RESEARCH PROPOSAL ON

EMPLOYEE BENEFIT SCHEME

ON HEALTH INSURANCE

Submitted by: Aneesh vashishth

Batch: Charlie
Course: MBA
Enrolment no. A30101913071

Submitted to: Dr.Teoh

Amity University, Singapore

Introduction

Health insurance as it
is different from other segments of insurance business is more complex because of
serious conflicts arising out of adverse selection, moral hazard, and information
gap problems. For example, experiences from other countries suggest that the entry
of private firms into the health insurance sector, if not properly regulated, does
have adverse consequences for the costs of care, equity, consumer satisfaction,
fraud and ethical standards. The IRDA would have a significant role in the
regulation of this sector and responsibility to minimise the unintended
consequences of this change. Health insurance is insurance against the risk of
incurring medical expenses among individuals. By estimating the overall risk of
health care and health system expenses, among a targeted group, an insurer can
develop a routine finance structure, such as a monthly premium or payroll tax, to
ensure that money is available to pay for the health care benefits specified in the
insurance agreement. The benefit is administered by a central organization such as
a government agency, private business, or not-for-profit entity. According to the
Health Insurance Association of America, health insurance is defined as "coverage
that provides for the payments of benefits as a result of sickness or injury. Includes
insurance for losses from accident, medical expense, disability, or accidental death
and dismemberment"
Employee benefits and (especially in British English) benefits in kind (also called
fringe benefits, perquisites, or perks) include various types of non-wage
compensation provided to employees in addition to their normal wages or salaries.
[1] In instances where an employee exchanges (cash) wages for some other form of
benefit is generally referred to as a 'salary packaging' or 'salary exchange'
arrangement. In most countries, most kinds of employee benefits are taxable to at
least some degree.
Examples of these benefits include: housing (employer-provided or employerpaid), group insurance (health, dental, life etc.), disability income protection,
retirement benefits, daycare, tuition reimbursement, sick leave, vacation (paid and
non-paid), social security, profit sharing, funding of education, and other
specialized benefits.
The purpose of employee benefits is to increase the economic security of staff
members, and in doing so, improve worker retention across the organization.[2] As
such, it is one component of reward management.

The term perks is often used colloquially to refer to those benefits of a more
discretionary nature. Often, perks are given to employees who are doing notably
well and/or have seniority. Common perks are take-home vehicles, hotel stays, free
refreshments, leisure activities on work time (golf, etc.), stationery, allowances for
lunch, andwhen multiple choices existfirst choice of such things as job
assignments and vacation scheduling. They may also be given first chance at job
promotions when vacancies exist.
The Employee Retirement Income Security Act of 1974 (ERISA) (Pubs,
88 Stat. 829, enacted September 2, 1974, codified in part at 29 U.S.C. ch. 18) is a
federal law that establishes minimum standards for pension plans in private
industry and provides for extensive rules on the federal income tax effects of
transactions associated with employee benefit plans. ERISA was enacted to protect
the interests of employee benefit plan participants and their beneficiaries by:

Requiring the disclosure of financial and other information concerning the

plan to beneficiaries;

Establishing standards of conduct for plan fiduciaries;

Providing for appropriate remedies and access to the federal courts.

ERISA is sometimes used to refer to the full body of laws regulating employee
benefit plans, which are found mainly in the Internal Revenue Code and ERISA
itself.
Responsibility for the interpretation and enforcement of ERISA is divided among
the Department of Labor, the Department of the Treasury (particularly the Internal
Revenue Service), and the Pension Benefit Guaranty Corporation.

Coverage
Pension plans
ERISA does not require employers to establish pension plans. Likewise, as a
general rule, it does not require that plans provide a minimum level of benefits.
Instead, it regulates the operation of a pension plan once it has been established.
Under ERISA, pension plans must provide for vesting of employees' pension
benefits after a specified minimum number of years. ERISA requires that the
employers who sponsor plans satisfy certain minimum funding requirements.
ERISA also regulates the manner in which a pension plan may pay benefits. For
example, a defined benefit plan must pay a married participant's pension as a
"joint-and-survivor annuity" that provides continuing benefits to the surviving
spouse unless both the participant and the spouse waive the survivor coverage.

The Pension Benefit Guaranty Corporation was established by ERISA to provide

coverage in the event that a terminated defined benefit pension plan does not have
sufficient assets to provide the benefits earned by participants. Later amendments
to ERISA require an employer who withdraws from participation in a
multiemployer pension plan with insufficient assets to pay all participants' vested
benefits to contribute the pro rata share of the plan's unfunded vested benefits
liability.
There are two main types of pension plans: defined benefit plans and defined
contribution plans. Defined benefit plans provide retirees with a certain level of
benefits based on years of service, salary and other factors. Defined contribution
plans provide retirees with benefits based on the amount and investment
performance of contributions made by the employee and/or employer over a
number of years.[8]

Health benefit plans

ERISA does not require that an employer provide health insurance to its employees
or retirees, but it regulates the operation of a health benefit plan if an employer
chooses to establish one.
There have been several significant amendments to ERISA concerning health
benefit plans:

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

provides some employees and beneficiaries with the right to continue their
coverage under an employer-sponsored group health benefit plan for a
limited time after the occurrence of certain events that would otherwise
cause termination of such coverage, such as the loss of employment.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA)

prohibits a health benefit plan from refusing to cover an employee's preexisting medical conditions in some circumstances. It also bars health
benefit plans from certain types of discrimination on the basis of health
status, genetic information, or disability.

Other relevant amendments to ERISA include the Newborns' and Mothers' Health
Protection Act, the Mental Health Parity Act, and the Women's Health and Cancer
Rights Act.
During the 1990s and 2000s, many employers who promised lifetime health
coverage to their retirees limited or eliminated those benefits.[9][10] ERISA does
not provide for vesting of health care benefits in the way that employees become
vested in their accrued pension benefits. Employees and retirees who were

promised lifetime health coverage may be able to enforce those promises by suing
the employer for breach of contract, or by challenging the right of the health
benefit plan to change its plan documents in order to eliminate those promised
benefits.
Pension vesting [edit]
Before ERISA, some defined benefit pension plans required decades of service
before an employee's benefit became vested. It was not unusual for a plan to
provide no benefit at all to an employee who left employment before the specified
retirement age (e.g. 65), regardless of the length of the employee's service.
Under the Pension Protection Act of 2006, employer contributions made after 2006
to a defined contribution plan must become vested at 100% after three years or
under a 2nd-6th year gradual-vesting schedule (20% per year beginning with the
second year of service, i.e. 100% after six years). (ref. 120 Stat. 988 of the Pension
Protection Act of 2006.) The Technical Explanation of H.R.4, of the PPA, Page 156
Vesting Rules, states that the PPA amends both the ERISA and Code. Different
rules apply with respect to employer contributions made before 2007. Employee
contributions are always 100% vested. Accrued benefits under a defined benefit
plan must become vested at 100% after five years or under a 3rd-7th year gradual
vesting schedule (20% per year beginning with the third year of vesting service,
and 100% after seven years). (ref. 26 U.S.C. 411(a)(1)(B), 29 U.S.C. 203(a)(2).)

Pension funding
Under ERISA, minimum funding requirements were established for defined
benefit plans. By their nature, defined contribution plans, with the exception of
target benefit and money purchase plans, are always fully funded, even if the
employee has not yet become vested in the employer contributions.
Before the Pension Protection Act of 2006 (PPA), a defined benefit plan
maintained a "funding standard account", which was charged annually for the cost
of benefits earned during the year and credited for employer contributions.
Increases in the plan's liabilities due to benefit improvements, changes in actuarial
assumptions, and any other reasons were amortized and charged to the account;
decreases in the plan's liabilities were amortized and credited to the account. Every
year, the employer was required to contribute the amount necessary to keep the
funding standard account from falling below $0 at year-end.
In 2008, when the PPA funding rules went into effect, single-employer pension
plans no longer maintain funding standard accounts. The funding requirement
under PPA is simply that a plan must stay fully funded (that is, its assets must equal

or exceed its liabilities). If a plan is fully funded, the minimum required

contribution is the cost of benefits earned during the year. If a plan is not fully
funded, the contribution also includes the amount necessary to amortize over seven
years the difference between its liabilities and its assets. Stricter rules apply to
severely underfunded plans (called "at-risk status").
The PPA has different funding requirements for multiemployer pension plans,
which preserve most of the pre-PPA funding rules including the funding standard
account. Under PPA, increases and decreases in the plan's liabilities will be
amortized, but the amortization period for benefit improvements adopted after
2007 will be shortened. As with single-employer plans, multiemployer pension
plans that are significantly underfunded are subject to restrictions. The restrictions,
which may limit the plan's ability to improve benefits or require the plan to reduce
employees' benefits, vary depending whether a pension plan's funding status is
termed "endangered", "seriously endangered", or "critical". The restrictions
accompanying each deficient funding status are progressively more severe as
funding status worsens.

Literature Review on the Effects of Health Insurance

When a person experiences a bad shock to health, their medical expenses
typically rise and their contribution to household income and home production
(e.g. cooking or childcare) declines (e.g. Wag staff and Doorslaer, 2003; Gentler,
Levine & Amoretti, 2003; Gentler and Gruber, 2002). According to the WHO,
Each year, approximately 150 million people experience financial catastrophe,
meaning they are obliged to spend on health care more than 40% of the income
available to them after meeting their basic needs. (WHO Factsheet N320, 2007)
Low income and high medical expenses can also lead to debt, sale of assets,
and removal of children from school, especially in poor nations. A short-term
health shock can thus contribute to long-term poverty (e.g. Van Dammed et al,
2004; Annear et al, 2006). At the same time, because households often cannot
borrow easily, they may instead forego high-value care. When they do access care

it will often be of low quality (Das, Hammer and Leonard, 2008), which can lead
to poor health outcomes.
Theory suggests that health insurance can address some of these problems. By
covering the cost of care after a health shock, insurance can help to smooth
consumption, reduce asset sales and new debt, increase the quantity and quality of
care sought, and can improve health outcomes.
Unfortunately, rigorous evidence on the impact of insurance is scarce, and there
are even fewer studies on the effects of insurance in developing countries. One
reason for the lack of evidence is that it is difficult to find a valid control group for
the insured. We cannot simply compare the outcomes of insured and uninsured
households, since health insurance status is typically strongly correlated with other
household characteristics. For example, rich and well educated households
typically have both better health (Afar, 2003) and better health insurance coverage
(Jutting, 2004; Cameron and Thrived, 1991), but the positive correlation between
health and insurance status tells us nothing about the impact of insurance. On the
other hand, those in poor health may be more likely to pay for health insurance
(Cutler and Rebar, 1998; Ellis, 1989), but finding that the insured tend to be sicker
would not imply that insurance causes illness.

Significance of the study

This dissertation presents review of health insurance situation in India - the
opportunities it provides, the challenges it faces and the concerns it raises. A
discussion of the implications of privatization of insurance on health sector from
various perspectives and how it will shape the character of our health care system
is also attempted. The paper following areas:
Economic policy context

Health financing in India

Health insurance scenario in India
Health insurance for the poor
Consumer perspective on health insurance
Models of health insurance in other countries
Competitive analysis of health insurance sector in India

Research objectives
To understand the position of health insurance in India
to understand the different schemes of health insurance provided by different
companies
To find out the future of Insurance sector in India

Limitations
The study is confined to limited period.
Accuracy of the study is purely based on the secondary data.
The analysis and conclusion made by me as per my limited understanding and
there may be something variation in the actual situation

CONCEPT AND FUNCTIONS OF INSURANCE

Insured, are you? The functions of Insurance will give you an idea on how to go
ahead with the approach of insurance and what type of insurance to choose. In a
layman's words, insurance means, a guard against pecuniary loss arising on the

happening of an unforeseen event. In developing economies, the insurance sector

still holds a lot of potential which can be tapped. Majority of the people in the
developing countries remains unaware of the functions and benefits of insurance
and it is for this reason that the insurance sector is still to grow. Tangible or
intangible an individual can insure anything! Be it a house, car, factory, or the
voice of a singer, leg of a footballer, and the hand of an author.....etc. It is possible
to insure all these as they have the possibility of becoming non functional by any
disaster or an accident.

BASIC FUNCTIONS OF INSURANCE:

Primary Functions
Secondary Functions
Other Functions

Primary functions of insurance

Providing protection The elementary purpose of insurance is to allow
security against future risk, accidents and uncertainty. Insurance cannot arrest the
risk from taking place, but can for sure allow for the losses arising with the risk.
Insurance is in reality a protective cover against economic loss, by apportioning the
risk with others.

Collective risk bearing Insurance is an instrument to share the financial

loss. It is a medium through which few losses are divided among larger number of
people. All the insured add the premiums towards a fund and out of which the
persons facing a specific risk is paid.

Evaluating risk Insurance fixes the likely volume of risk by assessing

diverse factors that give rise to risk. Risk is the basis for ascertaining the premium
rate as well.

Provide Certainty Insurance is a device, which assists in changing

uncertainty to certainty.
Secondary functions of insurance

Preventing losses Insurance warns individuals and businessmen to embrace

appropriate device to prevent unfortunate aftermaths of risk by observing safety
instructions; installation of automatic sparkler or alarm systems, etc.

Covering larger risks with small capital Insurance assuages the

businessmen from security investments. This is done by paying small amount of
premium against larger risks and dubiety.

Helps in the development of larger industries Insurance provides an

opportunity to develop to those larger industries which have more risks in their
setting up.
Other functions of insurance

Is a savings and investment tool Insurance is the best savings and

investment option, restricting unnecessary expenses by the insured. Also to take the
benefit of income tax exemptions, people take up insurance as a good investment
option.

Medium of earning foreign exchange Being an international business,

any country can earn foreign exchange by way of issue of marine insurance
policies and a different other ways.

Risk Free trade Insurance boosts exports insurance, making foreign trade
risk free with the help of different types of policies under marine insurance cover.
Insurance provides indemnity, or reimbursement, in the event of an unanticipated
loss or disaster. There are different types of insurance policies under the sun cover

almost anything that one might think of. There are loads of companies who are
providing such customized insurance policies.

CHALLENGES FACED BY INSURANCE INDUSTRY:

Threat of New Entrants: The insurance industry has been budding with
new entrants every other day. Therefore the companies should carve out niche
areas such that the threat of new entrants might not be a hindrance. There is also a
chance that the big players might squeeze the small new entrants.

Power of Suppliers: Those who are supplying the capital are not that big a
threat. For instance, if someone as a very talented insurance underwriter is
presently working for a small insurance company, there exists a chance that any
big player willing to enter the insurance industry might entice that person off.

Power of Buyers: No individual is a big threat to the insurance industry and

big corporate houses have a lot more negotiating capability with the insurance
companies. Big corporate clients like airlines and pharmaceutical companies pay
millions of dollars every year in premiums.

RESEARCH METHODOLOGY
To be able to estimate the reliability of a report, the methods which it is based upon
have to be considered. Hence, this third chapter, methodology, will give the reader
an insight into my research process, selection and data collection.

REASEARCH PROCESS:
My work began with a literature study, followed by preparation for my data
collection.
My data collection included the detail about various health insurance companies

and their schemes, which I analyzed. I drew conclusions from the analysis which
gave me an answer to our purpose. The different steps are separately presented
below under
corresponding headlines.

LITRATURE STUDY:
The first part of the work with our dissertation was to carry out a literature study. I
began
with a preliminary treatment of the literature.

HOW TO FIND RIGHT LITRATURE:

To be able to see which direction we wanted our empiric study to take we began by
considering the subject of the Indian Insurance Sector. To get the essential
information for the frame of reference I carried out a literature study, concentrating
on relevant books and articles. The literature was of scientific character and mainly
concerned the topics like insurance sector in India, role of health insurance,
benefits of health insurance, history and current scenario of health sector in India.
In addition to the books, I used articles from various well known journals.
After acquiring literature needed, it can be beneficial to prioritize them and make
Organized notes of the content before starting the work of the frame of references.
I used Patel & Davidsons (1994) ideas of organizing the literature before carrying
out the actual text. Prioritizing the literature was followed by a thorough review of
the highly prioritized books. I made this by making a document each for all the
literature with the highest rating. In the documents I specified the main context,
their angle of approach and for which areas in our frame of reference it could be of

interest. By doing this, we facilitated the organization and production of the frame
of reference.
I have tried to keep a critical approach to the theories and to get different angels on
all
areas of interest in the process of change while reviewing the literature. Knowledge
critique is a way of adapting logical thoughts according to Eriksson &
Wiedersheim-Paul
(1999). I am aware that caution should be taken when using consultant literature
since
It intends to be uncritical and written in a selling way. .

SOURCES OF DATA
The data collected for this project is basically secondary data which is collected
from Journal, Magazines, Internet and Books. As it is really a very difficult task to
take views of higher authorities of any company in such a less time and analyse
their Reponses.

1. Age group:
a) Below 30
b) 31-40
c) 41-50
d) 51-60
e) Above 60
2. Educational Qualification:
a) Post graduate
b) Under Graduate
c) Diploma

d) Any other specify.

3. Occupation: Employed
a) Student
b) Employed
c) Self employed
d) Any other specify.

4. Annual income: 1-3 lakhs

a) Below 1 lakhs
b) 1-3 lakhs
c) 3-5 lakhs
d) Above 5 lakhs
5. What percentage of your salary do you usually save? 15-20%
a) Less than 15%
b) 15-20%
c) 20-25%
d) more than 25%
6. What kind of investment do you prefer?
a) Short term
b) Long term
c) Both
7. Do you think insurance is important?
a) Yes
b) No

8. Do you feel whether private insurance companies are Beneficial?

a) Strongly Agree
b) Agree
c) Disagree
d) Strongly Disagree

9. How do you decide about investing in life insurance?

a) On my own
b) Family Decision
c) Employer decides
d) Financial Advisor
10. What scheme of insurance policy have you taken?
a) Life protection plan
b) Education plan
c) Retirement plan
d) Health plan

SUMMARY AND CONCLUSION

The preceding sections of this paper present the health insurance scenario in India.
Given the situation, there are few issues of concern or barriers towards
implementing a social health insurance scheme in India. These are enumerated
below along with the possible way ahead.
India is a low-income country with 26% population living below the poverty line,
and 35% illiterate population with skewed health risks. Insurance is limited to only
a small proportion of people in the organized sector covering less than 10% of the

total population. Currently, there is no mechanism or infrastructure for collecting

mandatory premium among the large informal sector. Even in terms of the existing
schemes, there is insufficient and inadequate information about the various
schemes. Data gaps also prevail. Much of the focus of the existing schemes is on
hospital expenses. There continues to be lack of awareness among people about
health insurance. In spite of existing regulation in some States, the private sector
continues to operate in an almost unhindered manner. The growth of health
insurance increases the need for licensing and regulating private health providers
and developing specific criteria to decide upon appropriate services and fees.
Health insurance per se, suffers from problems like adverse selection, moral
hazard, cream-skimming and high administrative costs. This is coupled with the
fact that in the absence of any costing mechanisms, there is difficulty in calculating
the premium. There is also a need to evolve criteria to be used for deciding upon
target groups, who would avail of the SHI scheme/s and also to address issues
relating to whether indirect costs would be included in health insurance. Health
insurance can improve access to good quality health care only if it is able to
provide for health care institutions with adequate facilities and skilled personnel at
affordable cost.
Given this scenario, the challenge, then, for Indian policy-makers is to find ways to
improve upon the existing situation in the health sector and to make equitable,
affordable and quality health care accessible to the population, especially the poor
and the vulnerable sections of the society. It is in a way inevitable that the state
reforms its public health delivery system and explores other social security options
like health insurance. Implementing regulations would be one, but by no means the
best mechanism to contain provider behaviour and costs. This can only be done by
developing mechanisms where government and households can together pool their
funds. This could be one way of controlling provider behaviour.
There is an urgent need to document global and Indian experiences in social health

insurance. Different financing options would need to be developed for different

target groups. The wide differentials in the demographic, epidemiological status
and the delivery capacity of health systems are a serious constraint to a nationally
mandated health insurance system. Given the heterogeneity of different regions in
India and the regional specifications, one would need to undertake pilot projects to
gather more information about the population to be targeted under an insurance
scheme and develop options for different population groups. Health policy-makers
and health systems research institutions, in collaboration with economic policy
study institutes, need to gather information about the prevailing disease burden at
various geographical regions; to develop standard treatment guidelines, to
undertake costing of health services for evolving benefit packages to determine the
premium to be levied and subsidies to be given; and to map health care facilities
available and the institutional mechanisms which need to be in place, for
implementing health insurance schemes. Skill- building for the personnel involved,
and capacity-building of all the stakeholders involved, would be a critical
component for ensuring the success of any health insurance programme.
The success of any social insurance scheme would depend on its design, the
implementation and monitoring mechanisms which would be set in place and it
would also call for restructuring and reforming the health system, and developing
the necessary prerequisites to ensure its success.

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Information Services. February 28, 2008. Retrieved 2009-05-05.

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Law?", Monthly Labor Review, Questa .

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Act, US: DOL .

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employee engagement
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market share?
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Online Benefits
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