Evolution of Health Insurance in India | Insurance market and health systems

In olden days, health was considered to be a “Divine Gift and illness was believed to have been caused due to the sins committed by the concerned person. It was Hippocrates (460 to 370 BC) who came up with the reasons behind illness. 


Health Insurance - What is healthcare?

The word “Health was derived from the word “hoelth, which means “soundness of the body” The Indian system of Ayurveda which existed many centuries before Hippocrates, considered health as a delicate balance of four fluids: blood, yellow bile, black bile and phlegm and an imbalance of these fluids causes ill health. Susruta, the Father of Indian medicine is even credited with complex surgeries unknown to the West in those times

Over a period, modern medicine has evolved into a complex science and the goal of modern medicine is no longer mere treatment of sickness but includes prevention of disease and promotion of quality of life.

A widely accepted definition of health is the one given by World Health Organisation in 1948; it states that “Health is a state of complete physical, mental and social wellbeing and not merely the absence of disease”. It is to be noted that Indian system of medicine like Ayurveda incorporated such a complete view of health from times immemorial.

Health Insurance - Evolution of Health Insurance in India

Evolution of Health Insurance in India

While the government had been busy with its policy decisions on healthcare, it also put in place health insurance schemes. Insurance companies came with their health insurance policies only later. Here is how health insurance developed in India:

a) Employee’s State Insurance Scheme

With the beginning of the Employee’s State Insurance Scheme, introduced vide the ESI Act, 1948, shortly after the country’s independence in 1947. This scheme was introduced for blue-collar workers employed in the formal private sector and provides comprehensive health services through a network of its own dispensaries and hospitals.

All workers earning wages up to Rs. 21,000 are covered under the contributory scheme wherein employee and employer contribute 0.75% and 3.25% of pay roll respectively.

The benefits covered include:

a) Free comprehensive healthcare at ESIS facilities

b) Maternity benefit

c) Disability benefit

d) Cash compensation for loss of wages due to sickness and survivorship and

e) Funeral expenses in case of death of worker

b) Commercial Health Insurance

Commercial health insurance was offered by some of the non-life insurers before as well as after nationalisation of insurance industry. But, as it was mostly loss making for the insurers, in the beginning, it was largely available for corporate clients only and that too for a limited extent.

In 1986, the first standardised health insurance product for individuals and their families was launched in the Indian market by all the four nationalized non-life insurance companies (these were then the subsidiaries of the General Insurance Corporation of India). This product, Mediclaim was introduced to provide coverage for the hospitalisation expenses up to a certain annual limit of indemnity with certain exclusions such as maternity, pre-existing diseases etc. It underwent several rounds of revisions as the market evolved, the last being in 2012.

With private players coming into the insurance sector in 2001, health insurance has grown tremendously

Health Insurance - Health Insurance Market

The health insurance market today consists of a number of players some providing the health care facilities called providers, others the insurance services and also various intermediaries. Some form the basic infrastructure while others provide support facilities. Some are in the government sector while others are in the private sector. These are briefly described below:


  1. Public health sector
  2. Private sector providers
  3. Pharmaceutical industry 


Insurance Companies especially in the general insurance sector provide the bulk of the health insurance services. These have been listed earlier. What is most encouraging is the presence of stand-alone health insurance companies with likelihood of a few more coming in to increase the health insurance provider network


  1. Insurance Brokers
  2. Insurance Agents
  3. Third Party Administrators
  4. Insurance Web Aggregators
  5. Insurance Marketing Firms


  1. Insurance Regulatory and Development Authority of India (IRDAI)
  2. General Insurance and Life Insurance Councils
  3. Insurance Information Bureau of India
  4. Educational institutions
  5. Medical Practitioners
  6. Legal entities

Health Insurance - Factors affecting the health systems in India

Factors affecting the health systems in India

The Indian health system has had and continues to face many problems and challenges. These, in turn, affect the nature and extent of the healthcare system and the requirement at the individual level and healthcare organization at the structural level. These are discussed below:


1. Demographic or Population related trends

a) India is one of the largest populated country in the world.

b) This exposes us to the problems associated with population growth.

c) The level of poverty has also had its effect on the people’s ability to pay for medical care.

2. Social trends

a) Increase in urbanization or people moving from rural to urban areas has posed challenges in providing healthcare.

b) Health issues in rural areas also remain, mainly due to lack of availability and accessibility to medical facilities as well as affordability.

c) The move to a more sedentary stressful lifestyle with reduced needs to exercise oneself has led to newer types of diseases like diabetes and high blood pressure.



3. Life expectancy

a) Life expectancy refers to the expected number of years that a child born today will survive.

b) Life expectancy has increased from 30 years at the time of independence to over 60 years today but does not address the issues related to quality of that longer lifespan.

c) This leads to a new concept of “healthy life expectancy”.

d) This also requires the creation of infrastructure for “Geriatric” (old age related) diseases

Health Insurance - Types of Healthcare

Types of healthcare

Healthcare is broadly categorized as follows:

Primary healthcare

Primary health care refers to the services offered by the doctors, nurses and other small clinics which are contacted first by the patient for any sickness, that primary healthcare provider is the first point of contact for all patients within a health system.

In developed countries, more attention is paid to primary health care to deal with health issues before the same become widespread, complicated, and chronic or severe. Primary health care establishments also focus on preventive health care, vaccinations, awareness, medical counselling etc. and refer the patient to the next level of specialists when required.

For example, if a person visits a doctor for fever and the first diagnosis is indicative of Dengue fever, the primary health care provider will prescribe some medicines but also direct the patient to get admitted in a hospital for specialized treatment. For most of the primary care cases, the doctor acts like a “Family Doctor” where all the members of the family visit the doctor for any minor sickness.

Secondary healthcare

Secondary health care refers to the healthcare services provided by medical specialists and other health professionals who generally do not have first contact with patient. It includes acute care requiring treatment for a short period for a serious illness, often (but not necessarily) as an in-patient, including Intensive Care services, ambulance facilities, pathology, diagnostic and other relevant medical services.

Most of the times, the patients are referred to the secondary care by primary health care providers / primary physician.

Tertiary healthcare

Tertiary Health care is specialized consultative healthcare, usually for inpatients and on referral from primary/secondary care providers. The tertiary care providers are present mostly in the state capitals and a few at the district headquarters.

Examples of Tertiary Health care providers are those who have advanced medical facilities and medical professionals, beyond the scope of secondary health care providers e.g. Oncology (cancer treatment), Organ Transplant facilities, High risk pregnancy specialists etc.

It is to be noted that as the level of care increases, the expenses associated with the care also increase. While people may find it relatively easy to pay for the primary care, it becomes difficult for them to spend when it comes to secondary care and much more difficult when it comes to tertiary care. The infrastructure for different levels of care also varies from country to country, rural-urban areas, while socio-economic factors also influence the same.

Health Insurance - Levels of Healthcare 

Levels of Healthcare

Healthcare is nothing but a set of services provided by various agencies and providers including the government, to promote, maintain, monitor, or restore health of people. Health care to be effective must be:

  1. Appropriate to the needs of the people
  2. Comprehensive
  3. Adequate
  4. Easily available
  5. Affordable

Health status of a person varies from person to person. It is neither feasible nor necessary to make the infrastructure available at same level for all types of health problems. The health care facilities should be based upon the probability of the incidence of disease for the population. For example, a person may get fever, cold, cough, skin allergies etc. many times a year, but the probability of him/her suffering from Hepatitis B is less as compared to cold and cough.

Similarly, the probability of the same person suffering from a critical illness such as heart disease or Cancer is less as compared to Hepatitis B. Hence, the need to set up the healthcare facilities in any area whether a village or a district or a state will be based upon the various health care factors called indicators of that area such as:


  1. Size of population
  2. Death rate
  3. Sickness rate
  4. Disability rate
  5. Social and mental health of the people
  6. General nutritional status of the people
  7. Environmental factors such as if it is a mining area or an industrial area
  8. The possible health care provider system e.g. heart doctors may not be readily available in a village but may be in a district town
  9. How much of the health care system is likely to be used
  10. Socio-economic factors such as affordability

Based on the above factors, the government decides upon setting up of centres for primary, secondary, and tertiary health care and takes other measures to make appropriate healthcare affordable and accessible to the population.


Health Insurance - Determinants of health

It is generally believed that the following factors determine the health of any individual:

a) Lifestyle factors

Lifestyle factors are those which are mostly in the control of the individual concerned e.g. exercising and eating within limits, avoiding worry and the like leading to good health; and bad lifestyles and habits such as smoking, drug abuse, unprotected sex and sedentary lifestyle (with no exercise) etc. leading to diseases such as cancer, aids, hypertension and diabetes, to name a few.

Though the Government plays a critical role in controlling / influencing such behaviour (e.g. punishing people with non-bailable imprisonment who abuse drugs, imposing high taxes on tobacco products etc.), the personal 100 responsibility of an individual plays a deciding role in controlling diseases due to lifestyle factors.

b) Environmental factors

Safe drinking water, sanitation and nutrition are crucial to health, lack of which leads to serious health issues as seen all over the world, especially in developing countries. Communicable diseases like Influenza and Chickenpox etc. are spread due to bad hygiene, diseases like Malaria and Dengue are spread due to bad environmental sanitation, while certain diseases are also caused due to environmental factors e.g. people working in certain manufacturing industries are prone to diseases related to occupational hazards such as Asbestos in workers in asbestos manufacture and also diseases of the lungs in coal miners.

c) Genetic factors

Diseases may be passed on from parents to children through genes. Such genetic factors result in differing health trends amongst the population spread across the globe based on race, geographical location and even communities.

It is obvious that a country’s social and economic progress depends on the health of its people. A healthy population not only provides productive workforce for economic activity but also frees precious resources which is more crucial for a developing country like India. At an individual level, ill health can cause loss of livelihood, inability to perform daily essential activities and push people to poverty and even commit suicide.

Thus, the world over, governments take measures to provide for health and wellbeing of their people and ensuring access and affordability of healthcare for all citizens. Thus „spend‟ on healthcare usually forms a significant part of every country’s GDP.

Powered by Blogger.