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In a milestone verdict, the Supreme Court has ruled that the state-run insurance companies should not deny renewal of health insurance (HI) scheme to the elderly. The court has also asked the IRDA to frame rules for both the private and public general insurance companies to include coverage for ‘pre-existing’ diseases in HI schemes.

Although the existing schemes have provisions to give coverage for persons of a maximum age of 85 years, in actual practice, the maximum age of new enrolment is 60 years, and renewal is subject to the non-claim status of insured person.

Besides, senior citizens have to pay proportionately higher premium than their younger counterparts. All these make senior citizens more vulnerable by denying them insurance coverage.

Similarly, regarding the second aspect of the verdict, the inclusion of pre-existing diseases, is very essential to enable HI schemes to serve their true purpose of financial protection during illness. The fact is that, in India, the HI schemes are better termed as hospitalisation schemes by excluding the non-hospitalisation illness episodes.

Nevertheless, the non-hospitalisation illness episodes are more frequent than hospitalisation though the latter is known for huge bills per episode itself. These schemes also exclude pre-existing diseases. With a growing prevalence of risk factors such as diabetes, high blood pressure and cholesterol levels that can be the root causes of further, related chronic diseases, we can expect that there will be a large number of pre-existing diseases among Indians. Obviously, for those who had bought HI, it will result in a situation of paying HI premium, on the one hand, and spending for healthcare, on the other, thus making HI a less attractive healthcare financing option.

The verdict is definitely going to put more pressure on the HI industry of the country. As revealed by the IRDA, the incurred ‘claim-premium ratio’ in 2006-07 for the public sector and private sector general insurance companies are 158% and 104%, respectively.

Thus, the HI business is a loss-making entity in the country. The inclusion of pre-existing diseases and assured renewal for the senior citizens will further raise the claim ratio. The fact is that though the Indian insurance industry is a booming one, the HI sector is at the infant stage in terms of penetration—less than 1% of the population is covered by HI.

Though the verdict would be adverse for HI industry, that is not an argument for the denial of the renewal for senior citizens or for the exclusion of pre-existing diseases, if we really aim for universal and comprehensive HI schemes for the country. Instead, government should intervene. Let insurance companies design separate HI schemes for senior citizens (above 60 years) and for general age categories (below 60 years). Already, the public health insurance companies have announced special HI schemes for senior citizens based on the directives of the central government. The same should be extended to the private sector as well. And, if the premia are commercially unviable the government should subsidise these schemes to compensate for the loss on them. Further, IRDA should permit insurance companies to make family insurance compulsory rather than single senior citizen insurance. That will reduce the magnitude of the adverse selection problem.