HEALTH SAVING ACCOUNT - PRODUCT DESIGN AND PRICING ISSUES IN INDIA

Executive Summary HEALTH SAVING ACCOUNT - PRODUCT DESIGN AND PRICING ISSUES IN INDIA By Biresh Giri & Rakesh Khandelwal A health savings accunt (HSA) is an accunt that a persn can put mney int t save fr future medical expenses. Unlike traditinal savings vehicles, a health savings accunt allws an insured t make cntributins (tax free in mst cases) t the accunt and withdraw frm the fund fr medical expenses as per the plan. HSA prducts are prevalent in varius parts f the wrld. In USA, the prduct has evlved frm similar ther prducts like Health Reimbursement Accunt, Medical Savings Accunt and Flexible Savings Accunt. HSA in the USA is ffered with a high deductible health plan t meet the regulatry requirement t claim tax exemptins. In Suth Africa, these types f prducts have evlved in a less regulatry envirnment as cmpared t USA and the result has been prducts with varied designs t meet the needs f different segments f the ppulatin. HSA prducts cnsist f tw cmpnents - a savings vehicle and a health plan. This paper explains the pssible benefit cnfiguratins fr bth f these cmpnents. The paper further discusses the issues related t pricing f such prducts and the result f a sample pricing and financial prjectin study dne t analyze the extent f savings if a persn subscribes t a health savings accunt paired with a traditinal Mediclaim plan. 1. Definitin and sme features f HSAs A Health Savings Accunt (HSA) is a frm f health service financing that includes tw parts: A savings accunt a savings accunt in which funds are depsited ut f pre-tax incme and interest accumulated is als tax free. A health insurance plan usually a high deductible health plan t cver medical expenses in excess f the deductible. The savings accunt can be used t: Pay medical expenses belw the deductible, Pay medical expenses that the health plan des nt cver like utpatient expenses, maternity cst etc; and T build funds fr future medical expenses. HSA plans can be ffered as individual r family flater cverage. The prduct can als be ffered as grup cverage where the cntributin twards the HSA plan wuld be made by the emplyer. The benefit design f HSA prducts is greatly influenced by the tax exemptins available. Tax exemptins influence the amunt t be cntributed t the HSA plan and the benefit cvered by the paired health insurance plan. The fund in the HSA accunts can be managed by insurance cmpanies, banks, financial institutins etc. There are certain advantages assciated with a health savings accunt, namely, There is chice available fr: Hw much mney t put int the accunt Whether t save the accunt fr future expenses r pay current medical expenses 37

Which medical expenses t pay frm the accunt Which type f funds shuld be invested in (mre equities r mre bnds) These accunts may be cmpletely prtable. It can be kept even if the insured: Changes jbs Changes medical cverage Becmes unemplyed The tax advantages culd be in ne r all f the fllwing frms: Business expense when the emplyer pays the cntributin Tax deductins when cntributed by an emplyee/self-emplyed individual; Tax-free earnings thrugh investment; and, Tax-free withdrawals fr qualified medical expenses. After death, the mney in the accunt can be used by the legal heirs. The accunt can pass n t the beneficiary t be used as tax-free withdrawals fr qualified medical expenses r the withdrawal can be treated as taxable incme in the hands f the beneficiary. Hwever, there are certain disadvantages assciated with these types f prducts, namely: It reduces the incentives fr health insurers t directly manage health care service prviders by shifting the risk and cst t plicyhlders. The plan perfrmance may lks very gd if the majrity f the members are healthy as the amunt depsited in the fund will be high and little spending wuld have ccurred.. Reliance n an HSA t help fund retirement needs is smewhat prblematic as it assumes that the individuals will nt need t access these funds prir t retirement. This will likely be the case nly if they are frtunate enugh t be generally healthy thrughut their preretirement years and/r are able and willing t pay fr un-reimbursed medical expenses with ther funds. 2. Prduct backgrund in India Even thugh there were n explicit regulatry restrictins fr such prducts in India, due t ambiguity in tax benefits n premium, HSAs were nt launched in India fr a lng time. Even nw, technically HSA can be launched by bth life and nn-life insurance cmpanies but there are different slvency requirement fr a life and a nn-life insurance cmpany. We believe that there shuld a standard capital requirement fr this prduct irrespective f the type f cmpany launching the prduct. Currently, there are a few prducts launched in India which are in a way similar t a HSA. One variant f such prducts is a whle f life cmprehensive health insurance plicy which prvides cmprehensive hspitalizatin cver similar t benefits n a traditinal Mediclaim plicy and reimburses all ther medical expenses nt cvered in the hspitalizatin benefit by building a health fund. Fr the Mediclaim cverage, a Hspitalizatin Insurance Benefit charge is deducted frm the premium. The premium amunt paid by the insured is deducted fr the fllwing charges: 38

Hspitalizatin Insurance Benefit, Premium allcatin charge, Plicy administratin charge The premium amunt net f these charges is credited t a separate fund and the fund is invested as per the chice made by the insured. The balance in the fund is available t the insured t utilize it twards expenses like: Medicines and drugs, Diagnstic expenses, Dental expenses, C-pays r deductibles as part f the medical insurance cver; and Other miscellaneus medical expenses nt cvered under medical insurance. Anther variant cnsists f tw cmpnents. The first cmpnent is a lng term health insurance plan that prvides Hspital Cash Benefit (HCB), Majr Surgical Benefit and the secnd cmpnent is a ULIP fund (investment in the frm f Units) created after deducting the charges fr Insurance cverage and plicy administratin charges frm the premium amunt. The Principal Insured can withdraw an amunt equivalent t the actual expense he r she has incurred in respect f any dmiciliary treatment r t meet the medical expenses incurred ver and abve the hspital cash/majr surgical benefits in respect f either neself r thers insured under the plicy. 3. Evlutin f HSA related prducts in USA and Suth Africa 3a) Suth Africa There is n insurance law in Suth Africa t dictate the design f HSA prducts. The insurers have been free t innvate and experiment. Hence, HSA plans develped in a relatively free market. Medical saving accunts (akin t HSA) have evlved at a much faster pace in Suth Africa after a favrable ruling frm the tax authrities abut the same tax treatment f emplyer depsits t MSAs and emplyer payment f third-party insurance premiums. The result was a far mre interesting prduct - ne better designed t meet custmer needs. These plans were nrmally cmbined with a high deductible health plan. Suth African MSA plans typically have varying deductibles. Fr example, a representative plan has n deductible fr hspital care (n the thery that patients exercise little discretin within hspitals), but a $1,000 deductible fr utpatient care (n the thery that patients have a lt f discretin in that setting). The high deductible als applies t medicines; but fr chrnic cnditins, fr which skimping n medicines culd lead t mre expensive care later, the deductible drps back t zer. 3b) USA In cntrast t Suth Africa, HSA plans in USA were intrduced as part f Medicare Mdernizatin Act f 2003. This law requires that HSAs must be paired with a high deductible health plan. The law further sets the limits fr cntributin, deductible amunt and ut-f-pcket maximum amunt. These limits are reviewed annually in line with cnsumer inflatin index mvement. The tax exemptins played an imprtant rle in the grwth f HSA plans and the enrlled ppulatin in HSA plans has increased frm 1 millin in 2005 t 6 millin by the start f year 2008. The deductible n High deductible health plan acts as an acrss the bard deductible cvering all medical services. Prir t intrductin f HSAs in 39

2003, there were ther health care spending accunts including Health Reimbursement Accunt (HRA), Flexible Savings Accunt (FSA) and Medical Savings Accunt (MSA). Aside frm HSAs, there are ther types f tax-advantaged health care spending accunts. Health reimbursement accunts (HRA) can be prvided by emplyers in cnjunctin with high-deductible health plans and are used t pay fr eligible health expenses defined by the emplyer. Unlike HSAs, nly emplyers can cntribute t HRAs. The funds in an HRA can accumulate and rll ver t cver health expenses in subsequent years, but the funds typically remain with the emplyer at terminatin/resignatin. There are ther prducts similar t HSAs but n new accunts are created nw. Medical Savings Accunts (MSAs) is anther type f healthcare spending accunt. In MSAs, either the emplyee r emplyer can cntribute. The funds, hwever, were the prperty f the individual, regardless f wh funded the accunts. Flexible Spending Accunts (FSAs) ffered tax-advantaged health care spending accunts fr emplyees with traditinal health plans but did nt require that emplyees be cvered by a high deductible health plan. Emplyees can als cntribute t these accunts. While HSAs allws rllver f funds frm ne year t next, n rllver f funds is allwed under FSAs and MSAs t the next year. 4. Prduct design and pricing issues fr HSA related prducts There are separate design issues with the savings cmpnent and the health plan. The savings vehicle can be linked t market perfrmance r with guaranteed return. The health plan can be a traditinal Mediclaim cverage, critical illness insurance, lng term insurance cverage etc. t meet the needs f varius segment f the market. 4a) Pricing and Prduct design issues specific t the savings cmpnent The saving accunt can be designed in any f the fllwing ways: a) A Unit linked plan (ULIP) with the return n the fund linked t market perfrmance b) A Unit linked plan (ULIP) with a guarantee abut the minimum return c) A savings plan where return is nt guaranteed but is linked t sme index (ne year fixed depsit rates r bnd yields). d) A savings plan where return is ttally at the discretin f the insurer (similar t the bnuses declared in Endwment plicies) If the prduct has a guarantee cmpnent as part f the fund perfrmance, there wuld be investment risk fr the insurer n the funds managed n behalf f the plicyhlders. If the HSA fund design is similar t a ULIP Plan, the insurer needs t make sure that the charging structure f the prduct is in line with the regulatry guidelines regarding charges n ULIP prducts. The IRDA has mandated a cap n charges n ULIP plicies vide its circular in July 2009. The charges cap is based n the difference between grss and net yields f the ULIP prduct. The difference between grss and net yields shall nt exceed 300 basis pints fr prduct with tenure f less than 10 years and 225 basis pints fr prducts with tenure f mre than 10 years. The fund management charges shall nt exceed 135 basis pints irrespective f the tenure f the cntract. This cap excludes the fllwing in the calculatin f net yield. 40

- Mrtality and Mrbidity charges; - Any extra premium due t underwriting emanating frm extrardinary health cnditins; - Cst f all rider benefits; - Service tax n charges; and - Any explicit cst f investment guarantee. Fr pricing f HSA, cmplete mdeling f the prduct will need t be dne at ne time taking bth the savings and the insurance cmpnent tgether. Cmplete mdeling will help in understanding the verview f the prduct structure and ffsetting characteristics f the tw cmpnents can be mdeled. The ladings and charges shuld als be decided based n this cmprehensive mdeling t insure achievement f the target prfitability frm the prduct. In case there are guarantees ffered in investment return then the guarantees will need t be priced. In the sectins belw, we discuss the pricing issues t cnsider in calculating the pure premium f varius types f health insurance cmpnents. Later, in the case study sectin we have given an example f hw cmplete mdeling fr the prduct can be dne. 4b) Pricing and Prduct design issues specific t Health insurance cmpnent Pricing f a health insurance plan requires a range f assumptins including mrbidity incidence rate and average claim cst, persistency, expenses, investment incme, capital requirements and taxes. Fr the purpse f pricing the health insurance cmpnent f an HSA paired prduct, it will be sufficient t mdel nly the pure claim cst and build that int the cmprehensive mdeling discussed abve. The sectin belw explains the pssible prduct designs that can be paired with a health savings accunt and discusses the design and pricing issues related t them. Existing nn-life insurance cmpanies can use the experience data n their current Mediclaim prducts t price the high deductible prduct. New cmpanies can use the market statistics like TAC analysis reprts r buy data frm IIB set-up by IRDA recently. Traditinal Mediclaim Plan A traditinal Mediclaim Plan is a ne year term plan which indemnifies the insured fr medical expenses incurred due t a hspitalizatin which is mre than 24 hurs. Nw the plan als typically cvers sme named daycare prcedures. The health insurance cmpnent f the HSA can be a traditinal Mediclaim plan. The pricing fr this plan usually invlves estimating the incidence rate and average claim cst f hspitalizatins. The pure claim cst is a multiple f incidence rate and average claim cst. It is useful t perfrm the incidence rate and average claim cst analysis by varius dimensins like age, regin, ICD cdes etc. An analysis f claim prbability distributin (CPD) is als useful t analyze the impact f deductibles r sum insured limits. Analysis f CPD becmes mre useful in case f a family flater prduct where discunts are given fr flating the sum insured acrss the family. Fr lading the pure premium cst, the Mediclaim prduct cannt be lked at in islatin. The assciated savings cmpnents and its structure wuld need t be cnsidered as there will be sme incme earned frm that cmpnent and it may permit lwer ladings than in a standalne Mediclaim prduct. The final charge calculated can be kept at a level similar t the current Mediclaim premiums in the market as plicyhlders wuld tend t cmpare the insurance charge deductins with these premiums. 41

High-Deductible Health insurance cmpnent In this type f plan, the medical expense indemnificatin is nly the expenses in excess f a specified deductible, say Rs 100,000. In this case the insured will need t pay fr the amunt belw the deductible frm ut-f-pcket r frm anther health insurance plan. The pricing methd fr such insurance will be similar t the traditinal Mediclaim cmpnent. The difference is mdeling the impact f the deductible n pure grss claims cst. The CPD f grss claims will need t be used t estimate the impact n claim frequency and the average claim size with the change in deductible amunt. If there is a n-claimbenefit, sme claims marginally abve the deductible amunt may nt be reprted. This impact n claim incidence rate shuld be cnsidered. Hspital Cash plan These prducts pay a pre-specified cash sum n the ccurrence f certain medical events (hspital stays, majr diagnsis r surgery etc.). In the case f daily cash fr hspital stays, the ttal payment will depend n the length f stay. The claim incidence rate under the traditinal Mediclaim prduct can be used as a starting pint t price this prduct. As the benefit suggests a mdeling fr diagnses by Internatinal classificatin f Diseases (ICDs) which lead t majr surgeries will be needed. In case f daily cash fr everyday f hspitalizatin, a mdeling f incidence rates f varius ICDs and their length f stay will be needed. The length f stay will depend heavily n age and any existing c-mrbidities. Critical Illness Plan A Critical illness insurance plicy is a lng term plicy which prvides a lump sum benefit n the diagnsis f an insured critical illness and is nt intended t indemnify the claimant against medical csts r ther financial needs. Claim cst fr pricing critical illness is difficult t btain due t the lack f industry data and experience. There is sme experience frm ther cuntries, but such data cannt just be taken withut adjustment as the definitins and medical standard in these cuntries are nt the same as in India. The expertise f reinsurers can be used wh have experience f cvering critical illnesses in ther cuntries. Future medical advancements are a direct threat t the prfitability f this cntract. The plicy prceeds are paid n the diagnsis f the medical cnditin nt its treatment, cntrl r cure. Diagnstic imprvements can advance the time that the medical cnditin is sptted thus advancing the time when the plicy prceeds are paid. That is, the plicy prceeds have t be paid earlier in the plicy term even if the underlying sickness experience f plicyhlders is nt changing. Sme medical advances may eliminate current medical prcedures cvered under the cntract, eg crnary artery by-pass grafts. Serius cnsideratin has t be given t whether the plicy wrdings shuld be changed peridically in line with future medical advances as they arise. The definitin f critical illness needs t be simple enugh t be understandable. Hwever, the definitins must be tight enugh s that nly the illnesses that were part f the pricing exercise were accepted fr valid claims. The use f waiting perid (a perid since the start f plicy where n claim will be paid) and survival perid (perid f survival since the diagnsis/treatment f critical illness) can be used t reduce the verall claim cst. 42

Lng-term Care Insurance Plan Lng-term care insurance (LTCI) usually aims t prvide financial prtectin when a persn becmes unable t lk after himself r herself. An individual will purchase LTCI with a view t financing the prvisin f care and assistance in ld age. Traditinally it has been purchased by thse in their late 60s but LTCI is nw nt uncmmn fr individuals wh are in their 40s r 50s. The benefit payment is dependent upn the claims definitin, which may be triggered by a single r a multiple set f events. The single event may itself depend n a level f disability and its cntinuatin fr a specified perid. Different benefits may als be payable depending n the level f disability. The type f benefit culd be selected frm a range f alternatives, including a single lump sum payment, an annuity certain, a lifetime benefit subject t nging disability, r a restricted benefit (e.g. payable fr a maximum perid, r t a maximum ttal amunt) als subject t n-ging disability. Presently, LTCI as a standalne prduct is nt available in India. S, there is n actual experience data t price this prduct. There is very little data available glbally t price this prduct. This prduct is subject t maximum uncertainty as the claim takes a lng perid since the start f plicy t emerge and further the claim payment perid is lng-term in nature. The degree f uncertainty can be reduced t an extent by prviding cash benefits (fixed r linked t sme index) instead f indemnifying the claim cst. Keeping the premium reviewable based n actual experience will lead t lwer margin in pricing due t uncertainty. The reinsurers and actuarial cnsultants with their knwledge f develpments in ther markets abut lng-term care insurance can assist in the pricing f this cverage. 5. Sample study n a Health Savings Accunt paired with Mediclaim cverage We did a study t estimate the expected savings fr an HSA with a traditinal Mediclaim cverage. A cmprehensive mdeling was dne t incrprate the details like deductin fr a Mediclaim cverage charge, expected claim against a Mediclaim plicy, expected claims fr nn cvered ther medical expenses, fund grwth rate, charges fr fund management, charges fr guarantees and effect f the guarantees n the fund grwth rate. The results f the study in the example are limited t demnstrating the fund value at the end f 20 years and the expected RI fr the insurer. This has been dne fr three age pints f plicy hlders and three sum insured levels fr the Mediclaim cver. The premium rates used were the published premium rates fr a traditinal Mediclaim cverage with an assumptin f premiums increasing every year. There culd be many ther pssible variatins t the study including thse listed belw: Increase in sum-assured with time Use f ther health insurance cverage as a bundled cverage with HSA plan Use f family cverage as ppsed t individual cverage. This study has been dne frm an insurance industry perspective and is applicable nt just fr life but fr nn-life insurance cmpanies als. This study desn t cnsider the impact f sme f effects f HSA prducts experience like withdrawal rate, preference f plicyhlder twards accumulatin r utilizatin twards eligible expenses. 43

5a) Assumptins used in the study The assumptins fr the saving vehicle linked t HSA are shwn belw: - Investment return n the HSA fund assumed as 8% per annum. - The initial cntributin is Rs. 15000 and it is assumed t increase at the rate f 5% per annum. - The number f utpatient claims (ut f the HSA fund) is assumed t have Pissn distributin with parameter 2. The individual claim amunt is assumed t have Gamma distributin with parameters á= 1000 and ë= 2. - The number f claims paid ut f HSA fund in excess f the Mediclaim cverage is assumed t have Pissn distributin with parameter 0.10. The individual claim amunt is assumed t have Gamma distributin with parameters á= 25,000 and ë= 2. - The claims inflatin rate f 5% is assumed fr the utpatient claims and claims in excess f the Mediclaim cverage. The benefit cverage cst is set equal t the premium n a Mediclaim plicy. The rates are taken frm the published premium rates f ne f Indian insurer s Mediclaim plicy. The Insurer expenses are assumed as belw: - The lss rati n Mediclaim cverage is assumed t be nrmally distributed with mean lss rati f 75% with a standard deviatin f 10%. The simulatins were perfrmed using the Bx-Muller methd. - Plicy admin expenses are assumed t be Rs. 900 per plicy fr first year and Rs. 300 per plicy frm 2 nd year nwards with 5% annual increase in charges. - Cmmissin is assumed t be 10% f cntributin amunt fr the first year, 5% fr the secnd year and 2.5% frm third year nwards. - Fund management charges are assumed t be equal t 0.5% f the ending fund value fr each year. - Insurer s ther expense are assumed t be 5% f the cntributin amunt fr the first year and 2% thereafter. The insurer revenue items, in additin t the premium n Mediclaim cverage, are shwn belw: - 1.3% f ending fund value fr each year as fund management charges. - Premium allcatin charges f 20% f cntributin amunt fr the first year and 2% thereafter. The inputs t the mdel include: - Age f the accunt hlder - Sum assured n Mediclaim plicy The prfitability fr the insurer is calculated assuming unit pricing methd. The capital requirement fr the insurer is calculated as equal t 15% f the cntributin amunt. This capital amunt is assumed t earn interest at the rate f 6% per annum. The impact f reinsurance n the capital requirement and service-tax is ignred fr the purpse f this study. The table belw shws the assumptins used in the study. The mdel des nt take int accunt any difference in fund utilizatin fr plicyhlders with different age bands and sum-assured. 44

Table shwing assumptins and parameters used in the study Year 1 2 3 4 5 Claims OP claim incidence per year 4 2 0 3 2 OP average claim avg amunt 965 1,138 1,119 1,158 1,283 Occassinal high claim freq 0 0 0 0 0 Occassinal high claim avg amt 25,809 26,636 28,124 29,824 31,144 Lss rati n Mediclaim cverage 75% 63% 69% 94% 85% Expenses Fixed per plicy 900 300 315 331 347 % Premium 5% 2% 2% 2% 2% Cmmissin% 10% 5% 2.50% 2.50% 2.50% % f Accunt Value 0.5% 0.5% 0.5% 0.5% 0.5% Return n Fund Investment Return% Increase in cntributin 8% per annum 5% per annum Charges Fund Management charges 1.3% per annum Premium Allcatin charges (1st year) 20% per annum Premium Allcatin charges (Starting 2nd year) 2% per annum Inflatin Claims inflatin 5% per annum Expense inflatin 5% per annum Frm these assumptins and input parameters, the mdel prjects the fund utilizatin each year and the accumulated balance at the end f each year. The results f 100 runs fr each set f input parameters are analyzed further and the average fund values at different duratins fr three age-bands are pltted fr further analysis. The table belw shws the result f a simulatin run fr a persn aged 40 years with sum insured f Rs. 500,000. The cntributin amunt has increased frm Rs. 15,000 in year 1 t Rs. 37,904 with 5% annual increase in year 20. The premium charged is increasing with age. Age at Plicy Issue 40 Sum Assured 500,000 Year 1 5 10 15 20 Ttal Premium 15,000 18,233 23,270 29,699 37,904 Premium n Mediclaim cverage 6,861 6,861 10,800 13,780 16,000 Premium Allcatin charges 3,000 365 465 594 758 Starting Fund Value 5,139 42,090 102,778 141,377 270,242 Claims frm the Fund - 5,049 9,337 7,586 5,221 Investment Incme n Fund 411 3,165 7,849 11,007 21,411 Year-end Fund Value 5,481 39,703 100,024 142,988 282,852 Insurer Actual Expenses 3,176 1,378 2,004 2,609 3,779 Fund Management charges 69 503 1,266 1,810 3,580 Claims n MediClaim cverage 5,878 6,061 9,711 11,493 12,123 Insurer Prfit 1,012 453 1,026 2,349 4,778 Result f a simulatin run fr a persn aged 40 years at plicy issue fr sum assured f Rs. 500,000 45

6. Discussin n results f pricing wrk The mdel utput fr plicyhlders aged 30, 35 & 40 years at plicy issue is tabulated fr further analysis. The table belw shws the accumulated value f ttal premiums paid,, accumulated value f ttal claims paid ut f the HSA fund and the fund value at the end f 10 years and 20 years. The premiums and claims accumulatin is dne assuming an interest rate f 8% per annum. The fund value has been estimated with Mediclaim cverages fr sum assured f Rs. 200,000, Rs. 300,000 & Rs. 500,000. Cumulative value at the end f 10 Years Cumulative value at the end f 20 Years Age at Plicy Issue Sum Insured RI fr Insurer Premiums net f Mediclaim cverage Ttal Claims frm the fund Ttal Fund Value Premiums net f Mediclaim cverage Ttal Claims frm the fund Ttal Fund Value 30 years 200000 23.5% 499,242 72,085 152,255 885,596 294,607 534,997 30 years 300000 29.2% 467,274 76,232 133,460 833,586 307,881 474,567 30 years 500000 48.3% 379,351 64,810 103,840 688,532 271,040 373,249 35 years 200000 25.9% 497,519 74,999 147,966 863,077 293,569 512,602 35 years 300000 33.2% 463,603 72,864 135,217 801,912 282,481 468,532 35 years 500000 55.4% 361,931 66,034 94,653 628,763 280,839 307,107 40 years 200000 29.1% 474,289 77,851 133,914 823,383 300,936 467,891 40 years 300000 39.3% 431,020 72,796 119,386 745,767 293,494 403,601 40 years 500000 63.2% 307,678 65,706 69,117 548,907 269,442 242,658 Table shwing the study result fr Plicyhlders aged 30, 35 & 40 years at plicy issue The accumulated fund value shws a decreasing trend with the increase in sum assured and with increasing age. This is due t the fact that the premium n Mediclaim cverage increases with increasing age and sum assured. 46

The chart belw shws the accumulated fund value fr persns aged 30, 35 and 40 years fr sum assured f Rs. 200,000. 600,000 Accumulated Fund Value fr Sum Assured - Rs. 200,000 500,000 400,000 Fund Amunt (Rs.) 300,000 200,000 Aged 30 Years Aged 35 Years Aged 40 Years 100,000-1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Duratin (Years) The accumulated fund value is higher fr persns aged 30 years as cmpared t persn aged 40 years at the start f the plicy due t higher premium paid by persn aged 40 years fr Mediclaim cverage. The persn aged 30 years will be aged 50 years in 20 years f plicy duratin and may have time t further accumulate funds till retirement age. Hwever, the persn aged 40 years at plicy issue will be aged 60 years in 20 years time and may nt have much time t accumulate funds fr ld age. The chart belw shws the accumulated fund value fr persns aged 30, 35 and 40 years fr sum assured f Rs. 300,000. 500,000 450,000 Accumulated Fund Value fr Sum Assured - Rs. 300,000 400,000 350,000 300,000 Fund Amunt (Rs.) 250,000 200,000 Aged 30 Years Aged 35 Years Aged 40 Years 150,000 100,000 50,000-1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Duratin (Years) The accumulated fund value is getting lwer with the increase in sum-assured limit. 47

The chart belw shws the accumulated fund value fr persns aged 30, 35 and 40 years fr sum assured f Rs. 500,000. 400,000 Accumulated Fund Value fr Sum Assured - Rs. 500,000 350,000 300,000 250,000 Fund Amunt (Rs.) 200,000 150,000 Aged 30 Years Aged 35 Years Aged 40 Years 100,000 50,000-1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Duratin (Years) The accumulated fund value fr sum assured f Rs. 500,000 lks insufficient especially fr persn aged 40 years t meet the medical expenses after retirement. 7. Cnclusin Health savings accunt can prvide an additinal savings vehicle t help meet medical csts after retirement and cnsumer chice as a factr in healthcare purchase decisins. Hwever, a persn needs t invest in this prduct as early as pssible t build sufficient crpus fr his/her medical expenses in ld age/after retirement. The cntributin amunt shuld be higher if peple start investing in lder age. The success f this prduct is dependent upn availability f health saving vehicle with varius health plan designs like Mediclaim cverage, High deductible health plan, Hspital cash, Critical Illness, Lngterm care insurance etc. t attract different segment f peple. The existing claim experience frm standalne Mediclaim cverage can be used t price sme f the prduct designs like cverage similar t Mediclaim plicy, hspital cash, and high deductible health plan. Hwever, the data is nt available in India t price critical illness and lng-term care insurance. The experience frm ther cuntries and knwledge frm actuarial cnsultants, reinsures can be used t price these prduct designs. 48

Bibligraphy: Cmparisn f HSA with HRA, FSA & MSA: http://www.whatcmalliance.rg/services/dcuments/cmpare4kinds.pdf Critical Illness Rider fr Individual Insurance: http://www.sa.rg/library/jurnals/actuarial-practice-frum/2007/january/apf0701_6.pdf Abut the Authrs : Biresh Giri is a Fellw f Institute f Actuaries f India. He is currently wrking with Milliman India as Cnsulting Actuary. In his current rle, he has had pprtunities t analyze India specific health data frm varius surces. Prir t Milliman, Biresh has ver 5 years f experience in Prperty and Casualty (nn-life) reinsurance pricing and mdeling. Biresh has wrked with a glbal reinsurer in the reinsurance pricing department fr ver 3 years and has experience f MTPL, GTPL pricing f Eurpean cuntries. Biresh is als wrking with Future Generali India Insurance C. Ltd. (FGI) as cnsultant Appinted Actuary (AA). Biresh s rle as AA is as a cnsultant and his bligatins t FGI are same as t any ther client he wrks with. At FGI Biresh is respnsible fr IBNR calculatins and review f prduct pricing and slvency margin calculatins. Rakesh Khandelwal hlds Diplma in Actuarial Techniques frm Institute f Actuaries f India and is pursuing Actuarial fellwship exams. He is a qualified Cmpany Secretary and a law graduate. He jined Milliman India in May, 2006. His area f expertise includes prtfli analysis f health plans and assisting in pricing and reserving prjects. He has previusly wrked with X L India in Reserving (Prperty & Casualty) department fr three years. 49