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Peter A. Berman, Rajeev Ahuja, and Vijaysekar Kalavakonda
attempt is made to link these cost estimates to other population-based data on consumption expenditures to estimate the size of the potential market for PVHI in India, always assuming that the other constraints on market development could be addressed. To gauge the current and emerging size of private voluntary health insurance market in India, two estimates are needed: (1) the cost of providing health insurance and (2) the size of population that can buy health insurance. The cost estimates are based on a health insurance claims dataset pertaining to 4.62 million insured individuals for the period January 2003 to November 2004. The estimates of the population that could afford to buy insurance are based on National Sample Survey Organisation consumption expenditure data (NSSO 2001), NCAER Market Information Survey of Households 2002 data, (NCAER 2002), data on organized sector workers, and a few pieces of information on the Indian labor market. The datasets used, the assumptions made, and the methodology adopted in estimating medical costs/expenditure and size of health insurance market are discussed below.
Estimated Costs of Providing Health Insurance First, the two well-known summary indicators are estimated: claims frequency and average claim size. Sixty-three out of every 1,000 insured persons make claims, and the average claim size is Rs 16,810. The available information on the number of claims made by 4.62 million insured individuals is broadly categorized into 30 disease types, and the frequency of claims for each type of disease is computed. The available sample is large as well as random, which allows disease frequencies to be generalized for the entire population. Because information is also available for the total claims amount paid for each of the 30 different types of illnesses, the average claim amount can also be calculated. The average claim amount serves as a good proxy for the cost of treatment for each type of disease. These costs and disease frequencies are used to work out treatment cost per individual across cities and the country as a whole. Treatment cost per individual comes out to Rs 1,369, Rs 1,149, Rs 907, and Rs 1,053 for four major metro cities, all metros, nonmetros, and for India as a whole, respectively.18 These per capita costs pertain to 2003 and are unadjusted for the transaction costs involved in running an insurance program. Transaction costs are generally higher for individual business than for group business19 and also higher in nonmetros than in metros. However, transaction costs are assumed to be 20 percent of the treatment costs. After adjustments, average treatment cost per individual at national level comes to around Rs 1,044 in 2001, the reference year for this analysis.20 A question now arises: how representative are these cost estimates? Below, the available dataset is shown to be fairly representative of the population. In terms of the geographical spread, of the 4.62 million insured persons, around 27 percent is located in four major metro cities, around 33 percent in “other� metro cities, and the balance of 40 percent in nonmetro cities (figure 12.2), although there is considerable variation within these geographical subgroups.