NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

(IX SEMESTER 2023-24)

Topic: Regulations for Health Insurance in

India and related risks

SUBMITTED BY- SOUMYA VERMA

SUBMITTED TO – PROF. MAHENDRA SONI

ROLL NO. – 2019BALLB35

ENROLMENT NO. - A-2077

 TABLE OF CONTENTS

S. No. Contents Pg. No.

1. Introduction 3
2. Statement of Objective and synopsis 4-5
3. Overview of health insurance 5-6
4. Regulatory mechanism of health insurance 6-7
5. Different types of frauds 7-13
6. Conclusion and suggestion 14-15
7. Bibliography 16

ACKNOWLEDGEMENT
I take immense pleasure in presenting this piece of project work for it provided me an
opportunity not only to gain in-depth knowledge about the concerned topic but also helped
me in developing research skills.

I would like to express my gratitude to Prof. Mahendra Soni, under whose guidance I have
been able to present this project, on the topic, “Regulation of Health Insurance in India and
related risks”.

Lastly, I would like to thank my family and friends for giving constant aid and succour
directly and indirectly in preparing the project in trying times like these.

Thank you.

INTRODUCTION
Having health insurance provides financial protection in the event of a serious medical
emergency. The primary actors in this field are health insurance firms, healthcare providers
 (such as hospitals and clinics), and policyholders. Each participant is essential to the success
of the whole. The health insurance business deals with substantial sums of money and is thus
susceptible to fraudulent acts. Criminals engage in fraudulent practises to gain access to this
liquid resource. Fraudsters can be from the health insurance company or from the healthcare
domain or by the policy holder.
Intentional misrepresentation with the purpose of gaining an improper advantage1 is a more
precise definition of fraud. While health care and health insurance fraud are punishable by
law, there is no agreement on what constitutes fraud in these industries internationally.2. A
person purchases insurance and agrees to pay a premium on a yearly, semiannual, or quarterly
basis. There is a massive flow of money in and out of this industry, which attracts dishonest
people who want to steal some of it. Health insurance fraud results in a significant loss of
resources, which necessitates immediate action. Those who have insurance policies are the
ones who feel the effects most directly since, if insurers incur a loss, they respond by raising
policyholders' annual rates to recoup some of their losses. Only legitimate clients are harmed
by these scams1.
There has been a dramatic increase in health insurance fraud and misuse, resulting in massive
financial losses for providers. Although it is impossible to completely prevent fraud, its
effects can be mitigated. This research investigates the existence of frauds and the
accompanying lefal framework in the Indian society.

STATEMENT OF PROBLEM
Health insurance firms, hospitals, clinics, and policyholders dominate this arena. For the
process to go smoothly, each party is crucial. Fraud is possible in the health insurance sector
since so much money travels there. Fraudsters commit fraud to obtain this liquid fund. Health
insurance companies, healthcare providers, and policyholders can commit fraud.

RESEARCH QUESTIONS

1. What is the existing regulatory framework for health insurance in India?

2. How are insurance frauds committed?
3. What sorts of health insurance fraud exist?

RESEARCH OBJECTIVES
1
Carter, Robert Lewis. Economics and Insurance: An Introduction to the Economic Aspects of Insurance.
PH Press Limited, 1972.
 1. To assess legal framework for the Indian Health Insurance Sector.
2. To study fraud in the sector.
3. To study regulatory aspects from other jurisdictions.
4. To suggest measures to enhance governance of frauds in the sector.
HYPOTHESIS
The researcher hypothesises that the health insurance industry has a lot of money, hence fraud
is possible.
REVIEW OF LITERATURE
BOOKS
1. “N., J.J.V. and Malik, S. (2016) J. V. N. Jaiswal's law of insurance. Lucknow: Eastern
Book Company.
Insurance legislation has altered dramatically in liability, property, and life and health
insurance over the previous two decades. The Second Edition of “Law of Insurance” has been
thoroughly revised, updated, and expanded with the latest case laws to give insurance law
practitioners a broad view of both traditional insurance law concepts and cutting-edge legal
issues affecting contemporary insurance law theory and practise. National Consumer
Disputers Redressal Commission, Supreme Court, High Court, and State Commission
judgements have been thoroughly reviewed and analysed. In this book, new chapters explain
transit risk insurance and health insurance. An additional multiplier technique section has
been added to the Motor Vehicle Insurance chapter.
2. "Insurance Law and Practise” - is a text for insurance students that covers life, fire, marine,
Employees State, motor vehicle, fidelity, home as well as liability insurance. Also discussed
are personal accident, professional indemnity, shopkeeper's insurance, Mediclaim, air travel,
and student safety. Summarised Deposit Insurance and Credit Guarantee Act and Insurance
Regulatory Development Authority Act clauses. This version introduces ‘Pradhan Mantri
Fasal Bima Yojna’. The book introduces creditability theory, back dating, & insurance scams
and uses current facts and laws.
RESEARCH PAPERS
1. Devadasan, N., Ranson, K., Van Damme, W., & Criel, B. (2004). Community health
insurance in India: an overview. Economic and Political Weekly, 3179-3183.
Devadasan et al.'s "Community Health Insurance in India: An Overview" examines Indian
community health insurance schemes' effects on healthcare access and financial security. It
acknowledges these systems' challenges and advocates for more research and policy. To stay
 current on healthcare financing in India, readers should supplement this fundamental study
with more recent literature.
2. Anita, J. (2008, February). Emerging health insurance in India–an overview. In 10th
Global Conference of Actuaries (pp. 81-97).
Anita's 2008 paper at the 10th Global Conference of Actuaries provides a useful summary of
India's health insurance market. For actuaries, politicians, and healthcare professionals, it
sheds light on the changing healthcare financing industry. Since the area is always changing,
readers should supplement this work with more recent research to stay current on Indian
health insurance.
STATUTES
1. Insurance Act, 1938
The code has simplified the definitions to understand its concept. The code prevails and
provides an insight into the definitions of risks associated with the preconceived insurance
system. India's Insurance Act of 1987 is crucial to the insurance business. It provides a
comprehensive framework for insurance company operation and oversight, protecting
consumers and industry stability. This act shaped India's insurance business and remains a
cornerstone of insurance regulation.

OVERVIEW OF HEALTH INSURANCE

A person can protect his or her life, assets, and health financially by investing in insurance.
Insurance for medical expenses including doctor visits, prescription drugs, and hospital stays
is what we call health insurance. "Health insurance business means the effecting of contracts
which provide for sickness benefits or medical, surgical, or hospital expense benefits,
whether in-patient or out-patient travel cover and personal accident cover," as stated in
Section 2 (6C) of the Insurance Act, 1938. Purchasing a health insurance policy will make
these expenses more manageable and predictable. Cashless coverage and reimbursement
coverage are the two primary types of health insurance. In cashless coverage, the insurance
company pays the hospital upfront, and then reimburses the patient for any out-of-pocket
expenses. Picking a health insurance plan that's both affordable and comprehensive can be a
lot of work. Health insurance is a standard employee perk in both high- and low-income
nations. Two primary categories of medical coverage exist:

 Socialised medicine
 Personal medical insurance
An insurance programme in which citizens can purchase coverage from their government at a
heavily discounted rate is called public health insurance. Roughly half of all Americans are
covered by this type of policy. Public health insurance programmes in the United States
include Medicaid, Medicare, and the Veterans Health Administration.
When an individual purchases a health insurance policy on his own dime, he is said to have
private health insurance. In addition to increasing premiums, the cost rises across the board.

HOW A CLAIM FOR HEALTH INSURANCE IS MADE:

Any time a claim needs to be reviewed before it can be paid. The claim is first checked to
ensure it is legitimate (the correct tenancy was used, the customer's information is genuine,
etc.). In order to get their insurance claims approved, medical professionals must provide the
correct CPT/ICD code, which is the international categorization of disorders. When a claim is
filed, an inspector is assigned to review it and verify the submitted details, including the
nature of the illness, the services provided, and the total cost of care. If a disparity is found,
the claim is sent for pre-authorization review, during which the insurer talks directly with the
healthcare provider to clarify the situation, and the claim inspector can decide to deny all or
part of the claim settlement process. After that, the claim settlement officer receives the
reports for processing. This is the standard procedure, but it requires extra work from both the
insurance company and the policyholder.

REGULATORY MECHANISM FOR HEALTH INSURANCE

To regulate, develop, and maintain the orderly expansion of the insurance business in India,
the Authority has been granted certain tasks, powers, and functions under the Insurance
Regulatory and Development Authority Act, 1999. To implement this Act and the rules made
thereunder, the IRDA Act of 1999 grants the Authority the competence to make regulations
consistent with this Act and the rules issued thereunder in Section 26. In accordance with
section 26 of the Act and after consulting the Insurance Advisory Committee. It's worth
noting that the IRDA Act makes no mention of health insurance in any way. Several Acts and
Regulations enacted by the Insurance Regulatory and Development Authority govern health
insurance in India. The fragmented nature of health insurance regulation, as seen by the
existence of a patchwork of regulations, is problematic. The majority of these laws and rules
pertain to insurance in general. The Insurance Regulatory and Development Authority
(Health Insurance) Regulations, 2013 are the only regulations that directly address health
insurance.
IRDAI (HEALTH INSURANCE) REGULATION, 2016
In an effort to create uniformity in health insurance across the country, the IRDA has
produced the Health Insurance Regulation, 2016 2. Among the many policyholder issues
addressed by these rules are those of senior citizens and regarding insurance products and the
guidelines as to its usage, altogether with the policies.

A major public issue is addressed by health insurance plans. Despite its tremendous
expansion, health insurance is still not widely available. Complaints have also been received,
largely as a result of ambiguities surrounding the meaning of important policy phrases. The
authority has mandated health insurance standardisation to meet public demand.

The Guidelines require insurance companies to include fraud detection and mitigation
mechanisms in their corporate governance framework and to report to the Authority on a
regular basis using the forms specified in the Guidelines.

According to the Insurance Regulatory and Development Authority (Health Insurance)

Regulations, 2016, the only direct Regulation IRDA framed to regulate health insurance in
India, the Authority hereby issues these Guidelines on product filing procedures for products
relating to Health Insurance Business for compliance by all Insurers and TPAs, as may be
applicable, in terms of various provisions of the said Regulations.

In spite of this, legislation such as the Insurance Regulatory and Development Authority
(Protection of Policyholders' Interests) Regulation, 2002 was enacted to look out for
policyholders' best interests. This coverage is intended for use with fire, marine, and life
insurance policies. Remember that unlike other types of insurance, health insurance requires
the participation of three separate parties in order to function. The Insurance Regulatory and
Development Authority's "Protection of Health Insurance Policyholders' Interests Regulation"
necessitates this.
INDIAN PENAL CODE, 1860

Section 23 and 24: Utilises the term "wrongful gain"

2
Governing Body of Insurance Council, formed under Rule 6 (1) Redressal of public Grievances rule of
1998.
Section 25: A person is said to act fraudulently if he acts with the intent to defraud but
not otherwise.
Section 463: Relates to forgery and this is relevant for health insurance fraud.
Section 477 A: Relates to falsification of accounts. This may be an applicable section
in some cases of health insurance fraud.
INDIAN CONTRACTS ACT, 1872
Health insurance is essentially a contract between the policyholder and the insurer.
Since health insurance policies are a type of contract, the Indian Contract Act of 1872
governs their formation and enforcement. Similar to other types of insurance
contracts, health insurance policies last for a year and have an automatic renewal
clause for the same annual fee.8 This is a typical sort of insurance policy contract, in
which the insurer sets all terms and conditions and the policyholder can do nothing
except accept them or cancel the policy. Therefore, the insured has no leverage in
negotiations. The insurer is not protected against unfair and unreasonable terms by the
Indian Contract Act, 1872 or any other insurance law.

THE CONSTITUTION
Despite the obvious importance of health and healthcare, the Constitution contains no explicit
provisions in this area. The lack of a direct provision relating to health does not pose a
significant obstacle to the formulation of policy and the enactment of law on health and
healthcare by the Centre and the State, as the Centre and the State are indirectly directed to do
so by various provisions of the Indian Constitution. The Constitution places most of the duty
for health care services on the State governments, but it still leaves room for the Central
government thanks to the extensive concurrent list. As a result, the Centre now exerts a
greater degree of influence in the health industry.
Article 21 of the Indian Constitution guarantees every citizen the right to life, therefore even
though the right to health was denied that status, it still has the potential to become one. In
addition to this, there are also DPSP that work to protect the health of a specific population.
The lack of a requirement in the DPSP for the State to promote and ensure the orderly growth
of insurance company in India is intriguing. It is clear that a change needs to be made to the
Constitution to close this gap.
ADR
As with any service-based industry, customer expectations and complaints about the health
insurance industry are continually on the rise. Consumer dissatisfaction is considerable, and
the industry has a poor reputation despite ongoing product innovation and significant gains in
customer service enabled by modern technologies. The government and regulators have taken
numerous measures in response to this situation. In 1998, the Insurance Policyholders'
Ombudsman office was founded.
was founded, and the Animal Exploitation and Protection Act of 2002. The lack of an
effective ombudsman mechanism and the pre-eminence of dispute resolution have serious
consequences for the health insurance industry. The Dispute Resolution System is where
IRDA needs to put its full attention.
INSURANCE ASSOCIATION OF INDIA, COUNCILS AND COMMITTEE
According to Section 64A of the Insurance Act of 1938, all insurance companies operating in
India must get together to form a corporation known as the "Insurance Association of India."
According to this Section, the Insurance Association of India will have the power to acquire,
keep, and dispose of any and all property, as well as the right to use and be sued under its
legal name.

DIFFERENT TYPES OF FRAUD

Most insurance fraud is uncovered in the auto, farm, and medical coverage sectors. Financial
fraud detection" paradigm is the basis for most of the current research into detecting and
preventing fraud in various fields.
Since all newly purchased vehicles are required to have insurance, auto insurance fraud is a
widespread sort of fraud that results in the loss of millions of dollars annually. Cases of fraud
such as accident staging, claimant non-involvement, wage-loss exaggeration, other significant
exaggerations, fabricated injuries, and multiple claims for the same injury are detailed here 3.
Farmers that have obtained crop insurance but then exaggerate or fabricate their losses are
committing "crop insurance fraud." Farmers making false claims of crop damage before
selling off the remnants under assumed names. Farmers' insurance claims for lost crops that
were never planted are another example.

3
Joudaki, Hossein, et al. "Improving fraud and abuse detection in general physician claims: a data mining
study." International journal of health policy and management 5.3 (2016): 165.
 Obtaining questionable benefits through healthcare costs is one definition of health insurance
fraud. Upcoding, down-coding, inflated billing, misleading customer information,
information concealment, and "unbundling of" instances are all prevalent types of fraud.
HEALTH INSURANCE FRAUDS

 HOSPITAL FRAUDS - When a person needs medical care, they usually visit a hospital or
clinic, which is where most health insurance fraud occurs. The doctors or chemists are red
flags for potentially fraudulent activity that is motivated by financial gain. According to a
study done in Iran, approximately 2% of doctors there engage in fraudulent behaviour in
order to financially benefit from their insured patients. There are essentially four broad types
of fraud that we can identify here4.
 According to the Centre for Medicare and Medicaid Services, "upcoding" is a "major
fraudulent billing activity" in which a healthcare provider (hospital/clinic) bills for a more
expensive service than was actually provided by manipulating ICD codes and CPT. The
hospital receives a large sum of money after submitting the claims to the insurance company
for processing. Millions of cash are at stake, making this a very dishonest act.
 Patients may or may not be aware that their doctors and chemists are working together to
write false prescriptions. Based on the criteria used by the medical community and insurance
companies, it meets the criteria for legitimacy. By sending fraudulent prescriptions to
insurance companies, scammers steal money.
 Overstated Claims: "Inflating the seriousness of the medical conditions and thereby inflating
the medical requirements as well as drugs needed, whilst the services were not received,
poses another threat to the insurance provider when the claimant claims for a huge amount.
 Unbundling is the fraudulent practise of deliberately breaking apart billing codes for the
advantage of healthcare providers. Both the general code (such as surgery) and the procedure
codes (such as total hysterectomy with distinct codes for oophorectomy, salpingectomy, etc.)
must be used to accurately record a woman's reproductive health history5.
CUSTOMER FRAUDS

4
Sheshasayee, Ananthi, and Surya Susan Thomas. "Implementation of data mining techniques in upcoding fraud
detection in the monetary domains." 2017 International Conference on Innovative Mechanisms for Industry
Applications (ICIMIA). IEEE, 2017: 730-734.
5
Miller, Lawrence G. "Reducing health care costs using claims adjudication software." Physician
executive 19.3 (1993): 52-54.
 In this case, the client, who is also the health insurance policy holder, commits fraud in order
to steal money. Among them is "Customer submits false age details while submitting
application forms for health insurance," which refers to the practise of changing a person's
age on an application. The fact that clients beyond a particular age for a certain sickness will
not be issued an insurance is cause for concern. As a result, clients try to circumvent
insurance regulations and acquire access to illicit assets by providing false information about
their ages.
 Covering up medical history: "Under our policy, a client who is currently ill cannot apply for
new health insurance that covers the particular disease." Some dishonest clients try to get new
health insurance coverage by lying about their medical history. It's illegal and against the law.
 Claim fraud occurs when a customer submits the same claim settlement form to multiple
insurance providers for the purpose of receiving double benefits. This occurs frequently with
cash settlements but seldom without cash. For instance, claims for a customer's parents will
be filed not only with the customer's group coverage insurance provider, but also with the
parents' health insurance provider.
INSURANCE PROVIDER FRAUDS

A client's health insurance provider is referred to as the "Insurance Provider." A small but
noticeable amount of fraud is affecting policyholders here as well. Among these are "Delay in
claim settlement," in which the insurance provider gives false excuses for why it is taking so
long to pay out a claim, such as "missing documents" or "non-approval of submitted
documents6."

Insurance firms impose inflated premiums on their consumers to make up for the money they
lose as a result of healthcare professionals engaging in fraudulent activities. The only people
who lose out are the real policyholders who are hit with a higher premium because of this.

6
Hager, Greg, Cindy Upton, Rick Graycarek, Van Knowles, Erin McNees, and John Perry. "Information
Systems Can Help Prevent, but Not Eliminate, Health Care Fraud and Abuse." (2006).
 CONCLUSION AND SUGGESTION

In today's world, a nation's progress is directly tied to its investment in its people. The health
sector is underfunded in India despite its critical relevance. The healthcare industry in India is
highly developed. There are two ways to look at India's healthcare system: via an empty or
full glass. Reducing mortality rates, improving physical infrastructure, providing health
insurance, assuring availability of trained medical workers, etc. are just some of the major
problems the industry faces. Both infectious and non-infectious, non-communicable diseases,
such as chronic diseases, are on the rise. Hospital beds and qualified medical staff like
physicians and nurses are in low supply, limiting people's ability to get the care they need
when they need it. There is also a large gap between rural and urban locations, with rural
areas having far less accessibility.
While the Indian healthcare system is under increasing strain, it is not yet equipped to handle
the increased demand. Health insurance is a tool that can guarantee effective treatment for all
people, regardless of their ability to pay. Therefore, it is the responsibility of the legislation to
promote and guarantee the healthy expansion of health insurance. Health insurance law also
needs to be in line with the principles laid out in India's founding document.

"Indian health insurance law is fragmented among numerous statutes and regulations,
including the Indian Contract Act, the Law of Torts, the LIC Act of 1956, the GIC
(Nationalisation) Act of 1972, the Insurance Act of 1938, and the IRDA Act of 1999. This
demonstrates the absence of a coordinated and comprehensive approach to health insurance
law, and instead exposes a fragmented, segmented, or object-oriented approach to health
insurance regulation. With the exception of the Insurance Regulatory and Development
Authority (Health Insurance) Regulations, 2016, none of these laws specifically address
health insurance, and they only regulate certain areas of health insurance in a peripheral or
 tangential way. Poor health insurance density and penetration can be attributed to India's
patchwork of laws and regulatory agencies.

According to the research, "the only regulation and perhaps the only law, which exclusively
deals with the health insurance is the Insurance Regulatory and Development Authority
(Health Insurance) Regulations, 2016." Despite the fact that the Regulation was successful in
some areas like settlement of claims and provision relating to standard exclusion etc., it failed
terribly. field of health insurance, particularly registration of health insurance companies,
dissemination of product information, free look period, portability of health insurance policy,
Ayush coverage etc. The disconnect between what customers expect from health insurance
and what providers actually provide is laid bare.

The interests of insurance policyholders are to be safeguarded by IRDA. In order to

accomplish this goal, the Authority notified the Insurance Regulatory and Development
Authority (Protection of Policyholders' Interests) Regulation, 2002 to include provisions for:
policy proposal documents written in plain language; claims procedure for both life and non-
life policies; the establishment of grievance redressal machinery; the prompt settlement of
claims; and the servicing of policyholders. Insurers are required to compensate claimants
with interest for the time it takes them to get payment under the Regulation. The research
shows that while this Regulation is helpful, it is not perfect. Also, unlike other types of
insurance, health insurance requires the participation of three separate individuals or
organisations, making it a unique subset of the insurance industry. Insurance Regulatory and
Development Authority (Protection of Health Insurance Policyholders' Interests) Regulation
is necessary because of this.
SUGGESTION

 Parliament should enact a complete piece of legislation by updating and unifying existing
health insurance laws. The proposed law should develop a system to encourage and ensure
the steady expansion of the insurance industry in India.
 The policyholders should be shielded against the inappropriate and unfair conditions of the
standard form of contract by the safeguards built into the proposed legislation. In addition,
the proposed Act should contain provisions to prevent deceptive and unfair business
practises, such as price-gouging, on the part of health insurance providers.
 Third, the Insurance Regulatory and Development Authority should draught a new rule called
the Insurance Regulatory and Development Authority (Protection of Health Insurance
Policyholders' Interests) Regulation.
 Fourth, similar to the UK's Fraud Act of 2006, insurance fraud in India should be a crime
punishable by up to five years in prison. The Insurance Act of 1938 has to be updated to
reflect this shift.

BIBLIOGRAPHY

1. PRIMARY SOURCES

Statutory Instruments

1. Constitution of India
2. Indian Contract Act, 1872,
3. Companies Act, 1956
4. Consumer Protection Act, 1986,
5. Insurance Act, 1938
6. Insurance Regulatory and Development Authority Act, 1999
7. Public Liability Insurance Act, 1991
8. Insurance Regulatory and Development Authority (Third Party
Administrators - Health Services) Regulations, 2001
9. The Insurance Regulatory and Development Authority (Protection of
Policyholders’
Interests) Regulation, 2002
10. Insurance Regulatory and Development Authority (Health Insurance)
Regulations, 2013

11. Insurance Regulatory and Development Authority (Health Insurance)

Regulations, 2016
2. SECONDARY SOURCES

Books

1. Agarwala, A.N. Health Insurance in India (Allahabad: East end Publishers).

2. N., J.J.V. and Malik, S. (2016) J. V. N. Jaiswal's law of insurance. Lucknow: Eastern
Book Company.
 3. Health Insurance (Insurance Institute of India, Mumbai, 2019).
4. Basics of Health Insurance (Insurance Institute of India, Mumbai, 2013).

Articles
1. Anita, J. <Emerging Health Insurance in India- An Overview= 10th Global
Conference of Actuaries. www.actuariesindia.org/research-resources-
publications/onlineresources.
2. Rashmi Jha, <Health insurance frauds in India=.
https://blog.ipleaders.in/health- insurance-frauds-india
3. Celia Jenkins , Damini Ghosh and Priya Misra, <India: Health Insurance
Regulations & Guidelines: The Recent Overhaul=
https://www.mondaq.com/india/insurance-laws- and-products/524342/health-
insurance-regulations-guidelines-the-recent-overhaul
4. Hayati, Ramin & Kabir, Mohammad & Kavosi, Zahra & Bastani, Peivand &
Sobhani, Ghasem & Javadinasab, Hamideh. (2019). Legal and policy
requirements of basic health insurance package to achieve universal health
coverage in a developing country. BMC Research Notes.
5. Tillman, Robert, and Michael Indergaard. "Field of schemes: health insurance
fraud in the small business sector." Social Problems 46.4 (1999): 572-590.
6. Hager, Greg, Cindy Upton, Rick Graycarek, Van Knowles, Erin McNees, and John
Perry. "Information Systems Can Help Prevent, but Not Eliminate, Health
Care Fraud and Abuse. (2006)”.
7. Joudaki, Hossein, et al. "Improving fraud and abuse detection in general physician
claims: a data mining study." International journal of health policy and
management 5.3 (2016): 165.
“

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