Vietnam 30 Singapore China Mexico Indonesia 33 Philippines 36 Sri Lanka 43 Russia Brazil Thailand Chile Japan USA UK
-

Composition of health spend India vs.World

943 277 424

World

245 290 293 359 2,823 6,096

OOP

India

2,900
1,000 2,000 3,000 4,000 5,000 6,000 7,000

0%

20%

40%

60%

80%

100%

Slide 4 Source:: National Health Accounts, WHO

Out-of-pocket Govt Expenditure Other

Private Insurance Social Insurance

Healthcare Market in India - Size and Growth

Indian Healthcare Industry Projections

70 60 50 40 30 20 10 2002-03
Source: WHO

CAGR -20%

60.32

Indian healthcare market currently estimated at US$ 37.03 bn Healthcare delivery and pharmaceuticals account for nearly 75% of the total market.

24.63 27.27 29.87 33.21 37.03

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

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

2003-04

2004-05

2005-06

2006-07 (E) 2007-08 (E)

Total Health Spend (US$ bn)

Indias Health Indicators

Physicians per 1,000 population Nurses per 1,000 population Hospital Beds per 1,000 population 0.60 0.80 0.70

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

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Source: Ernst & Young, IBEF

Public and Private expenditure on Healthcare - Asia

Spending benchmarks - Asia - 2002
3.50

3.00

2.97

2.50 2.13 2.00

2.43 2.30

%age

1.58 1.50 1.10 1.00 0.70 0.50 0.40 1.30 1.00 1.40 1.40 1.00 1.30

0.00 Indonesia Phillipines Sri Lanka Malaysia Country 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

Thailand

Singapore

South Korea

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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

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Healthcare risk structure

CI

INTERMEDIATE SURGERIES

Cost of Medical Care

MAJOR SURGERIES

Medical Services currently financed by Health Insurance

MINOR SURGERIES

MEDICAL MANAGEMENT

Frequency of Occurrence
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IN - PATIENT TREATMENT

OUT - PATIENT TREATMENT

Law of large numbers is the basis for risk pooling

True Mean

Sample Mean

P r o b a b il it y

10000 Exposure Units

1000 Exposure Units

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Mean - 1.96 SD

Mean Loss per Exposure Unit

Mean + 1.96 SD

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-QualityAccess 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

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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

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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

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Evolution of Medical Insurance Business

Insurability / Infrastructure
Managed care & Wellness

Market Development
Full managed care / HMO Cost containment PPO & Discounts Indemnity product may be IP first.

Integrated state and private offering

Hospital cash
Increasingly mature market and sophisticated buyers

Full reimburse -ment

Critical illness

Regulatory burden, little incentive

India Market
Life only Stay away

Basic Product supplements state system No market All paid Out of Pocket

Risk not insurable - No opportunity

Administration

Underwriting, Product devt

Active claims management

Insurers involvement

Slide 14 Source: Swiss Re Economic Research & Consulting; Swiss Re L&H

Product platform Health Insurance

Range of coverage Simple Accel.Rider Benefit
Surgical Expenses Crit. Illness Cancer only

Complex Addl.Rider Benefit

HCB Surgical Expenses Crit. Illness + TPD

Stand alone health insurance (Defined Benefit)

HCB Surgical Expenses Crit. Illness + TPD Catastrophic Event

Comprehensive Indemnity
Ancillary services In /out patient only Full Indemnity Surgical Expenses Crit. Illness Catastrophic Event

Fixed Benefits
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Link to savings prod

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)

Without the developed markets of Japan and Australia, the contribution of private insurance would be significantly lower

In Asia, health expenditure is funded as follows

Taxation 30%
Social health insurance 25% Out of Pocket (OOP) 30% Private health insurance - 15%

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* In India OOP is as high as 75%

Economic Value of Insurance

Insurance Market Behavior

Structure
Alternatives
Public - Private Open - Closed

Consumer Behavior
Demand driven by Risk Aversion and Consumer Behavioral Problems
Adverse Selection Moral Hazard

Insurer Behavior
Supply driven by Risk Management Tools designed around
Consumer Behavioral Problems Feasibility Problems Strategies & Tactics

Political process moves towards consistency between: Insurance Market Behavior and external social, ethical and economic considerations

Characteristics
Government rules

Consumer choice
Competition

affecting costs and profit

Insurance Market Failures

Social Value of Insurance

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Current Scenario of Health Insurance in India

Health Insurance Penetration in India
Uninsured 82.65%

Sources of Health Spend (India vs. World)

A Huge Opportunity

Indian Railways 0.59% Pvt.Health Insurance 1.42% ESIS 3.19% CGHS 3.35% Community Insurance 4.19%

Pvt. sector Enterprise (Self Funded) 4.61%

Source: Business World (India) Oct 2007

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
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Challenges to development of the medical insurance market in India

Healthcare infrastructure Private medical insurance Role of the government

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
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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

Elderly population face unaffordability of health insurance premiums; aggravated by historic underpricing & 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

Future scenario of Health Insurance in India

Number of mass affluent urban households projected to increase Increasing proportion of Working Age Population
2026 2021 2016 2011 2006 2001 0%
23.4 25.1 26.8 29.1 32.1 35.4 64.3 64.2 63.9 62.6 60.4 57.7 12.4 10.7 9.3 8.3 7.5 6.9

20%

40%

60%

80%

100%

Population Distribution (%) 0-14 yrs

Source: McKinsey Global Institute

15-59 yrs

60 yrs

Source: Extrapolated from Census of India

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

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

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The Three-Pronged Solution

Sustainability of Medical Ins

P R O D U C T
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P R I C I N G

P A Y O U T S

Conclusions

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

Slide 23

A Balanced System is the Answer ( PPP )

Wealthy

Moderate

Private Health Insurance and some Out-of-Pocket Payments

Income
Near Poor

Public Health Insurance

Very Poor Young
Slide 24

Working Ages

Retired

Age

Thank you

Dr. Nilima Kadambi 9th May 2008

Questions?

Nilima_Kadambi @ Swissre.com
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