Out of the 32 general insurance companies which do health insurance business in India, there are only four public sector general insurance companies: The New India Assurance Company Limited (NIACL), United India Insurance Company Limited (UIICL), The Oriental Insurance Company Limited (OICL) and National Insurance Company Limited (NICL). The Comptroller and Auditor General (CAG), during its audit of the four PSU insurance companies found mismanagement of Health Insurance claims on various fronts which is an eye opener. The CAG audit notes that the PSU insurers failed to carry out a proper and timely investigation into the claims settled by various TPAs. The audit has found that all is not well with the functioning of the four PSU insurers because of which even when the health insurance business is the second largest line of business, all the four PSU insurers have incurred losses. The four companies had a gross direct premium of Rs 1,16,551crores between 2016 and 2021, yet they incurred losses in the e-health insurance portfolio in all five years between 2016 to 2021, with an aggregate loss of all the four PSU insurers being Rs 26,264 crores. The CAG report talks about the malpractices or the irregularities that were going on within the government companies. Inadequate checks leading to multiple claim settlements, excess payment over sum insured, and breaching of capping limit for specific diseases are some of the lapses by four public sector insurers that the Comptroller and Auditor General of India (CAG) has flagged in its report. The gross underperformance and multiple irregularities have made India’s four PSU general insurers lose out to private players. This is evident from the June quarter results of the companies. Even when the market share of the private companies rose to 51.82 per cent in June 2022 from 47.63 per cent last year, PSU general insurers lost the market share from 42.23 per cent to 37.85 per cent.
The IRDAI has brought in multiple reforms in order to fix issues related to mismanagement of claims. For fixing the issue, IRDAI has notified a draft health insurance regulations statement where it has been stated that TPAs do not have the right to reject claims and this will exclusively be the right of the insurance company. TPAs, as recommended, should only handle cashless claims. Processing of health insurance claims is largely on digital platform both at PSU insurer level as well as TPA level warranting sound IT systems with built in validation controls, data integration and seamless flow of data. The IT systems in PSU insurers lacked appropriate validation checks and controls, undermining the smooth functioning and reporting system. It is observed that the IT systems are not designed to capture all required fields, data captured is not complete, and systems are accepting multiple entries and had issues regarding data integrity. This has resulted in lapses such as multiple settlement of claims, excess payment over and above the sum insured plus bonus, excess payments due to ignoring waiting period clause for specific diseases, non-application of copayment clause, breaching of capping limit for specific diseases, incorrect assessment of admissible claim amount, irregular payments on implants, non-payment of interest on delayed settlement etc. Health insurance policies are annual contracts and customer loyalty is rather fickle. For a majority of customers, whether retail or corporate, price is the sole criteria. The value of its distribution networks is equally febrile, since most intermediaries only go by the remuneration paid by the insurance company—the highest commission payer gets the business, despite the fact that there are regulatory norms about intermediary remuneration.
Type of Claims:
Claims of health insurance policyholders are of two types viz. cashless and reimbursement. In a cashless claim, policyholder avails hospitalization treatment, either for planned surgeries/ procedures or unplanned/ emergency treatment from network provider or non-network provider. In cashless claims, the network providers claim payment from the insurers and the policyholder need not make payment. In reimbursement claims, the policyholders make payment to the hospitals/ nursing homes and claim reimbursement from insurance companies. Intimation to insurer or TPA is mandatory for registration of a claim. Claim administration includes claim intimation, registration of claim, allotment of unique claim control number by insurer and TPA, verification of credentials of patients hospitalized and policyholders’ identity, providing cashless and reimbursement services, scrutinizing of claim documents submitted by the policyholder or hospitals/ nursing homes, deciding on the admissibility of the claim under the terms and conditions of the policy, and recommendation by the TPA for settlement or repudiation of claim. Claims recommended are uploaded by TPAs along with the claim details for insurer to verify and sanction payment as well as effect payment to the policyholder or network provider, as the case may be. A communication is then sent by TPA to the policyholder/ network provider giving details of claim amount admitted, amount deducted along with reasons and details of electronic transfer. General insurance policies are annual contracts and customer loyalty is rather fickle. For a majority of customers, whether retail or corporate, price is the sole criteria.
Areas of concern:
The Compliance Audit Report on ‘Third Party Administrators in Health Insurance Business of Public Sector Insurance Companies’ has been prepared under the provisions of Section 19-A of the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971 for submission to the Government. The Audit has been conducted in accordance with the Regulations on Audit and Accounts, 2007 (revised in August 2020) and Compliance Audit Guidelines of the Comptroller and Auditor General of India. The Audit covered the period from 2016-17 to 2020-21. The Report is based on the scrutiny of documents pertaining to four PSU insurance companies. Claim processing activities in the health insurance business of PSU insurers is largely outsourced to Third Party Administrators, to have better expertise, specialization in provider interface, medical adjudication of claims and technology driven customer service. The Audit was taken up considering the significance of the health insurance portfolio, the need for having systems and procedures for empanelment, allocation of business and monitoring of services rendered by Third Party Administrators.
The Findings:
1 Multiple settlements for single claim
Data analysis by Audit revealed that NIACL and UIICL have settled claims more than once on different dates though the policy number, insured name, beneficiary name, hospitalization dates, illness code, hospital name and disease were the same. i) Audit pointed out 792 cases (`4.93 crore) of multiple settlements in NIACL as seen from the database. On verification, NIACL confirmed multiple payments in 139 claims. NIACL stated that due to technical issues at TPA end, such duplicate payments were made and that they have recovered `0.74 crore (including penalty, in line with SLA). NIACL further stated (October 2021) that it is in the process of devising a mechanism in their computerized system namely CWISS to prevent the occurrence of multiple payments. ii) In UIICL, Audit pointed out 12,532 cases of multiple settlements (`8.60 crore) for the same person, same disease and for the same period of treatment, as seen from database.
2 Claims paid in excess of Sum Insured
The Health Insurance policy provides for payment of claim to the extent of sum insured24 and cumulative bonus25 (Retail Policies) or corporate buffer26 (Group Policies) amount (to extent as described in the group health insurance policy) as applicable. In this regard, Audit observed that in NIACL the claims settled exceeded the sum insured plus cumulative bonus in 139 retail claims indicating excess payment of `33 lakh. In UIICL the claim paid exceeded the sum insured in 2,223 claims involving `36.13 crore, which included group claims. For group policies, there is a provision in the policy for such excess payment over sum insured by way of ‘Corporate buffer’. However, the claim processing sheet/ note verified did not indicate use of buffer or available balance of buffer etc. This was corroborated during test check of 2,176 claim records (NIACL: 1,154 and UIICL 1,022) in the Audit sample, wherein claim payment exceeding maximum amount of liability of insurer was observed in seven claims (NIACL – five claims involving `28.05 lakh and UIICL – two claims involving `2.33 lakh).
3 Claims paid in fresh policies ignoring waiting period
Health insurance policy terms and conditions specify that the policy will not cover certain diseases like hydrocele, fistula, cataract, hernia, hypertension, etc., for the duration of two/ four years. The waiting period clause is deleted after the duration of two/ four years, provided, the policy has been continuously renewed with the Company without any break. Data analysis of NIACL claim data revealed that the waiting period clause was not invoked and avoidable payment of `3.31 crore was made in 1,395 claims relating to fresh policies. This was corroborated during test check of 41 out of 1,395 claims wherein it was seen that in all 41 cases, the claims were on fresh policies and waiting period clause was ignored by NIACL while processing the claims. Further, in respect of one of the claims out of the sample selected, an amount of `8 lakh was paid within 30 days from the date of the commencement of the policy, though terms and conditions of the policy (New India Floater Mediclaim Policy) stated that no claim will be payable for any illness contracted during the first 30 days of the commencement date of the policy.
4 Excess payments due to non-recovery of Co-payment
Co-payment is a cost sharing requirement under a health insurance policy which provides that the policyholder/ insured will bear a specified percentage of the admissible claims amount. Audit noticed that in NIACL the terms and conditions of group policy of one major group client (M/s. Cognizant Technology Services Limited) contained the ‘Co-payment’ clause as per which the amount to be deducted from the admissible claim amount was 10 per cent in excess of `1 lakh for self or employee and 20 per cent for dependents on the entire admissible amount. Data analysis revealed that in 275 claims co-payment was not deducted and excess payment of `84.36 lakh was made. This was confirmed during test check of 5 sample cases out of 275 such claims. In respect of retail claims, Audit carried out data analysis of claims settled in respect of Senior Citizen Mediclaim Policy and New India Sixty Plus Mediclaim Policy and also test checked 700 claims out of 12,621 claims from the website of 10 TPAs28 and claim links provided to Audit. Out of 700 claims, in 117 claims (53 Senior Citizen Mediclaim Policy claims and 64 New India Sixty PlusMediclaim Policy claims) TPAs did not deduct the applicable co-payment amount leading to excess payment of `7.71 lakh. This indicated that IT system validation to verify application of co-payment clause was not prevalent in the TPA’s end as well as NIACL’s end.
5 Breach of capping on specific diseases
As per terms and conditions of policy, claim amount for specific diseases/ procedures would be capped at rates mentioned in the policy. Data analysis was carried out to verify application of the capping for a common disease viz. cataract, for which the capping amount ranging from `10,000 to `50,000 was fixed in 13 out of 19 individual products of NIACL. It was found that the capping of claim amount for cataract was not applied in 1,389 retail claims (pertaining to 12 individual products) and there was excess payment of `2.33 crore due to breach of the ceiling amount. This was confirmed during test check of 43 claim records. Data analysis of group health insurance policies of two major group policy clients of NIACL viz. M/s Tata Consultancy Services Limited and M/s Cognizant Technology Services Ltd. with specific reference to capping for certain diseases such as maternity and infertility treatment, cataract expenses, joint replacements, hysterectomy expenses, cancer benefit, etc., as per the terms and conditions of the respective policies was carried out. It was found that there was excess settlement of `1.65 crore (729 claims for `1.24 crore – M/s Tata Consultancy Services Limited and 275 claims for `40.98 lakh M/s Cognizant Technology Services Ltd.) by NIACL to the beneficiaries under the two group health insurance policies. In OICL, Audit noticed that in 86 out of 378 claims settled in two policies towards treatment for cataract, the capping limit was not applied which resulted in excess settlement of `5.04 lakh.
6 Claim settlements under domiciliary hospitalization
IRDAI vide its circular regarding guidelines on standardization of Health Insurance defines domiciliary hospitalization as medical treatment for an illness/ injury in the normal course which would require care and treatment at a hospital but is actually taken while confined at home, provided where the condition of the patient is such that he/ she is not in a condition to be moved to a hospital, or the patient takes treatment at home on account of non-availability of room in a hospital. The said circular defines OPD treatment as the one in which the insured visit a clinic/ hospital or associated facility like a consultation room for diagnosis and treatment is taken based on the advice of medical practitioner. The insured is not admitted as a day care or in-patient. Test check of domiciliary claims in NIACL revealed that 242 claims29 out of 1,154 claims were for OPD treatment but these were settled by showing them as domiciliary claims. The claims were of group policy issued to M/s TATA Consultancy Services Ltd. (TCS) and M/s. HPCL Mittal Energy Ltd (HMEL) under which OPD treatment was not covered.
7 Non-adherence to network agreed rates
Regulatory clause 20(1) to (5) of IRDAI (TPA – Health Services) Regulations, 2016 provide for agreements between a TPA, an insurer and a Network Provider. Accordingly, PSU insurers/ TPA have negotiated and entered into agreements with certain network hospitals for various medical/surgical procedures at agreed rates. In this regard, Audit observed that in respect of 19 claims out of 2,176 claims, there were variation between the rate allowed by the TPAs and agreed rate. Further, it was observed that certain items which were part of the package rate such as doctor’s fee, room charges and investigation charges, etc., were charged additionally thereby resulting in excess payment. Charging higher rates and additional charges resulted in excess settlement of claims amounting to `12.60 lakh.
8 Incorrect assessment of admissible claim amount by TPAs
TPAs have failed to exercise appropriate checks which were required to be carried out while processing the claims and assessing the admissible amount, which resulted in excess settlement in the following cases: i) Excess room rent/boarding charges allowed in claim assessment Terms and conditions of policies of PSU insurers stipulated that the room rent/ boarding charges per day should be restricted to one per cent of the sum insured per day and two per cent of sum insured per day for admission in ICU/ ICCU rooms. Audit observed that in 13 claims (Normal room rent/ boarding: 12 claims30 and room rent/ boarding for ICU: 1 claim31) the settlement was not restricted invoking the terms and conditions of the policies resulting in excess settlement of `1.14 lakh (NIACL: 7 claims involving `0.24 lakh and UIICL: 6 claims involving `0.90 lakh) ii) Proportionate deduction not applied Sub-limit clause in terms and conditions of policies specified that in case of admission to a room/ ICU/ ICCU at rates exceeding the limits32, the reimbursement/ payment of all other expenses incurred at the hospital, with the exception of cost of medicines, shall be effected in the same proportion as the admissible rate per day bears to the actual rate per day of room rent/ ICU/ ICCU charges. Audit observed in NIACL that in five claims out of 1,154 claims, though policyholder availed room rent higher than the entitlement, TPA failed to restrict the claim by applying sub limit clause regarding proportional deduction as per terms and condition of policy.
9 Discount on other than PPN agreed procedures
PPN provides for cashless access to the policyholders. As on 31 March 2020, PPN cover was available in 12 cities33 through a network of 2,552 hospitals34. PPN agreement provides that PPN agreed rates are ‘walk-in walk-out’ package for policyholders, unless specified otherwise. PPN agreements provide that for other than agreed packages, the network provider would provide a discount from the Schedule of Charges (SOCs) in line with package rate which varied from 8 to 18 per cent on the hospitals bills (excluding medicines, pharmacy, and implants). Audit observed in 29 claims out of 69 claims of NIACL and OICL that hospitals have depicted incorrect/ lesser discount and TPAs failed to take notice of this while processing and recommending the claim settlement. This has resulted in excess settlement of`22.71 lakh, as per details given below:
10 Irregular payments on implants
Implants are medical devices such as cardiac stents, heart valves, orthopedic implants, dental implants, etc. Cost of such implants are fixed by National Pharmaceutical Pricing Authority (NPPA)35 and hospitals. List of documents to be submitted at the time of claim includes invoice for implant and sticker details for implants as a proof. Test check of 1,912 claims revealed that in 26 claims amounting to `34.98 lakh, implants cost allowed by TPA was not supported by separate bills/ invoices and stickers. OICL accepted (January/ October 2021) the Audit observation and stated that they have initiated recovery process in three cases.
11 Non-deduction of TDS on claim payments made to hospitals
The insurance companies while releasing/ making payment to hospitals for settlement of medical/ insurance claims are liable to deduct tax at source under section 194J36 of Income Tax Act. During data analysis in UIICL, Audit observed that in 42,847 claims out of 65,46,129 claims, TDS amounting to `14.01 crore was not deducted from payments made to hospitals. UIICL replied (July/ October 2021) that they had identified the problem and corrected the system and correct TDS is being deducted now. Moreover, the Company started filing revised TDS returns with Tax Authorities for previous years also, wherever anomaly was noticed.
12 Non-reflection of discount in hospital bills Regulation 20(9) of the IRDAI
TPA – Health Services Regulations 2016 and IRDAI circular dated 23 June 2015 provided that final bills of the network provider need to reflect discount amount. The format of provider bill as prescribed in Schedule D of dated 28 March 2016 has a mandatory column for depicting the discount. However, test check of 2,934 claims by Audit revealed that in 774 claims out of 2,934 claims paid by the four PSU insurers (NIACL: 55, UIICL: 287, OICL: 404 and NICL: 28) discount percentage and amount was not mentioned in the hospital bills NIACL replied (January 2021) that since the change is required at the hospital end, they are verifying the relevant cases and stated that they cannot insist, since hospitals have their own practice. NIACL further stated (October 2021) that the TPAs have been advised to work out the issue with hospital to mandatorily reflect the discount amount agreed and TPAs need to state discount rate agreed vis-à-vis actual discount given by the hospital in the claim settlement letter.
13 Non-verification of KYC
As per SLA all claim files should, inter alia include Know Your Customer (KYC) documents as a part of each claim file. Further, as per IRDAI circular (February 2013) on Anti-Money Laundering/ Counter Financing of Terrorism, General insurance companies were required to carry out KYC norms at the settlement stage where claim payout/ premium refund crosses a threshold of `1 lakh per claim/ premium refund. Audit observed that in 907 claims settled (`6.06 crore) out of 2,934 claims test checked, KYC documents were not available in the claim files, as per summary given below in the table:
Audit also observed that in 65 claims (for `66 lakh) of OICL (out of 559 claims), the ID cards issued by TPA did not have photos of policyholder/ beneficiary, which was one of the KYC documents. NIACL replied (October 2021) that it has instructed all their TPAs to verify the KYC norms at the time of claims and keep the relevant papers in the claim file. UIICL replied (July/ October 2021) that they have initiated the exercise to obtain KYC details in all the above cases and put in place systems to ensure that no claim, where KYC is compulsory, is paid unless KYC documents are obtained and uploaded.
14 Absence of Authorization
Letter for cashless facility Authorization letters are issued upon receipt of Request for Pre-Authorization and TPA examines the same and accords approval in accordance with the Pre-Authorization procedure mentioned in the SLA. The definition for cashless facility as provided in para 2(f) of IRDAI (Health Insurance) Regulations, 2016 stipulates that cashless claim can be settled directly by the insurer to the network provider to the extent pre-authorization is approved. In 81 claims (39 claims of NIACL for `1.26 crore and 42 claims of UIICL for `0.26 crore) out of 737 selected cashless claims test checked in NIACL and UIICL, Authorization Letter was not available in the claim files. However, cashless claim payments were recommended and settlement done. NIACL replied (January/October 2021) that they will take up with the TPA during review and shall initiate appropriate action, if found deficient and added that it advised TPAs to strictly follow the provisions of SLA and ensure that all authorization letters are put in the claim file.
The losses of health insurance business of PSU insurers either wiped out/decreased the profits of other lines of business or increased the overall losses. The losses were on account of group health insurance policies where premium charged was less and claim outgo was more in comparison to retail policies. The Combined Ratio for group health insurance segment of PSU insurers ranged from 125–165 per cent, which was much higher than the ceiling of 100 per cent prescribed by the Ministry of Finance. The PSU insurers carried out empanelment of TPAs but allocated business to non-empanelled TPAs also. PSU insurers incorporated their own TPA (Health Insurance TPA-HITPA) but the allocation of business to HITPA by them was minimal. PSU insurers took the initiative to have their own network of hospitals by forming Preferred Provider Network (PPN) but even after 10 years, enrolment of hospitals under PPN coverage was inadequate. The IT systems lacked appropriate validation checks and controls which has resulted in lapses such as multiple settlement of claims, excess payment over and above the sum insured, excess payments due to ignoring waiting period clause for specific diseases, non-application of co-payment clause, breaching of capping limit for specific diseases, incorrect assessment of admissible claim amount, irregular payments on implants, non-payment of interest on delayed settlement etc. Implementation of underwriting policy through test check of 188 group insurance policies revealed non-adherence to outgo calculator and non-loading for adverse claim experience resulting in undercharging of premium of Rs.1,548.19 crore in 155 policies and excess discount of Rs.9.28 crore in 3 policies. PSU insurers incorporated their own TPA (Health Insurance TPA or HITPA) but the allocation of business to HITPA by them was minimal. The four PSU insurers have preferred provider network (PPN) agreements with only 2,552 hospitals, much lower than 9,900 in the network of Star Health Insurance, and 10,000 hospitals of HDFC Ergo General Insurance Company.
Health insurance business is the second largest line of business of the PSU insurers (the first being motor insurance) having gross direct premium of Rs.1,16,551 crore during the five-year period from 2016-17 to 2020-21. The performance of PSU insurers in health insurance business is at present not profitable and they have suffered a revenue loss of Rs.26,364crore during five years ended 31 March 2021. In health insurance business, TPAs are engaged to have better expertise, specialization in provider interface, medical adjudication of claims and technologically driven customer services. The Audit was taken up with objectives of ascertaining whether: (i) the PSU insurers managed the health insurance portfolio in a sustainable manner and the performance parameters were optimal; (ii) the PSU insurers have laid down a system for empanelment of Third Party Administrators (TPAs), enrolment of hospitals and monitoring of services rendered by TPAs; (iii) there existed a suitable system for processing and settlement of claims in line with IRDAI regulations, guidelines, rules, circulars, policies, and agreements with various parties and; (iv) risk underwriting of health insurance policies was done in a prudent manner and appropriate internal control mechanisms were in place to protect revenue. To prevent incorrect processing of claims and excess payments beyond the scope of cover, PSU insurers have to enforce deterrents through levy and timely recovery of penalties. PSU insurers need to design and implement a robust fraud management policy to prevent fraud and should take appropriate action regarding cancellation of policy and de-empanelment of hospital in fraudulent cases.
