Changing behavior of poor in micro health insurance moral hazard or moral opportunity? Evidences from India.
Abstract: Aim of the study & Material--Methods

Economists and policy analysts use the concept of moral hazard in insurance to argue against broad social provisions of insurance and any kind of assistance to the needy. Emerging micro health insurance concept, which addresses health care challenges faced by the poor households living in developing countries, counter the economists and policy analysts view point. In this paper, we have tried to highlight the same by analyzing the impact of Rashtriya Swasthaya Bima Yojana (RSBY), an innovative mass level micro heath insurance scheme of Government of India to eradicate the healthcare problems of poor people. Further, this paper has laid down suggestions to improve the sustainability of this unique initiative for moral integrity.


The contribution of RSBY scheme to improve health outcomes and standard of living of poor population is commendable. But one cannot completely ignore the economic outcomes caused by changing behaviour for the same sustainability of the scheme. The best solution without moral hazard for these risk-averse poor families is full cover insurance. In other words, if expenditure on treatment for preventive care will be covered in the scheme, poor people will not have any motivation to misuse the schemes' benefits.


Poor people rush for more health care believing that more care is better care; or to specialists because this means more competent care; or to more tests because this translates to more comprehensive results; and finally to more drugs and more treatments because these mean a longer, happier life because it is "free" cannot be simply concluded as moral hazards for the people living in chronic poverty. As it is a golden opportunity to put forward a step toward healthy and equitable world.


Micro Health Insurance, Moral Hazard, Below Poverty Line, Health Care Seeking Behavior, Public Policy, Health Care Utilization
Article Type: Report
Subject: Health care reform
Medicine, Preventive
Preventive health services
Developing countries
Public-private sector cooperation
Insurance industry
Sustainable development
Medical ethics
Authors: Sihare, Harish
Taneja, Pawan
Sihare, Mayank
Pub Date: 04/01/2010
Publication: Name: Archives: The International Journal of Medicine Publisher: Renaissance Medical Publishing Audience: Academic Format: Magazine/Journal Subject: Health Copyright: COPYRIGHT 2010 Renaissance Medical Publishing ISSN: 1791-4000
Issue: Date: April-June, 2010 Source Volume: 3 Source Issue: 2
Topic: Computer Subject: Insurance industry
Product: Product Code: 8000140 Health Problems Prevention; 9105230 Health Problems Prevention Programs NAICS Code: 621999 All Other Miscellaneous Ambulatory Health Care Services; 92312 Administration of Public Health Programs
Geographic: Geographic Code: 0DEVE Developing Countries
Accession Number: 263251118

Economist and policy analysts argues that it does not matter whether country is using private or public provision for health care financing, the consumer just pays only a small part of the total cost i.e. out-of-pocket at the occasion of consumption. While insurance company pays for the bulk of the cost in case of a private system, government kitties are used if provision is public. But irrespective of how health care is financed, one fact will remain same that once people have fallen ill they face incentives to consume more than optimal health care, since they do not have to pay the full marginal cost for the care they utilize. (1,2) The health economics literature refers this kind of behavior as a moral hazard. (3) But this argument is not correct for population living in chronic poverty without any health insurance cover.

Health risks probably pose the greatest threat to lives and livelihoods of poor households. (4) Approximately 150 million people around the world experience financial catastrophe i.e. they are obliged to spend on health care more than 40% of the income available to them after meeting their basic needs. (5) Typically when a poor household experiences a health shock their medical expenses rise and their contribution to household income and routine household expenditure declines. (6,7,8) A short-term health shock can further contribute to long-term poverty. (9,10) Due to scarcity and low income, these households generally forego high-value care and often opt for low quality health care11 which further leads to poor health outcomes and poverty. Health insurance for poor people in the form of micro health insurance (see index) has addressed some of these problems in various developing and industrialized countries. (12-16) But at the same time, while opting for micro health insurance for poor one can not ignore the adverse effects of health insurance on health outcomes in terms of changing behavior towards healthcare utilization root of moral hazards. In this study we have put forward our argument that this changed behavior of poor towards utilization of healthcare due to micro health insurance is not a moral hazard rather than it is a moral opportunity to uplift the standard of living of poor people. To prove this we have taken empirical evidences from developing country like India, where, Government of India has initiated a new mass level micro health insurance scheme naming Rashtriya Swasthaya Bima Yojana (RSBY) for the Below Poverty Line (BPL) families. Moreover, the findings of this study offer a feedback on the governments' initiative and identify the loopholes in the scheme so that possible moral hazards can be converted in to further moral opportunities.

The paper is organized as follows:

a) A brief description of Indian Health care System and RSBY scheme and its modus operandi summarizes

b) Review of the literature and evaluation of the impact of health insurance &

c) The methods used to estimate its impact for this study.

d) The impact of the RSBY scheme on the healthcare utilization by poor and measurable health outcomes.

e) The Impact of RSBY scheme on behaviour of poor households

f) Discussion and the implications of the study followed by conclusions.


After gaining independence in 1947, Government of India (GOI) envisaged a national health system in which the state would play a leading role in determining priorities and financing and would provide services to the population. (17) The health care system in India is characterized by multiple systems of medicine, mixed ownership patterns and different kinds of delivery structures which ranges from world class hospitals to a one room shacks.

Public sector responsibility is divided between central and state governments, municipal and Panchayat local governments. Public sector health facilities include teaching, hospitals, secondary level hospitals, first-level referral hospitals [Community Health Centers (CHCs) or rural hospitals], dispensaries; primary health centers (PHCs), subcenters, and health posts. Other than above public health facilities also include selected occupational groups like organized work force Employee State Insurance (ESI), Defence, Central Government Employees Health Scheme (CGHS), Railways, Post and Telegraph and Mines among others. (18) In year 2005, in government healthcare service, there were 22,271 primary healthcare centers and 137,271 subcenters in rural areas; 1,200 PSU (public sector units) hospitals, 4,400 district hospitals, and 2,935 community healthcare centers in smaller towns and cities; and 117 medical colleges and tertiary care hospitals. On the other hand, the private healthcare providers mainly include private practitioners, for profit hospitals and nursing homes, and charitable hospitals. These private healthcare providers are numerous and fragmented. The average size of private hospitals/nursing homes is 22 beds, which is low compared to other countries (International Trade Administration, 2009).

No doubt that India's overall expenditure on health is comparable to most developing countries; but India's per capita healthcare expenditure is low due its large billion plus population and low per capita income. At the same time healthcare infrastructure in India is still dominated by government hospitals; merely 15% of population is covered through pre paid insurance scheme. Medical claim schemes have less than 3.5 million members; only 3.4% population is covered through ESI Scheme; only 5% population is covered by employer schemes; and 5% population is covered through community insurance schemes ( According to an estimate of World Bank (2005), 42% of India falls below the international poverty line of $1.25 a day (PPP, in nominal terms INR 21.6 a day in urban areas and INR 14.3 in rural areas). This means that a third of the global poor now reside in India. (19)

This scenario was not looking likely to improve because of rising healthcare costs and India's growing population (estimated to increase from 1 billion to 1.2 billion by 2012). The Government of India has taken a landmark initiative to address these issues relating to poverty, access of health systems especially for the vulnerable sections of the society by launching micro health insurance for naming RSBY20 for the BPL families in the unorganized sector.

RSBY has been launched by Ministry of Labour and Employment, Government of India to provide health insurance coverage to 60 million people living Below Poverty Line (BPL). The objective of RSBY is to provide protection to BPL households from financial liabilities arising out of health shocks that involve hospitalization. RSBY brings together the Central (Federal) Government, State government, public and private hospitals, as well as insurance companies. Beneficiaries under RSBY are entitled to hospitalization coverage up to approximately--see the Appendix--USD 667 (INR 30,000) for most of the diseases that require hospitalization. Government has even fixed the package rates for the hospitals for a large number of interventions. Pre-existing conditions are covered from day one and there is no age limit. Coverage extends to five members of the family which includes the head of household, spouse and up to three dependents. Beneficiaries need to pay mere less one USD (INR 30) as registration fee while 75% of the premium is paid by Central Government and remaining premium is paid by respective State Government. The selection of the insurer--a public or private insurance company licensed to provide health insurance by the Insurance Regulatory Development Authority (21) (IRDA)--for a district or cluster districts is done by the respective State Government on the basis of a competitive bidding. The insurer is expected to cover the benefit package prescribed by Government of India through a cashless facility that in turn requires the use of smart cards which must be issued to all members. The insurer is required to engage intermediaries with local presence such as NGOs etc. in order to provide grassroots outreach and assist members in utilizing the services after enrolment. The insurer is also required to provide a list of empanelled hospitals (both public and private hospitals) that will participate in the cashless arrangement.

The scheme has provided the participating BPL household with the freedom of choice between public and private hospitals. The scheme has been designed as a business model for a social sector scheme with incentives built for each stakeholder that make the scheme expand and sustain in long run. The insurer is paid premium for each household enrolled for RSBY. Therefore, the insurer has the motivation to enroll as many households as possible from the BPL list. This results in better coverage of targeted beneficiaries. A hospital has the incentive to provide treatment to large number of beneficiaries as it is paid per beneficiary treated. Even public hospitals have the incentive to treat beneficiaries under RSBY as the money from the insurer is flowing directly to the concerned public hospital which they can use for their own purposes. Insurers, in contrast, monitor participating hospitals in order to prevent unnecessary procedures or fraud resulting in excessive claims. The intermediaries such as NGOs and MFIs, which have a greater stake in assisting BPL households, get paid for the services they render in reaching out to the beneficiaries. Overall by paying only a maximum sum up to 17 USD (INR 750) per family per year, the Government is able to provide access to quality health care to the BPL population with healthy competition between public and private providers. However, the OPD facilities are not covered under this scheme, but OPD consultation is free. Beyond consultation, if any expenditure is incurred in the OPD, which does not lead to hospitalization, it will be met by the beneficiaries. The scheme also includes transportation cost of approx. 2 USD (INR 100) per visit with an overall limit of approx 22 USD (INR 1,000) per annum. The scheme does not cover diseases that do not require hospitalization, like congenital external diseases, drug and alcohol induced illness, sterilization and fertility related procedures, vaccinations, war/nuclear invasion, suicide and naturopathy, Unani, Siddha, and Ayurveda. So far out of 29 states (including State of Delhi) in India, 26 States have initiated the RSBY programme and 15,718,261 smart cards have been issued by May 31, 2010.


The literature evaluating the impact of insurance in low-income countries is not just relatively limited; it is also rather unbalanced between different types of insurances. (22) The main emphasis in literature is on different types of health insurance schemes, and their impact on health care-utilization, out-of-pockets expenditure or social inclusion. (4,16,23-30) The modus operandi to evaluate the impact of micro health insurance products has multiple dimensions in literature.

Firstly, it measures the level of protection the insurance provides, so that incase a shock occurs (ex-post), insurance should help households to keep consumption spending stable and avoid asset loss. (31,32) The indicators to measure level of protection generally includes healthcare facilities utilization, health outcomes in terms of penetration level of the micro-insurance product among poor i.e. number of households insured, awareness and understanding related to benefits of scheme, experiences and satisfaction level of the claimant after usage etc.

Secondly, health insurance could impact on health seeking behavior of the insured which generally stems moral hazards in insurance industry. (1, 2, 3) Moral hazard occurs when a party insulated from risk may behave differently than it would behave if it were fully exposed to the risk; it means that clients will use services more than necessary because the services will be paid for by the insurance. Insurance market world-wide failure stems from either adverse selection or moral hazards. (33) Adverse selection generally occurred when a client joins insurance only when there is a problem, and the insurer is unable to restrict this because of information asymmetry (the client knows something that s/he will not tell the insurer).

Adverse selection is not much relevant in the micro health insurance schemes as these products are designed only for the purpose of providing social security to poor masses. (12,13,34) However, moral hazards can cause serious impede in success of micro health insurance schemes as experienced in other insurance schemes. (15,35) The indicators for the same generally includes economic outcome in terms of loss/claim ratio to insurance company and substitution to superior healthcare facilities from inferior healthcare facilities; unreasonable exploitation of benefits of micro health insurance products. Other than above dimensions, other outcomes of micro health insurance could include improving health indicators, reduction in poverty, and decrease in sale of assets, removal of kids from school, increasing labour productivity etc. But feasibility to study these dimensions is possible only in long run. In this study as RSBY scheme has just initiated from April 2008, hence just first two dimensions have been deliberated in this study.

To study these dimension both qualitative and quantitative research approaches has been utilized. For studying healthcare facility utilization secondary data sources including statistics published by Ministry of Labour and Employment, Government of India on RSBY website related to state/district wise coverage of RSBY scheme, no. of hospitalization, hospitalization amount etc. have been used. For measuring health outcome and behavioral change, primary data has been collected from both beneficiaries of the scheme or his/her attendant and health care service providers i.e. Hospital/health centre administrators. The data has been collected with the help of semi-structured schedule from beneficiaries of RSBY scheme having age above 18 years, got treatment in any private hospitals in the selected states--the state of Gujarat, Kerala and Haryana has been selected for the purpose of this study as first phase of implementation of the scheme has been completed in these states only- along with intensive interview with hospital administrators of the same hospitals. Beneficiaries has been asked questions about their experiences right from applications for smart card to getting treatment in the hospital to test their awareness, satisfaction and sweet/bitter experiences. Similarly hospital administrators have been asked questions about their experiences during dealing BPL households. Initially, total 397 beneficiaries in 24 hospitals and 24 healthcare service providers have been approached for the purpose the survey. Out of total beneficiaries approached 49 beneficiaries who were not in sound mental condition due to disease/drugs and not having any major attendant to respond properly, have been excluded from the survey. From the remaining 348 respondents 188 were females. Maximum number of respondents i.e. 35% was in age group of 31-40 years, followed by 23% was in the age group of 51-60 years, 21% in the age group of 41-50 years and remaining were above 60 years. Approximately 7% of the respondents were having total household income below INR 10000 per annum and 18 % of respondents were in the category of INR 10000-20000; 45 % of the respondents were having annual household income between INR 20000-30000 per annum, and remaining 30% respondents were in income bracket of more than INR 30000/annum. To study and test the existence of changed behavior of insured person for utilization of healthcare facility which leads to moral hazards following hypothesis has been formulated and tested:

Research Statement 1: The utilization of Health care facility (no. of hospitalization) has increased after RSBY implementation.

Research Statement 2: The preferences of the beneficiaries for health care service provider has (i.e. from public to private) been changed due to micro health insurance (RSBY) in India.

For analyzing the data statistical tools like descriptive statistics, t tests etc. have been utilized.


Measuring utilization and health outcomes are useful to evaluate the performance of any new intervention made to improve healthcare system. (36) The utilization of scheme can be studied through its penetration, utilization of healthcare facilities etc. Whereas for health outcomes, a wide range of indicators are available. Historically, reduction in mortality rate and disease burden has been regarded as best health outcome measures. (37) However, reduction of disability (38,39), discomfort, and dissatisfaction now are also recognized as critically important outcomes. (40,41) Since RSBY scheme has just launched 2 year back, it is not possible to look at its impact on reduction in mortality rate, disease burden, and disability. But surely, other critical outcomes i.e. comfort and satisfaction of beneficiaries and healthcare service providers from utilization of RSBY scheme can be very useful to measure impact in terms health outcome.

Penetration of RSBY Scheme

Since initiation of RSBY Scheme so far, 26 States including one union territory have advertised about it and enrollment process and empanelment of hospital has been started in 22 states. Out of BPL families residing in 399 districts out of 631 total districts in India have been selected for offering RSBY cover (see Appendix Table). Enrollment process of the scheme has been completed in nearly 50% of selected districts. The penetration of the scheme is not very high as expected as states in which enrollment process has been completed the total BPL families enrolled out of selected BPL population are just 57%. This is generally due to very low level of awareness and education (21) among the masses about the benefits of the scheme or complicated procedural or lack of sincerity in implementation of the scheme. No doubt just with in 2 years of initiation, out of nearly 52 million Indian BPL families, 29.49% BPL families has been covered with RSBY scheme to get benefit under it but still there is long way to go.

Utilization of Health care Facility under RSBY Scheme

As said earlier, RSBY scheme has used public private partnership (PPP) model for empanelment of both public and private hospitals in the scheme. So far more than 4000 hospitals (out of which 75% hospitals are private hospitals) have been empanelled and more than half million population has got treatment in these hospitals. The high level of participation of private hospitals shows the success and acceptance of scheme among private hospitals to promote equity in the society. The utilization of healthcare facilities under RSBY scheme is highest in the state of Karela (Table 1). But at the same time, the empanelment of the number of hospital for BPL families in each state is not looks properly distributed. In the state of Assam, after every 21,177 BPL families enrolled, a hospital is available whereas in state of Punjab same is so after every 369 BPL families. Critics can opinion that state of Assam and Punjab can not be compared due wide diversity in terms of geographical location, socio-cultural, economic development etc. But this is not so in state of Meghalaya which is located in near vicinity of Assam, which has similar environment, a hospital is available for every 1367 BPL families.

Nature of Disease Treatments under RSBY Schemes

The primary data survey data from 348 respondent's shows that the insured BPL families are utilizing insurance cover for most of times (i.e. approx two third of respondents) for chronic diseases such as hernia, kidney diseases, hemorrhoids, hypertension, and nutritional deficiencies etc. Disease burden survey by PricewaterhouseCoopers (PWC) and Assocham do confirm the same that Chronic Diseases in India account for about 53% of all deaths and 44% of disability-adjusted life years (DALYs). (42) With treatment of these chronic diseases mortality rate and out of pocket expenditure on these diseases must have reduced for the poor households and they can use this saved money for other productive purpose.

Health Expenditure under RSBY Scheme

Amount spent on medical expenditures i.e. hospitalization value are consistently cited as a major economic burden for poor families (10, 43, 44), and health insurance is, at its core, a product meant to reduce/share the financial risk of health problems. Micro health insurance under RSBY scheme involve direct economic burden firstly on insurance company who clears the hospitalization expenditure on the behalf of insured and Government who pay insurance premium on the behalf of BPL household. Other than these direct cost, marketing and administration costs are the economic burdens involved in micro health insurance. Higher claim settlement rates and administration costs result in high claim/loss rates (45), casting doubts on the long-term sustainability of health insurance schemes. (46,47) In table 2 cites the direct financial burden of RSBY scheme on Government in terms of total premium paid, total medical expenditure incurred i.e. hospitalization value and claim ratio. Claim/Loss Ratio (see appendix) states like Gujarat, Haryana, and Kerala in which enrollment process has been completed the claim ratio even without considering administrative cost is very high. Though all India average loss ratio is not very high but while calculating state average the claim ratio has reached as high to the point of 760%. This high claim ratio is indicating prevalence of over utilization of health services i.e. moral hazards, casting doubts on the long-term sustainability of RSBY. But at the same this high claim is socially good as it shows money has been distributed for getting treatment by which disease burden will reduce. Further, this high claim ratio may be there only in initial years as poor families were not having money to get treatment for chronic diseases. Hence once chronic will get treated claim ratio will automatically decline.

Awareness and Understanding of Benefits among Beneficiaries

Increased awareness about a programme and its entitlements amongst the poor is likely to increase the mobilization of beneficiaries (48), pre-requisite for the success of scheme. Various questions related to motivations to apply, knowledge of various entitlements under RSBY scheme and experiences related to obtaining smart card for RSBY and utilization of card at the time of hospitalization have been asked to beneficiaries during the survey.

Free health cover and problem arise after death of household in recent past due to chronic disease is the major source of motivation for applying for the scheme. Beneficiaries of the scheme are aware of basics of scheme like amount of total coverage available, no. of family members covered, and amount required to pay for getting enrollment etc. But at the same time awareness related to various entitlements related scheme like, transportation allowances coverage, nature of treatments covered, coverage for expenses on Out Patient Department (OPD) treatment, amount of claim cover available for specific diseases etc. is very poor. This low awareness is leading towards conflicts, wrong utilization of health care facilities (moral hazards) and dissatisfactions among beneficiaries.

During interviews with hospital administrators same fact has been confirmed by them as well. Hospital administrators have the opinion that most of the beneficiaries do not understand the concept of health insurance cover provided to them. Some of health administrator commented that beneficiaries consider smart card as a bank debit card which has withdrawal limit up to INR 30000 in a year and this money will lapse if they do not utilize it in a year. This kind of misunderstanding is resulting in to excess and unnecessary demand of health care.

Experiences and Satisfaction of Beneficiaries with the Scheme

Beneficiaries have faced various problems at the time enrollment for the card. Most of these problems faced are either related to lack of information or administrative or ill behavior of the personnel involved. People have faced problem like no or insufficient information related to date, time and place for display of list of eligible families, location of enrollment station, travelling time and distance, how and when to use card, rude behavior of officers etc. Some of the respondents have expressed that they were feeling very scary before enrollment about the hi-tech technology involved in process. However, most of the respondents have appreciated the fast processing and quick issuance of smart card and praised the government's efforts to help them. The interviewer has observed and felt a sense of achievement, proud and security among the beneficiaries of the scheme with RSBY card. Most of the respondents who have got treatment under RSBY scheme in sample hospitals, their satisfaction level was very high due to no/less waiting time, good quality of foods provided, totally cashless hospitalization facility and reimbursement of transportation cost. However, this scenario may not be the same in public sector healthcare facility.

But at the same time hospital administrators have faced many operational problems mainly due to lack of awareness and understanding of procedures among beneficiaries. During interaction, some of hospital administrators put across to the interviewer cases which do not required any hospitalization/treatment but beneficiaries demanding for admissions and treatments in the hospital.


Substitution of Utilization of No/Informal Health Facility to Formal Health Facilities

Utilization of formal healthcare system is a basic necessity in eradicating poverty from a nation. In spite of economic growth, demographic transition and growth in Indian healthcare system, the death rate due to infectious and chronic degenerative diseases (49) has not decreased among poor population. The reasons for the same is, non-utilization of formal healthcare services (includes both public and private). During the survey, it was queried to the respondents who were suffering from chronic diseases "How many times you had got treated in last 2 years for any disease before getting this RSBY smart card?" Approximately 50% of respondents responded negative. The major reasons for not taken earlier treatment by these never get treated respondents were "did not have money" and "non-availability of health facilities". From remaining 50% respondents who had taken treatment earlier one third of them were treated by informal health practitioner like local Vaidya, Ozha and Hakkims etc. No doubt, with introduction of RSBY scheme accessibility and utilization of formal healthcare system has improved among BPL families but at the same time still there is long way to go as most of population i.e. more than 70% of BPL population of India has yet not been covered under RSBY Scheme (Appendix Table). Further, during the survey it has been asked to beneficiaries, "how many times you or any member of your family could not get hospitalized when intended to do so in one year before getting this smart card?" Figure 2 suggests that 79% of the beneficiaries benefitted from RSBY scheme. When asked reasons for the same, casual attitude or lack of money, not faith on formal healthcare system were among the main reasons. Further, this information hints for changed behavior of the beneficiaries (case of moral hazards) as utilization formal of health facility has increased significantly after the micro health insurance cover under RSBY. Similar changed behavior towards utilization is also supported by National Sample Survey Organization 60th round data on number of hospitalization cases for Monthly Per Capita Consumer Expenditure (MPCE) less than INR 235 as well (generally people below poverty line). The percentage of BPL population hospitalized across India has been increased from 0.28% (in year 2005) to 2.69%, 2.39%, 1.5% of enrolled BPL population in the states of Kerala, Gujarat and Haryana--where first phase of RSBY scheme has been completed respectively. Hence, the research statement 1 that the utilization of Health care facility (no. of hospitalization) has increased after RSBY implementation is proven, which is good for development of the society and removal of poverty from the nation. This data has been tested by using Student t-test at 5% level of statistical significance and all results are found are found to be statistically significant.

Changing Preferences of Beneficiaries

When beneficiaries were asked "why they have preferred to get treated in a private hospital over public hospital?" reasons other than the advice of the treating doctor and nearby location surfaced. This shows changing preferences and behavior (moral hazards) of BPL families (figure 3). Moreover, the factor of a moral hazard may also be a preventing factor in advice given by treating/referring doctor as well because doctors know that revenue earned from hospitalization is more than treatment in OPD.

Further the beneficiaries were asked if they could not have availed RSBY insurance cover whether they would have undergone treatment for the same in the hospital. As high as 80% of the beneficiaries' response was negative the reason being to inability to afford the cost. Moreover, beneficiaries were asked "would you like to go to government hospital after having this card for any other treatment?" Just 37% beneficiaries were having the affirmative answers while remaining respondent did not wish to get treated in government hospitals. These changed preferences and behavior showcase the presence of moral hazards in RSBY scheme as well, like other health insurance schemes. Hence, research statement 2, is also proven correct that the preferences of the beneficiaries for health care service provider has (i.e. from public to private) changed due to micro health insurance (RSBY) in India. Though this changed behavior is causing moral hazard even though, it is good and welfare for the economy as whole. Because by doing so the standard of living of poor will improve and competition to deliver better quality healthcare service among public and private players will also increase to sustain and attract more and more customers.



The contribution of RSBY scheme to improve health outcomes and standard of living of poor population is commendable. But one cannot completely ignore the economic outcomes caused by changing behaviour for the same sustainability of the scheme. The best solution without moral hazard for these risk-averse poor families is full cover insurance (i.e., no deductibles). (50) In other words, if expenditure on treatment for preventive care (i.e. OPD expenditure) will be covered in the scheme, poor people will not have any motivation to misuse the schemes' benefits. Practically, application of this solution is not very easy and comfortable due to increased cost of scheme because most of the time insurance companies feel reluctant to cover OPD facilities due to high administrative cost. However, during the survey in the study when it was asked to respondents whether they would like to spend extra amount i.e. around Rs. 25 for get OPD facility coverage, response of 99% respondent was affirmative.

Other than above, State Governments and Department of Health and Family Welfare, Government of India are required to put efforts to improve the service quality in public health facilities so that people should not get biased to be treated only in private healthcare facilities. Further, central and state government, IRDA, NGOs, insurance companies, and empanelled hospital officials are required to put efforts to enhance the awareness regarding various benefits and its entitlements among BPL households. At present most of the BPL families with sub-standard health status are getting registered under the scheme due to which claim/loss ratio is very high. Increased awareness will not only redress the grievances of beneficiaries and healthcare service providers, but also it will help to enhance policy base i.e. (the no. of enrolled families) through which the pooled money base for health insurance will be amplified and claim ratio will decline.


No doubt, health insurance cover can not change the probability of an adverse event, but it can mitigate the financial consequences of a health shock especially incase of a poor household. But at the same time, insurance as a social institution asks moral contemplation about suffering, compassion and enlarges the public conception of social responsibility. The basic premise of health insurance is a collective responsibility in the form pooling money to pay for harms that befall individuals due to future health losses. Health economists' opposition for presence of moral hazards which enhance insurers' risk exposure is not valid for social security micro health insurance scheme like RSBY. Poor people rush for more health care believing that more care is better care; or to specialists because this means more competent care; or to more tests because this translates to more comprehensive results; and finally to more drugs and more treatments because these mean a longer, happier life because it is "free" cannot be simply concluded as moral hazards for the people living in chronic poverty. As it is a golden opportunity to put forward a step toward healthy and equitable world.


* Micro Health Insurance is a risk transfer device which refers to health insurance characterized by low premium and low caps or low coverage limits, sold as part of atypical risk-pooling and marketing arrangements, and designed to service low-income people and businesses not served by typical social or commercial insurance schemes.

* The loss ratio in insurance sector is the ratio of total losses paid out in claims plus adjustment expenses divided by the total earned premiums

* The exchange rate assumed for purpose of the study is 1 USD = INR 45.

Conflict of interest: None declared.


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Harish Sihare [1], Pawan Taneja [2], Mayank Sihare [3]

[1] Faculty Indian Institute of Health Management and Research, Jaipur, India

[2] International Institute of Health management and Research, Delhi, India

[3] ICICI Lombard General Insurance Company Ltd, India

Corresponding author:

Harish Sihare

MBA, PGDIRM, Ph.D. Scholar (Singhania University), Assistant Professor

Indian Institute of Health Management Research

Plot no. 3, HAF Pocket, Sector 18 A, Phase-II, New Delhi--110075, India

Appendix Table


S.    State/UT                      Number of Districts
                           Total   Selected   Enrollment   Enrollment
                           (#)     *          Complete *   in Progress

1     Andhra Pradesh       23      0          0            0
2     Arunachal Pradesh    16      0          0            0
3     Assam                27      4          1            3
4     Bihar                37      37         10           9
5     Chhattisgarh         18      16         13           3
6     Delhi                10      10         1            0
7     Goa                  2       2          2            0
8     Gujrat               27      27         10           0
9     Haryana              20      20         19           1
10    Himachal Pradesh     12      12         2            9
11    Jammu and Kashmir    15      0          0            0
12    Jharkhand            24      8          5            3
13    Karnataka            28      6          0            5
14    Kerala               14      14         14           0
15    Madhya Pradesh       50      0          0            0
16    Maharashtra          35      29         27           2
17    Manipur              9       0          0            0
18    Meghalaya            7       5          1            0
19    Mizoram              8       0          0            0
20    Nagaland             11      4          3            0
21    Orissa               30      12         2            4
22    Punjab               21      21         19           2
23    Rajasthan            33      33         4            0
24    Sikkim               4       0          0            0
25    Tamilnadu            31      31         2            0
26    Tripura              4       4          1            3
27    Uttar Pradesh        70      70         58           11
28    Uttarakhand          14      14         2            0
29    West Bengal          19      19         4            2
30    Andaman and
      Nicobar (UT)         3       0          0            0
31    Chandigarh (UT)      1       1          1            0
32    Dadra and Nagar
      Haveli (UT)          1       0          0            0
33    Daman and Diu (UT)   2       0          0            0
34    Lakshadweep (UT)     1       0          0            0
35    Puducherry (UT)      4       0          0            0
      India                631     399        201          57

S.    State/UT                         BPL Families
                           In All      In Selected   Enrollment
                           Districts   Districts *   *

1     Andhra Pradesh       2864400     0             0
2     Arunachal Pradesh    40700       0             0
3     Assam                1050300     371346        127064
4     Bihar                5578450     5578450       2577171
5     Chhattisgarh         2220717     2220717       974701
6     Delhi                539471      539471        218055
7     Goa                  6953        6953          3505
8     Gujrat               1130034     1130034       682354
9     Haryana              1146942     1146942       691197
10    Himachal Pradesh     286924      286924        218202
11    Jammu and Kashmir    92100       0             0
12    Jharkhand            2124000     1630491       553260
13    Karnataka            2787700     338931        78103
14    Kerala               1767205     1767205       1173388
15    Madhya Pradesh       4646800     0             0
16    Maharashtra          6558000     3461175       1515561
17    Manipur              69600       0             0
18    Meghalaya            83100       50997         27330
19    Mizoram              23800       0             0
20    Nagaland             66800       49970         39301
21    Orissa               3813500     704717        418929
22    Punjab               451935      451935        170191
23    Rajasthan            2295700     0             0
24    Sikkim               24600       0             0
25    Tamilnadu            454736      454736        149520
26    Tripura              303335      303335        211238
27    Uttar Pradesh        9717452     9717452       4651461
28    Uttarakhand          117940      117940        53940
29    West Bengal          1913767     1913767       879002
30    Andaman and
      Nicobar (UT)         21200       0             0
31    Chandigarh (UT)      8000        8000          5407
32    Dadra and Nagar
      Haveli (UT)          18800       0             0
33    Daman and Diu (UT)   5300        0             0
34    Lakshadweep (UT)     1900        0             0
35    Puducherry (UT)      55700       0             0
      India                52287861    32251488      15418880

S.    State/UT                BPL Families
                           % age      % age of
                           of BPL     Targeted
                           families   BPL
                           Covered    families
                           in state   covered

1     Andhra Pradesh       0.00%      --
2     Arunachal Pradesh    0.00%      --
3     Assam                12.10%     34.22%
4     Bihar                46.20%     46.20%
5     Chhattisgarh         43.89%     43.89%
6     Delhi                40.42%     40.42%
7     Goa                  50.41%     50.41%
8     Gujrat               60.38%     60.38%
9     Haryana              60.26%     60.26%
10    Himachal Pradesh     76.05%     76.05%
11    Jammu and Kashmir    0.00%      --
12    Jharkhand            26.05%     33.93%
13    Karnataka            2.80%      23.04%
14    Kerala               66.40%     66.40%
15    Madhya Pradesh       0.00%      --
16    Maharashtra          23.11%     43.79%
17    Manipur              0.00%      --
18    Meghalaya            32.89%     53.59%
19    Mizoram              0.00%      --
20    Nagaland             58.83%     78.65%
21    Orissa               10.99%     59.45%
22    Punjab               37.66%     37.66%
23    Rajasthan            0.00%      --
24    Sikkim               0.00%      --
25    Tamilnadu            32.88%     32.88%
26    Tripura              69.64%     69.64%
27    Uttar Pradesh        47.87%     47.87%
28    Uttarakhand          45.74%     45.74%
29    West Bengal          45.93%     45.93%
30    Andaman and
      Nicobar (UT)         0.00%      --
31    Chandigarh (UT)      67.59%     67.59%
32    Dadra and Nagar
      Haveli (UT)          0.00%      --
33    Daman and Diu (UT)   0.00%      --
34    Lakshadweep (UT)     0.00%      --
35    Puducherry (UT)      0.00%      --
      India                29.49%     47.81%

Source: (#), (^) State/wise
Estimated Number of Below Poverty Line (BPL) Households in India,
(As on 01.10.2006), available at
* RSBY website as on May 31, 2010,,

Table 1. Utilization of Healthcare Facilities for RSBY Scheme

S. No.   State              No. of Empanelled Hospitals

                            Private     Public      Total
                            Hospitals   Hospitals   Hospitals

1        Assam              1           5           6
2        Bihar              204         14          218
3        Chandigarh         8           3           11
4        Chhattisgarh       84          174         258
5        Delhi              77          --          77
6        Goa                2           --          2
7        Gujarat            259         94          353
8        Haryana            403         21          424
9        Himachal Pradesh   23          122         145
10       Jharkhand          86          32          118
11       Karnataka          23          43          66
12       Kerala             157         133         290
13       Maharashtra        654         8           662
14       Meghalaya          5           15          20
15       Nagaland           5           --          5
16       Orissa             47          17          64
17       Punjab             316         145         461
18       Tamilnadu          32          --          32
19       Tripura            --          15          15
20       Uttar Pradesh      767         227         994
21       Uttarakhand        20          37          57
22       West Bengal        106         --          106
         India              3279        1105        4384

S. No.   State              No. of Empanelled   No. of
                            Hospitals           Hospitalization

                            Enrolled BPL
                            Families Per
                            Hospital *

1        Assam              21177               0
2        Bihar              11822               40,093
3        Chandigarh         492                 17
4        Chhattisgarh       3778                4,952
5        Delhi              2832                14,268
6        Goa                1753                7
7        Gujarat            1933                81,615
8        Haryana            1630                51,703
9        Himachal Pradesh   1505                2,053
10       Jharkhand          4689                16,630
11       Karnataka          1183                4
12       Kerala             4046                157,887
13       Maharashtra        2289                36,504
14       Meghalaya          1367                31
15       Nagaland           7860                1,765
16       Orissa             6546                160
17       Punjab             369                 3,649
18       Tamilnadu          4673                4,842
19       Tripura            14083               4,174
20       Uttar Pradesh      4680                112,418
21       Uttarakhand        946                 1,117
22       West Bengal        8292                13,326
         India              3517                547,215

Source: as on May 31, 2010; * Enrolled BPL Families per
Hospital = No. of BPL Families enrolled in a state/No. of hospital

Table 2. Direct Financial Burden of RSBY Scheme

                   Hospitalization   Total Premium   Claim/Loss
State              Value             till date       Ratio *

Bihar              163,153,924       1,397,096,500   26.26%
Chandigarh         147,000           3,037,653       4.84%
Chhattishgarh      20,111,640        559,592,964     49.34%
Delhi              49,235,221        144,570,465     40.87%
Goa                24,500            2,442,985       1.00%
Gujarat            280,211,705       358,967,798     88.37%
Haryana            251,418,106       426,524,192     64.61%
Himachal Pradesh   9,590,700         96,588,586      4.64%
Jharkhand          82,092,448        290,275,797     25.26%
Karnataka          1,000             37,120,794      0.01%
Kerala             489,662,387       596,081,104     80.31%
Maharastra         198,080,831       890,166,071     40.69%
Meghalaya          145,195           14,680,583      2.37%
Nagaland           13,472,653        26,881,884      52.79%
Orrisa             866,000           232,976,448     0.64%
Punjab             24,278,716        97,903,206      44.04%
Tamilnadu          11,049,377        76,554,240      14.09%
Tripura            9,846,590         124,651,544     25.99%
Uttarpredesh       659,676,400       2,950,049,595   48.35%
Uttrakhand         6,178,019         31,515,524      17.50%
West Bengal        71,526,200        401,487,000     19.31%

Source:, * Loss/Claim Ratio = total
hospitalization value/total premium paid * 100

Figure 1. Type of ailments

Type of Ailment

Acute      33%
Accident    2%
Chronic    65%

Note: Table made from pie chart.

Figure 2. BPL household's Intention to get Hospitalized but
not Able to Do So before RSBY.

Intention to get Hospitalized but not Able to Do So

Never             21%
Once              53%
Twice             18%
More than twice    8%

Note: Table made from pie chart.
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