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HEALTH INSURANCE - CURRENT MODELS: A CRITICAL REVIEW

______________________________________________________________________________ EASSY WRITING COMPETITION 2013 FOR CONSIDERATION OF THE TECHNICAL PAPER

31-05-2013 CHENNAI

SUBMITTED BY NAME: VASUDEVAN MVS INSTITUTE REGISTRATION ID: 1120115496 INSTITUTE CANDIDATE ID: 1238440 DOB: 17-12-1985 QUALIFICATION B. TECH EMPLOYER: ROYAL SUNDARAM ALLIANCE INSURANCE CO LTD. DEPARTMENT: ACCIDENT AND HEALTH CLAIMS CONTACT DETAILS: MOBILE: +91 9543366177, +91 8754555775 EMAIL: Personal: vasumanica@gmail.com, vasumanica@yahoo.com Official: vasudevan.manica@royalsundaram.in

CONTENT

(i) (ii)

OVERVIW CURRENT MODEL HEALTH INSURANCE DISTRIBUTION CHANNEL

(iii) (iv)

HEALTH INSURANCE PRODUCTS HEALTH INSURANCE SERVICING (a) Important services of TPA to policy holder (b) Exclusive TPA for Giants NOTE ON FRADULENT CLAIMS INSURER ON CONTROLLING HEALTHCARE COST

(v) (vi)

(vii)

HEALTH INSURANCE REGULATION 2013 (a) Some of the important amendment in the regulation (b) What expected and what happened?

(viii) CONCLUSION

OVERVIEW After when I looked at the topic the first thing came into my mind was the complexity in understanding of the health insurance policy in the common Indian people. This thesis, I took as an opportunity to bring out the current critical issues of Health Insurance, its services and other inter-related parties and their roles in health insurance and of course the solution of the issues. Before going into the paper, I would like to bring one simple complication in the health insurance which we see on daily basis in our office. The consumer signs the proposal form, pays the premium and takes the policy copy. After a long time, say six months, he comes to make a claim. His claim gets rejected on the grounds of two year exclusion or pre existing disease and he starts shouting at the officer stating at the time of buying the policy no one informed me about it, this is why, I started the thesis with word complexity of the health insurance. To overcome all this sort of issue in health insurance and to ensure that in next decade the penetration of it reaches to at least beyond 80% of the population we should review the health insurance not like an insurer but as a common man. In India, Insurance industry has been under developed till today when compared to most of the developed countries. The spending in the health care contributes only 1%-2% of the GDP in our country. In that around 70% of the spending is still contributed by the individual pocket, remaining little percentage is managed by some sort of financing including insurance. Thus, health insurance has a very strong potential in India market. The main concern for the insurer should be to convert that 70 80 percentage of out of pocket payment as a premium payment which is the fundamental for penetrating of the health insurance.

CURRENT MODEL HEALTH INSURANCE DISTRIBUTION CHANNEL The health insurance business in India is mainly generated by distribution channel used by the Insurer. They (insurer) use various distribution channels to generate business for them. Corporate Agencies/ bancassurance are the bucket where enormous business flows. At the same time, it should be noted that insurer are little lenient towards corporate agent when compared to that of walk in customer. The general underwriting guidelines of an insurance company for the walk in customer and for the corporate agent differs. For example, if any proposal comes with existing hypertension or diabetes from the walk in customer, the proposal will be rejected and the same proposal may be accepted if its coming through the corporate agent. All insurance company designs health insurance policy for the corporate agent as per the choice of the corporate agent but the same practice isnt happening either for individual agent or walk in customer. Insurance broker is another distribution channel which is utilized by the insurer for getting the group health insurance. Group medi claim (GMC) account for 30%-35% of the total health insurance premium in the Indian market. Recently, Insurance regulator and development authority (IRDA) also viewed on the ideas of Sub Broker it may also assist to penetrate the health insurance. On the back side of the card, are the agents (individual and corporate) providing the correct information to the consumer? Look, there is a huge lope hole in any form of distribution channel. The insurers are unaware whether the proposal form is read and filled by the proposer or the agent has made the consumer aware about the terminology of the health insurance policy but still insurers are happy to increase the business on their books. It is also expected that employee of the corporate agent who is

unaware of the policy terminology is also directed to offer the proposal for health insurance to the common man. Once the employee of the corporate agent gets the proposal singed by the consumer, he then forwards it to the corporate agent whos a licensed agent by the IRDA eventually he sends the form to the insurer. Of course, the corporate agent gets trained by the insurance professional for selling the insurance policy but still it is not enough to make the consumer understand about exclusion in the health insurance policy. Another concern for the consumer had been the servicing of the orphan policy but no surprise our regulator intervened in it, made it possible to continue the servicing with another agent. Orphan policies are those policies which are sold by the individual agent. If the agent discontinues his services with a particular insurer then the policy becomes orphan. We all know that recently our regulator, made it mandatory that the agent should get a declaration from the customer that the agent has explained about the health insurance policy completely and the same is understood by them. According to me, I believe this isnt happening in the industry but at the same time the declarations line is inserted at the bottom of proposal form and asking the consumer to sign on it, thats how the practice is going on. My view on it and to control this type of mis-selling, the insurer, once they get the proposal form from the agent, they should call the customer and confirm whether they had understood the exclusion in the policy and the importance of the details given by them and its effects at the time of making a claim.

HEALTH INSURANCE PRODUCTS Therere varieties of products in health insurance in the Indian market but all products falls into the bucket of indemnity or benefits policy. Let us understand both the terms: Indemnity products pay your hospitalization bills subject to policy conditions while in benefits products youll get the benefit as per your health insurance products once you get hospitalized. Example: If an insured get hospitalized and the healthcare provider (hospital) shoots Rs 1, 00,000 as a bill amount then the insurer will pay to the hospital or reimburse the bill amount to the insured. This is called indemnity policy. Under a benefit health insurance policy, the insured will get a fixed amount if he gets hospitalized. The amount will be given on per day basis (it will be settled when the customer comes for reimbursement with required documents, not at the time of hospitalization) and the amount varies according to the policy condition. Insurer has done n number of combination from above two and has developed many products. If you go deep into it there will be a slight variation in the products. Insurance professional can very well understand the variation in the products. Especially, in the indemnity products the difference between the products will be on the capping of the ailment such as the maximum limit payable for Cataract, Hysterectomy, Fistula, etc will be ranging from 10% - 30% of the sum insured. If the options of capping for a specific ailment is given to the consumer then this will lead the consumer to understand about the ailment and once if he understand about the ailment then that will help him to decide whether he requires the coverage or not.

According to me, insurer needs to make the consumer involve in selecting a health insurance policy more closely by giving him a suitable option under one health insurance products. Its my suggestion to the insurer that instead of having different product with different capping in the indemnity health insurance policy, make one simple products and allow the consumer to choose the capping he wants to fix for a specific ailment. One thing we need to accept that many agents pass the information to consumer stating Sir ji agar aap hospital mein barti hogaye to apko ek bhi paise nahi dena hoga sab paisa insurance company barega cashless service ke duwara means if you get admitted in the hospital, you dont have to spend even a single penny, all the amount will be taken up by the insurer. But at the time of hospitalization most of the insured need to pay to the hospital even if it is a cashless service, the payment like registration fee, non medical item, policy capping, etc. At the time when customer is making the payment to hospital even after a cashless service, he feels that he was deceived by the seller/agent. If there are various options available in one single product the consumer will become aware and will raise question to get himself clear about the product. I believe few of the general insurers launching innovative products in the market. According to me, innovative products mean the products which cover what the other health insurance product doesnt cover. Recently a product was launched by the Star Health and Allied Insurance Co., STAR CARDIAC CARE which offers coverage for the pre existing diseases like angioplasty or bypass surgery. Of course, there is a waiting period of three months in this product also, but still its an innovative product. Similarly few other insurers are also expected to launch products on diabetes.

Another indemnity product that accounts for 30%-35% of the total health portfolio is the Group Mediclaim Policy (GMC). This is a customized products offered to the corporate client by the insurer. The entire insurer says its a bleeding portfolio i.e. the claim ratio is beyond 100%. GMC portfolio is compensated with other portfolio like fire, liability, etc. Frankly, there is a cross subsidization in group health insurance because insurer are forced to reduce the pricing of group health insurance due to competition in the market. Critical Illness and personal accident policy falls under the bucket of benefit policies. The critical illness benefit is given to the policy holder, if he is diagnosed with specific ailment like cancer, coronary artery bypass surgery, stroke, etc. Personal accident coverage shoots when the insured meets with an accident and loses his limbs or eyes. Full sum insured is given if the insured dies or loses his two limbs or both the eye. Another type of health insurance policy available in the market is the top up policy. This policy is useful if the bill of the hospitalization exhaust the sum insured of base health insurance policy. Like any other policy there are certain clauses in this policy too. The coverage kicks in after a specific deductable amount. Say you have purchased a top up plan of Rs. 5,00,000 with a threshold limit of Rs. 2, 00,000 this means that the coverage will start after the hospitalization expenses reaches 2,00,00. So, its handy to buy top up policy with a base health insurance product. The premium for the product is very low when compared to the normal health insurance products. We all know insurers are rejecting the proposal once if they find if the risk is adverse, but on the other side the insurer are accepting proposal for the senior citizen of our country. Yes, insurer has specifically designed health insurance products to attract the senior citizen. Star health allied

insurance co. innovative product namely senior citizen red carpet is special product for the seniors of India. Of course, senior citizen products are of high premium with capping in major ailments. It is truly appreciable that the insurer is offering health insurance to the age beyond sixty. In the nearing future, Indian insurer should also come up with the product like health saving account which is widely used in the western countries. OPD coverage could also be another option available for the insurer but networking should be precise to design the product but still it is a grey area. HEALTH INSURANCE SERVICING Today there are 22 general insurance companies including four standalone health insurance companies which market health insurance product in our country. The entire insurer has very similar way of servicing the health insurance products. Some insurer outsources the servicing of their health insurance product to a third party administrator (TPA) while other insurer makes in house servicing of the health insurance. Let us understand about TPA Third party administrator is company which is licensed by the IRDA to operate as an intermediator between insurance firm and the policy holder. The income of the TPA is around 4%-5% of the premium and the same is given by the insurer. TPA offers end to end health insurance services to the policy holder and handles all back end works. Once when a policy is sold to the consumer, the data of the consumer is send to the TPA by the insurer, TPA issues an identification card mentioning the name of the insurer and the TPA Company with the details of the policy and the TPA membership number is also disclosed in the

card. Thus once the card is given to the policy holder, he can avail the services from the TPA in case of hospitalization is required. Important services of TPA to policy holder TPA has two common services which are offered to the policy holder for hospitalization. The two services are reimbursement and cashless. Most of the policy holder prefer for the cashless hospitalization because the major amount will be taken care by the TPA and minor amount which the policy does not cover has to be paid by the policy holder. Basically the TPA signs an agreement with the hospital to provide cashless facility to the policy holder and the list of hospital where cashless can be availed is given in advance to the policy holder. If the policy holder chooses a hospital which isnt a part of network hospital of a TPA, the policy holder can settle the hospital bill and later the policy holder can claim from the TPA in the form of reimbursement with the sufficient documents. By looking into the documents, the services rendered by the TPA may seem to be simple, but practically is not easy. The insured should get the approval letter well in advance from the TPA to avoid any conflict with the parties. Another services offered by TPA to the insurer is pre policy health check. The TPA does the services to the proposer on behalf of the insurer. This is basically done to check the health status of the proposer through the network diagnostic centre of the TPA. As discussed earlier, some private general insurer had come up with own in house processing system. The idea behind this is to minimize the cost and to offer better services.

As of today there are thirty one third party administrators in our country to service the health insurance policy. The TPA majorly gets revenue generated by the four giant namely, The New India Assurance Co. Ltd., The Oriental Insurance Co. Ltd., United India Insurance Co. Ltd and National Insurance Co Ltd. Each insurer has around 10 to 12 TPAs firm in their bucket to place the health business for servicing. The selection process of the TPA is done very precisely by the insurers. The insurer considers all the past experience of the TPA to empanel them but the list of empanelled hospital is least considered. Exclusive TPA for Giants We all know there is a talk in the city, on PSU floating its own TPA with LIC and our national reinsurer as other stake holder. If the PSU successfully starts with their own process of health insurance claim of the policy holder similarly what a TPA does then itll be a big relief for them. They can bring down the claim ratios tremendously and they will also have a strong power to control and negotiate the hospital tariff rate. If hospital tariff rates are managed, the outcome of it will be in lowering the premium rate and increasing the profitability. No doubt it will be a big boost to the insurance market in India if TPA is launched by the PSUs. NOTE ON FRADULENT CLAIMS Its very simple to make a fraudulent claim in health insurance with the assistance of healthcare provider. Insurance professional have identified frauds on two different mode namely soft and hard frauds. Soft frauds are those where we see suppression of material facts while hard frauds are producing fake documents from the policy holder for availing the benefits under the policy. Whether customer is aware about the policy or not but the hospital authorities have become familiar with

the policy wording, coverage and exclusion in health insurance. Heath insurance frauds cannot be carried by a single person, it definitely requires the help of the hospital, whether its for preparing the documents or hiding the facts. Last year a survey was conducted by the consulting firm Ernst & Young, in which they identified that insurance frauds not only reduce the profitability for the insurer but also increase the premium rate in the long run. With the help of hospital, fraudulent documents will be produced and the same documents will be submitted for reimbursement. Insurer in India arent taking any legal action against the hospital who is involved in the malpractice but based on its own assumption and judgment insurer are only investigating the health insurance claim. Each insurer should have their processing style and trigger the alarm if the claim falls under the check list of fraud claim. Private insurer has managed to crack the fraudulent claims through various mode of investigation. Fraudulent claims have given rise to many private consulting companies on claims. In India there is enough claim consultant company in market where the insurer has utilized their service to investigate the health insurance claim. A centralized system need to be place where all the TPA/insurer can access it and update the data on fraud related activities. If a hospital is black listed by one insurer then rest of the insurer should also remove it from their panel. The best example for all of us can be the recent initiative taken by the United India Insurance Co. Ltd on auditing the hospitals in and around Tamil Nadu which is empanelled for the cashless facility under the Tamil Nadu Chief Minister health insurance scheme. This year 35 hospitals in

Tamil Nadu have been expelled from operating on patients under the scheme for a period ranging from one month to one year. The auditors from the insurance company found that some of these hospitals were charging the money from the patient and sending the bill to the insurer. INSURER ON CONTROLLING HEALTH CARE COST India is a place where the hospitalization bill is on higher side if the customer has health insurance but in the western countries its on the other way. This shows that the insurer or the TPA are lacking in negotiation with the healthcare providers. I do believe insurer/TPA have power to negotiate with the hospital to bring down the healthcare cost. Under certain circumstances they are losing its power to negotiate with the hospital or to depanel the hospital if not agreed on the tariff rate. As discussed earlier, in India still 70% of the hospital expenses is managed by individual not through Insurance or any other scheme. The hospital overflows the bill and gets it settled by the consumer itself. So, the healthcare provider doesnt dependents on the Health Insurance. On the other hand, third party administrator being a small firm is under the huge demand from the corporate client to empanel hospital as per their choice without bothering about the tariff rate. Each TPA has empanelled 3500-4500 hospital with them across India for cashless facility which is huge in number to manage, due to the lack of management the TPA couldnt restrict the hospital from over charging and the selection of the hospital for the policy holder is done either by the consumer or through the consulting doctor and at the same time TPA are also least bothered to advice the customer on the hospital selection. Overcoming all the above mentioned issue, the launch of PPN (preferred provider network) by the General Insurance Public Sector Association (GIPSA) was an initiative taken to reduce the

package rates in hospital. GIPSA is a group of four public sector insurance company, has suddenly restricted cashless services to those hospital which has agreed for package rate offered by the insurance company. GIPSA had selected few TPAs to implement the PPN in north, south, east and west part of India. GIPSA in consultation with panel doctor had designed package rate for 43 surgical procedures. The hospital which agrees for this package rate will be a preferred provider network for the four PSUs company through the TPA. The policy holder has to avail reimbursement procedure if they get hospitalized apart from the PPN list of the TPA. The 43 procedures listed by the GIPSA will differ in packages according to the quality, infrastructure, technology used and number of beds in the hospital and its location. There are also many hospitals which were reluctant to join PPN rate since they felt its not feasible for them. Many A grade hospital werent interested in joining the PPN rate at the beginning. When Jaslok hospital turned its decision to join the PPN that welcomed many other A grade hospital to join the list as they dont want to lose entire patient to Jaslok hospital. As of now, the insurance trends have changed, in many A grade hospital the cost of surgical procedure varies in PPN rates and without PPN rates. The charges under the PPN rates are lower than the non insurance clients or through any other private insurer. Similarly for the medical management GIPSA had taken a few percentage (5%-10%) discounts. I appreciate the efforts taken by the GIPSA on reducing the healthcare cost in India. Apart from the overall package rate the GIPSA should also involve in the surgeon fees of a doctor. We have seen a doctor increasing his surgeon fees from 30% to 300% without any reason. There are some doctors who are charging the fees according to the status of the patient. The GIPSA should make the hospital to negotiate with the doctors on their fees.

On the other side, private insurers are also trying hard to manage their networking department well. Though few private general insurance depend strongly on the network of the TPA but still they were able to manage to get some percentage of discount on quick settlement of hospitalization bills. Insurance regulatory and development authority recently approved 20% hike in premium which is requested by the New India Assurance Co. Ltd to manage their losses. Health Insurance premiums rate are usually on the higher side and again increasing its price might make the common man unaffordable. The only way to control the health insurance premium rates is to control the healthcare cost. For the insurer, rather than controlling their outgo by precisely designed health insurance policy they should negotiate with the healthcare providers and get better rate for their policy holders. Once if the package rates are negotiated better by the insurer, this will reflect in their profitability which in turn shows reduction in the premium. HEALTH INSURANCE REGULATION - 2013 Under the chairmanship of Mr. Hari Narayanan (Ex IRDA Chairman), the health insurance regulation was amended recently. Much issue pertaining to the health insurance has been viewed by insurance regulatory and development authority and had answered to it. Some of the important amendment in the regulation: First and foremost, the IRDA is very clear on the file and use procedure for health insurance products. In its new regulation, each and every products need to be filed with IRDA and after its clearance from the IRDA, health insurance products can be marketed. Any modification or

withdrawal of the health insurance products should also seek approval from the IRDA. The entry age up to 65 years in the health insurance product will be a big relief for the consumer. The grace period for the renewal of the policy had been extended to thirty days, earlier insurer had fifteen days as the grace period to avoid the break in the policy. Not surprisingly, IRDA also intervened in the renewal of the health insurance policy. IRDA said renewal of the policy can be refused only in case of frauds, misrepresentation or non cooperation from the insured. Renewal cannot be refused on the grounds of claims made by the policy holder. IRDA also said if the proposal is accepted then lifelong renewal should be given to the policy holder. The introduction of free look period in health insurance products will definitely be helpful for the customer to review the health insurance policy with in fifteen days once the policy is purchased. IRDA also intervened in cost of the pre insurance health check up. IRDA said 50% of the pre health insurance check up cost should be taken by the insurer once if the proposal is accepted. One of the most ambiguities in the policy was the non medical item which the policy doesnt cover. The IRDA had declared 199 non medical items which the customer has to pay. In the new regulation, keeping in mind the interest of policy holder, IRDA had asked the insurer to settle the claim instead of the third party administrator. Earlier the TPA was settling the claims as one of their duties, on behalf of the insurer. Now, the TPA can only provide its recommendation of the claim to insurer but the ultimate decision has to be taken by the insurer. Though this process may be little time consuming but it will reduce the conflict for sure. This will be a big relief for the TPA firm, since the insurer is taking the decision on the claim they

have answer for the legal notice. The claim form and the pre authorization for availing the cashless facility will henceforth be common across the nation. Another concern of mine was the problem faced by the policy holder at the time of cashless service. The healthcare provider, due to non cooperation by the TPA, refuses to provide the cashless facility to the insured. An insurer will empanel more than one TPAs into its list, if the healthcare provider isnt entertaining one TPA that should open the door for another TPA to offer cashless services to the insured. Ive found some of the insurer has rejected the health insurance claim on the basis of not disclosing the material fact (hypertension or diabetes not mention by the proposer at the time of purchasing the policy) in the policy even for accident claims. This is very awful for the policy holder to see their claim getting refused on the ground of material fact not disclosed even after twice renewing the policy with the same insurer. According to me, maximum of one year time should be given to the insurer to make the policy void due to non disclosure of the material fact. Once the insured has come up for the renewal the insurer should ask for the required details from the policy holder, if the same is satisfactory later the insurer should not deny the claims on non disclosure of the material fact.

What expected and what happened? Many insurers were expecting service tax relaxation on health insurance policy in the union budget 2013 but it didnt work out for insurer. The government should have at least considered

increasing investment level in health insurance under the section 80D to Rs 50,000 from Rs 15,000. Allowing banks to act as an insurance broker might help in penetrating the insurance business. The banks generate revenue of hardly around 3% - 5% from insurance business, it is doubtful that bankers might invest in insurance broking firm and also all banks already have good relationship with their existing insurance partner. To increase the penetration of insurances, our finance minister in budget speech confirmed that at least one PSUs will open their offices where the population is 10,000 and above. The insurer was also allowed to open their office in tier II cities and below without prior approval from IRDA.

CONCLUSION As discussed earlier, India has been underdeveloped in Insurance when compare to our neighbor countries. I believe, greater part of Indians are viewing health insurance products has a tax benefit products rather than a financial protection product. This clearly says the understanding of insurance is lacking amongst Indian. Hopefully, in the coming years IRDA will join hands with the insurer and will reduce the mis-selling of the health insurance policy and create the awareness of the general insurance products. I firmly believe that mis-selling of the health/life insurance or any other form of insurance can be restricted only by creating awareness of the insurance in our nation. We as an insurance professional have huge responsibility on increasing the awareness of the insurance and that will restrict mis selling. Considering the overall performance of health insurance industry, I believe insurance sector (retail business) in India will be drastically developed in the forthcoming years. The insurance sector will have more control in healthcare industry if the insurance penetrate. I will conclude the

paper by adding one more point in it, the pending Insurance amendments bill, increment in foreign direct investment (FDI) from 26% to 49%, if successfully approved by the government of India then the industry will be a go green industry. The inflow of funds from the foreign investor will make the industry to reach the nook and corner of India to increase the penetration. No doubt if the insurance industry receives funds, the private insurance firm can offer more jobs in India and can create insurance awareness and eventually making India a protected country. ******************************************************