Conquest_Article_Health Insurance in India

8/7/2019 Conquest_Article_Health Insurance in India

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Health Insurance in IndiaUnique challenges, opportunities and strategies

Anurag Prasad


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Gopal, a farmer in rural Orissa is contemplating suicide. Last year, he borrowed a sum of 50

thousand rupees from a local moneylender for the treatment of his young daughter. He is now

burdened with the interest payments so much so that he is not even able to feed his family.

Ramesh, a software engineer is frustrated at his insurance company. He had bought an insurance

policy two years ago. He now wants to undergo treatment at Fortis hospital for a chronic lung

disease. He is unable to do so because his insurer had removed Fortis from its network of

hospitals.

The above situations depict a sad but true story of the state of healthcare industry in India. Few

months back, the group of public sector insurance companies - National Insurance Co Ltd, New

India Assurance Co Ltd, Oriental Insurance Co Ltd and United India Insurance Co Ltd stopped

providing cashless services to its policy-holders at some of the biggest hospitals citing exorbitant

claim amounts and subsequent losses suffered as the reasons. The hospitals in turn argued that

higher claim amounts are not because of their high prices. They assert that the insurance policies

are more value based rather than ailment based and hence as a result, the policy holders seek the

most expensive treatment even for smaller ailments. After a lot of negotiations and pressure, the

hospitals came again in the network chain. However, the presence of high claim ratios and

subsequent losses to insurers cannot be denied. Even the private insurers who seem to be

profitable upfront have underneath their structures inherent problems such as high premium

amounts, less customer satisfaction, inefficient administration of claims, low penetration levels,

etc. that cannot be ignored. Despite the arrival of Third Party Administrators (TPAs) for handling

the claims since the IRDA regulations regarding the same in 2001, the situation hasnt improved

much. Most of the insurance companies have suffered huge losses due to high Income-Claim

Ratios (ICR).

The healthcare industry in India is already huge. Currently standing at $34 billion and growing at

around 15%, it is expected to reach $40billion by 2012. Indias thriving economy, rising medical

tourism, rapid urbanization, an expanding middle class population with significant disposable

income and greater awareness towards the health are the significant growth drivers in this

industry. Considering the huge market and the quality of healthcare needed, it becomes

imperative to develop the existing infrastructure for healthcare delivery and appropriate models

of health financing available in the country, which in light of statistics present a grim picture.


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Less than 15% Indians are covered under some form of health financing and out-of-pocket

payments form the bulk of the healthcare expenditure. The poor, who are generally not covered

under health insurance schemes often have to resort to buying at exorbitant rates which they face

difficulty in repaying.

Tackling this grave problem needs a multi-pronged approach. The sector is profitable provided

appropriate policies are in place and operations are efficient. Insurance companies especially the

public sector ones who currently hold nearly 70% of the market share, are often accused of being

un-innovative in bringing about newer products catering to market needs. Most of the existing

insurance schemes such as Mediclaim are very generic in nature and hence not meeting specific

needs of the people. As an example consider the case of youth in urban areas and rural people.

They are unwilling to buy insurance as they perceive that they are healthy and there is no need to

buy insurance. They are more concerned with savings and investment. An insurance product that

combines insurance with savings or investment would be appealing to them. Hence as a first

step, the insurance companies need to come up with product portfolios that better reflect market

demands.

Another consideration during the product design should be cost savings in the long run. An

example can be including the coverage of preventive healthcare in the insurance scheme. It is a

well-known fact that many diseases such as diabetes when diagnosed early can be treated

effectively but at later stages, the treatment costs spiral as a result of other diseases that the

patient suffers because of diabetes. Therefore, it becomes imperative for insurance companies to

offer preventive healthcare facilities and tie-up with network hospitals to offer regular screenings

and check-ups for the policy-holders. These might increase operational costs in the short run but

will result in significant reduction in claim amounts in the longer run. Apart from the advantage

of savings, it will cover greater exposure to health-related events and hence attract more number

of people towards insurance schemes.

The next consideration is minimizing operational costs and reducing fraudulent activities.

Standardizing procedures and hospital charges has emerged as one of the strategies for achieving

that. Presently there are no standard procedures to be followed by all the hospitals. The hospitals

have the independence for framing the charges for the treatments done. This leads to different

hospitals charging differently. This often gives scope for unethical practices wherein the doctors


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and patients collaborate in issuing fake medical certificates and bills leading to losses for

insurers. The TPAs too find it difficult to provide a check against these unethical practices

because of lack of standardized procedures.

Hence, achieving standardization is a must for

effective claim administration. The lead has

been taken by certain government initiatives

e.g. in Aarogyasari a public health care

initiative started by YSR Reddy in Andhra

Pradesh, a group of 30 doctors from

government and corporate came up with 389

surgical procedurescovering 144 diseases. The group of public sector insurance companies alsohave realised the importance of standardization and have standardized around 40 diseases and

procedures. The private insurance companies have also expressed the desire to implement the

packaged rates determined by the public insurance companies.

Framing standardized procedures and practices would be meaningless until they are implemented

and administered properly. In India, under the current system the responsibility of effective

administration lies with the TPAs. But, the TPAs do not have any incentive for effective

administration. Hence, there is a need for providing financial incentives to TPAs. The incentive

structure should not be fee model, but it should be a sharing model, where some portion of

costs saved should be given to the TPA. In 2002 GIPSA (an association of four PSU insurers)

has suggested an incentive structure wherein the TPA would get 10 to 20 per cent of the amount

by which the incurred claim was reduced against last financial year.

The current review process of TPAs also has certain inherent faults. The figure alongside details

the steps adopted in the current procedure. As evident

from the figure, the current system does not have any

mechanism to detect fraudulent activities on the part of

the patient or the hospital. For example, a patient and

hospital can collaborate in the current system to get

high claims from the TPAs for minor or even in-fact no

actual treatment done. For dealing with such cases, a


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methodology wherein there are checks in place at regular intervals needs to be devised. Share

Microfin in collaboration with Medicare as TPA and United India Insurance Company (UIIC) as

insurer in Nagpur has come up with an innovative procedure that incorporates standardization,

TPA peer reviews and random visits to hospitals by TPAs executive for detecting frauds. The

program has been a success and is now being implemented in many other places.

The procedure works in the following manner. When a patient requires hospital treatment, he

goes to a network hospital and shows his ID card. The hospital checks the ID card and fills a pre-

authorized form before starting treatment of the patient. Pre-authorization form contains details

like presenting complaints, clinical

finding, line of treatment, past ailment

history, date of admission, approx.

duration of hospitalization, approx.

costs (with break-up) and signature of

treating doctor. The hospital faxes or

mails the pre-authorized form to the

TPA. The doctors employed by TPA do

a peer review of the form. If the TPA

has any question in the form, it contacts

the hospital. If TPA is satisfied with the

pre-authorization form, an agreement is

send to hospital. Moreover random visits to the hospital are done by a client executive appointed

by the TPA to verify the details presented by the hospital regarding the treatment in the pre-

authorization form. After the treatment is done, the hospital sends the bills to the TPA. TPA

examines the bills thoroughly to ensure legitimacy of coverage, treatment of protocol and correct

drug patterns usage. If the bills are found to be correct, the TPA pays the hospital otherwise a

report is sent to the insurer. Finally, the insurer pays the claim amount to the TPAs.

The final consideration for effective health financing is increasing the reachability of the

insurance especially to the rural areas where the people who are in dire need of health financing

live. Rural India, despite having enormous growth potential is deprived of voluntary insurance

schemes. The rural people when in need of health financing often have to resort to buying at


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exorbitant rates which they find difficult to pay later. For serving such a sector effectively, any

insurance scheme has to take into consideration the significant challenges such as inability to pay

high premiums by the rural people, low awareness levels, lack of distribution infrastructure, etc.

present in rural India. The companies need to understand that if they can come up with suitable

business models to serve this sector, it can lead to huge profits. In this respect, the micro

insurance scheme started by Bajaj Allianz in collaboration with CARE India in the villages of

Tamilnadu in 2009 can be looked into. The basic premise of this scheme is sharing of the

collected premium between the insurer and the community people in a fix ratio (say 35:65). The

community itself does the claim administration and premium collection. Low ticket value claims

are paid from the amount held by the community whereas higher ticket value claims are paid by

the insurer. The policy cost less than 400 rupees per year.

The health insurance in India can be viewed as a problem worthy of attack proving its worth by

hitting back. Despite the numerous efforts by government, IRDA and the insurance companies, itis presenting unique challenges. There is a need for all the stakeholders to collaborate and come

up with unique initiatives so that this tremendously important service can be delivered to the

needy in an efficient manner. The rewards are equally great as it presents an opportunity of

universal acceptance after awareness is increased.

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Conquest_Article_Health Insurance in India