Insurance is a mechanism by which the losses of a few are met through contributions from many. It is a method of dealing with fortuitous events resulting in a financial loss.

Thus ‘Health Insurance’ aims as taking care of health-related expenditure. To fall in line with the spirit of ‘Insurance’, health insurance is restricted to the financing of curative rather than a preventive expenditure. Secondly, health insurance is subject to strict principles of indemnity, where the person is indemnified with the amount which he has spent/incurred.

The general health scene and the attitude towards health insurance in India

The National Health scene is not very encouraging. One very adverse feature of the national health scene is the excessive dependence on private health expenditure. The total annual expenditure in the national health sector is of the order of 5.1% of the GDP, which is only a little lower than the average for lower and middle-income countries.

But, public health expenditure barely reaches 17% of the total health expenditure (i.e. 0.9% of GDP or Rs. 220 per capita); and the more regressive fact is that 68.8% of the total health expenditure is ‘out-of-pocket’ expenditure (OOP). This level of public health expenditure compares extremely unfavorably with an average public health spending of 2.8% of GDP for the low and middle-income countries of the globe, and 1.7% for even the impoverished sub-Saharan countries.

Some startling conclusions of the extent of financial catastrophes on account of illnesses are: an Indian who is hospitalized spends more than 50% of his annual income on health; 24% of those hospitalized fall below the poverty line as a result of the financial blow; and, out-of-pocket expenses can push 2.2% of the population below the poverty line in a year.

Insurance as such is affected by the attitude of people. We always feel that misfortune will afflict the next person and not the self. Health premium is way down in the list of priorities of the majority of the population which can be attributed to limited means which are inadequate to fulfill the necessities of the general population.

Insurance awareness levels are low. The majority of Insurance Companies have not concentrated on media coverage on the health insurance offered. Secondly, there is a general lack of confidence in insurance products; more so in health insurance products. Health Insurance penetration in India is less than 3% which is dismally low. Thus there exists a huge scope for mobilizing a huge amount of health premium

The Evolution

Phase I

Health Insurance in India began with the introduction of the Mediclaim policy by the four Public Sector Insurance Companies, in the year 1986. The policy was designed to provide for reimbursement of medical expenses incurred in India by the Insured for treatment of any disease or illness or accidental bodily injuries at any clinic/nursing home/hospital, as an inpatient. Domiciliary hospitalization was also covered for a specified amount. There were six categories of benefits and three of these categories were accompanied by Personal Accident cover for specified amounts. These three categories were termed as Scheme ‘A’ and the other three without PA cover were termed as Scheme ‘B’. It was a very well designed policy with sub-limits for a. Room and Boarding expenses (normal and ICU)

b. Non-Surgical and minor surgical benefits c. Major surgical and major diseases (which were defined in the policy)

The Domiciliary hospitalization benefits had well spelled out sub-limits for various heads. The PA cover was for death and Permanent Total Disablement. The cover was a well designed one though a novel product.

The premium was a fixed amount common to all age groups from 5 to 70 years.

There is no data available to know the actual premium generated through this policy. The policy was aimed at the middle and higher classes. However, it was felt that the higher classes reaped maximum benefits out of this policy with the overall claims ratio ranging between 70 and 80%.

Phase II

This Mediclaim Policy was revised in 1991, wherein the quantitative sub-limits under each of the above heads were removed. The Sum Insured ranged from Rs. 15000 to Rs. 300000 with premium as per age bands prescribed. There were many changes made to this policy based on customer requirements like relaxations in the specialized cases where less than 24 hours of hospitalization was required and simplification of the pre-existing illnesses exclusion.

Acceptance of cover for persons above 60 years was subject to a prescribed medical examination. Subsequently, the maximum Sum Insured available was increased to Rs. 5 lacs in 1999.

Group Mediclaim policies for pre-defined Groups were allowable with a bonus/malus clause wherein there was a discount on premium for a favorable claims experience and loading or malus for an unfavorable claims experience of the Group.

Phase III

The year 2001 saw the advent of the Third Party Administrators. They were regulated by IRDA and mandated to provide health services. The claims servicing was now outsourced to the TPAs, at a remuneration of 6% of the premium collected. As on date, twenty-seven TPAs are in operation.

It was felt that introduction of the TPA will benefit the ultimate clients. The customer had an option to opt for TPA or otherwise. The objectives of introducing TPAs were to improvise on customer services, and also bring about a reduction in the claims ratio by greater pro-active involvement in the area of claims. However, this estimation proved wrong with claims ratios increasing further and the number of customer grievances rising.

TPA; The Insured’s Perspective

The customer relates himself to the Office to which he has paid the premium and finds dealing with the TPA awkward.  TPAs do not treat the Insureds with the same sensitivity as the Company that has collected the premium. The personal touch expected by the Insured is missing. Right from non-receipt of identity cards (without which cashless cannot be availed) and dealing with faceless toll-free numbers that seldom respond, the insured is faced with a plethora of problems. The only positive reason for having opted for a ‘With TPA’ Policy is for a cashless facility, for which he has paid an extra 6% as service charges. Many times, the cashless is denied for reasons that are beyond the control of the insured.

TPA; The Insurers’ Perspective

The personal touch with the customers is lost. The personnel involved in health claim processing have been allocated alternative jobs and hence the reversal of the system is not easy. Apart from grievances regarding non-settlement of claims, complaints about non-receipt of ID Cards and no availability of the 24-hour toll-free numbers of the TPAs are plaguing the Insurers. Insurers also feel that the TPAs do not wield adequate bargaining power with the Service Providers.

The latest developments on the working and effect of TPAs on Insurers and the Insureds are given at the end of this article.

The TPAs Viewpoint

The TPAs complain that the data flow from the Underwriters is not up to date and up to mark. The second common complaint is non-receipt of float funds on time.

The third complaint is that the marketing considerations that guide the Insurance Company are not known to them and they treat all the claimants on par. They feel that they have to juggle between controlling the claim costs without antagonizing clients.

Phase IV

The policy was altered in the year 2007, to bring back the sub-limits. The deletion of the sub-limits resulted in a steep rise in the claims. This can be explained with an example. A person with a Sum Insured of Rs. 50000/- can avail of treatment wherein the room charges can range from Rs. 150 to Rs. 5000/- without any restriction. Recklessly with a and Insurers felt the need to again impose sub-limits. The policy terms and conditions were further clarified as regards pre-existing diseases, especially lifestyle diseases like hypertension and diabetes. It is pertinent to note that we have gone back to the system of expenditure wise sub-limits, akin to the Mediclaim of the eighties.

As regards pre-existing diseases, IRDA has stipulated that pre-existing disease exclusion will not operate for more than 48 months. In other words, if an insured is continuously insured for four years or more, there will be no pre-existing exclusion affecting his policy. This stipulation has been reflected in the changes made.

Today’s Status

1. Health Insurance is a loss-making portfolio with loss ratios ranging from 110 to 140%.

2. Health Insurance is not reaching the masses but helping a pocket full of people who have planned their health insurance versus requirements well.

3. Health Insurance is viewed as an income flow by Health Service providers. It is an open secret that the cost of health services is doubled if the patient has an insurance policy covering him.

4. Insurers are grappling with this ever-increasing portfolio and trying to bring about a balance.

5. Authorities are concerned and would like to set right the issue.

The road ahead: Let the concerned arise and awake.

The ratio of health premium to the total GDPI is fast increasing. From around 5% in 2001, it has exceeded 20% in the year 2008-09. In the next few years, health premiums shall be second to Motor and will represent more than one-third of the total GDPI.  

As regards claims position, the claims ratio from the range of 80 to 85% during the years 97-2000, it has been steadily exceeding 100% and has risen to 141% in 2006-07. The claims ratio in the year 2009-10 was 130%. It is pertinent to note that the loss ratios are higher for the PSUs as against the Private Insurers. Secondly, Group Policies generate more losses as compared to individuals.

Insurers are grappling with this increasing ICR and trying to contain claims through prudent risk-based underwriting and greater control on claims.

The latest development in the area of health insurance is the de-paneling of hospitals from the Preferred Provider Network by the Public Sector Insurers. This is not an unexpected move. One cannot sustain losses till infinity and one is bound to wake up and take stock of the situation.

It is no secret that providers have indiscriminately charged the insured patients as against their uninsured counterparts. This is one of the main reasons for the adverse claims ratio. The Hospitals and providers are not regulated and hence no forum can look into the aspects of overcharging and discriminative practices of the providers. There is no standardization of treatment procedures or expenditure thereof.

It is high time that the insurers come together and get this issue sorted out if Health Insurance is to be a success. IRDA is also keen that the cashless facility available to the customers is not compromised. The meeting between the hospitals and the insurers in the second week of August is a welcome move to set right the issues on health insurance. The hospitals, grouped under industry chambers such as CII and FICCI, argue that isolated incidents should not be the basis for excluding corporate hospitals from the Preferred Provider Network.

Secondly, Insurers should move from ‘Undertaking’ towards ‘Risk-Based Underwriting’ of Health insurance. Insurers have undertaken the Medical Cost to Company of major Corporate Clients. Group Covers accorded to Corporate Clients are more loss prone as compared to Individual policies. This is because of the bargaining power of the Corporates, who have been able to get the best covers with the least exclusions and highest benefits at the lowest prices.

The relationship triangle involving the insurance company, the TPA and the service provider has become widely distorted in the present scenario. This can be evidenced through the recent withdrawal of the cashless facility by the Insurance Companies due to the suspected unethical behavior of service providers with or without the connivance of the TPAs. Many major corporate hospitals were paneled from the list of Preferred Service Providers.

The Insurers and the Service Providers are trying to arrive at an amicable solution to this problem in which the insured is the ultimate sufferer. There is a move to introduce product differentiation based on hospitals where treatment can be taken.

However, the writings on the wall are clear. REGULATE THE SERVICE PROVIDERS JUST LIKE THE INSURANCE PROVIDERS, TO MAKE HEALTH INSURANCE WORTH ITS MEANING. Grading of Hospitals and Standardization of treatment and costs is the need of the hour.

Towards better customer services

IRDA has taken extra care as regards renewals of health insurance and the health insurance for senior citizens. Renewals are not to be declined except for certain specified reasons, and certainly not on the grounds of the insured has made a claim. IRDA has also emphasized on disclosures of renewal terms upfront and promoting transparency and fair treatment for policyholders.

Detailed instructions on Health Insurance for Senior Citizens stipulate that all health insurance products filed on or after 1st July 2009 must allow entry up to 65 years of age, and also make adequate dissemination of product information on websites.

The circular also mandates upfront disclosure of premium applicable to senior citizens and not to deny cover to elderly people on arbitrary grounds. The instructions also include an option for the choice of change of TPA at renewal and encourage the industry to share data on fraudulent entities in the health insurance system to control fraud in the system.

IRDA has also instructed the Insurers on Free Look Period in Health Insurance Policies whereby for all health insurance policies which have a duration of three years or more, the insured has a period of 15 days from the date of receipt of the documents on the first inception of his policy, to review the terms and conditions of the policy.

Where the policyholder disagrees with any of the policy terms, he has an option to return the policy stating the reasons for his objection and he is entitled to a refund of the premium paid after deduction of the specified expenses. This reflects the seriousness shown by the authorities towards the protection of the health insurance customer.

Health insurance can play an invaluable role in improving the overall health care system. The insurable population in India has been assessed at 250 million and this number will increase rapidly in the coming two decades. The efforts of the Government authorities should be supplemented by innovative insurance products and programs by Insurers with adequate reinsurance backup.

Making health insurance ‘healthy’

For effective and successful health insurance, we should ponder upon the following.

1. Health Insurance is a method of health services financing. Health Insurance programs should not lose track of the basic mechanism of insurance; the contribution of many to compensate the losses of few.

2. Along with rural poor, we have to tackle the health insurance needs of the urban middle class, as the percentage of urban population is predicted to increase from 26% to 40%.

3. Health Insurance today is the second-largest contributor to the GDPI, after Motor. In another ten years, Health Insurance will surpass Motor and will be the largest contributor to the GDPI. This is envisaged by the forecasted increase in the per capita income in 2020 by almost four times. There will be more premium paying capacity. This coupled with adequate health insurance awareness building, projects a very high potential of health insurance.

4. Premium subsidies should be accorded after proper analysis. Presently Corporate clients walk away with the subsidies as against the Individual clients.

5. Greater emphasis on Risk-Based Underwriting with some Lifestyle  Based Underwriting. Various underwriting models can be developed through experts in the health and the insurance field. Morbidity and database is the key to the development of health insurance models. Co-morbidity is another area that is concentrated today. Thus efforts to be made to create this kind of data-based underwriting system.

6. ICD 10 coding was introduced by WHO in the year 1993 and India adopted the same in the year 2000. Insurance products and delivery of health services should be commensurate with this coding system.

7. If health service providers are regulated with standardization of treatment procedures and costs, new products can be designed based on market segmentation in the area of service providers. Now we have market segmentation on age basis and broadly on rural (Universal Insurance Scheme, Swasthya Bima, etc) and urban (The regular Individual, Family Floater, Senior Citizens, and Students policies).

8. In House, TPAs will be more accountable and will be able to render more pro-active claim services without losing out on the Insurers’ interests. Bajaj Allianz General Insurance Company is one such Company managing its own Health Claim Services. Likewise, Star Health has its own in house Health claims processing and settlement wings that ensure a proper balance between client requirements and Company Interests. The initiative of the Public Sector Undertakings to float their own TPA is a positive step towards ‘Healthy Health Insurance’.

Let us arise and awake to make this portfolio worthwhile both for the Insurers and the Insureds.

                                                      By Gayathri Iyer, Research Associate/ Lecturer, National Insurance Academy, Pune, Published in                                                                                                 The Insurance Times, September 2010