Health insurance is the pooling of resources to cover the costs of future, unpredictable health-related events. According to the health economics and policy literature, health insurance can be used to: mobilise revenue for the health sector; protect individuals and households from the risk of medical expenses; and promote efficiency, quality and equity of health-care services. On the other hand, there is ample evidence to suggest that health insurance can worsen existing inequalities and inefficiencies.
Proponents of health insurance argue that it can be used to address specific deficiencies in India's health sector, in particular: high out-of-pocket spending, inefficiency, poor quality and inequity. At present, health insurance coverage in India is extremely limited, especially outside the formal sector\". Non-governmental, non-profit organisations provide health-care to approximately 5% of the Indian population (Hsiao and Dave Sen 1995). Some of these NGOs have implemented prepayment health insurance schemes. There are a number of reasons as to why NGOs should make good insurers for poor populations.
Ranson, M.K. Two community based pre-payment schemes in Kheda, Gujarat. Medico Friend Circle Bulletin (2000) : 278-279.