Health Insurance Working Group drafts guidelines for pre-existing illnesses

Falaknaaz Syed - Mumbai

With an aim to popularise health insurance and to address the roadblocks hindering its growth, the Health Insurance Working Group that was constituted by The Insurance Regulatory Development Authority of India (IRDA) a few months back, has drafted its report.

Prime recommendations of the Group are that multiple health insurance products at various price points be offered to customers, enable regulation which will prompt sale of retail health insurance policies, use the distribution infrastructure of life insurance companies to sell health insurance, advertise health insurance as a concept and launch an industry level media campaign under the aegis of the ministry and the IRDA to popularise it.

Also, introducing a common pool concept for the terminally ill and people who don’t have access to medical insurance, standard definition, interpretation and guidelines regarding pre-existing diseases, introducing a ‘Medical Savings Product’ for the younger age group, and steps to establish credibility in the whole claims process have been suggested.

Says a member of the Working Group, “Two major achievements of the report are that we have been able to mitigate the ambiguity regarding pre-existing illnesses by giving a standard definition, its applicability etc and suggestions to spread health insurance in rural areas.”

The Group had representatives from ministry of Health, Finance, ESI, CGHS, Corporate Hospitals, Insurers, TPAs, Actuaries, and NGOs and consisted of three sub-committees. The first sub-committee worked towards developing a database for health insurance, the second committee studied the feasibility for entry of stand-alone health insurance companies while the third committee has submitted its suggestions to address the issues related to pre-existing disease and innovate health insurance products.

Elaborates the expert, “Pre-existing disease is a grey area. Many a times policyholders accuse insurers of using it as a tool to reject genuine claims. We have attempted to address the issue. Recommendations when implemented will put an end to the customers and insurance companies grievances and pave way for long term products. The Group believes that ‘long term policies’ should come in the market to avoid this situation. We have suggested that if a person has a policy for more than five years, his claims should not be rejected on grounds of pre-existing illnesses. Prior to commencing of the policy, they have to be a pooling. These suggestions will later be fine-tuned by ombudsmen.”

The other significant recommendation is popularising health insurance in rural areas. “We have to expand rural schemes. Though a lot of R&D work needs to be undertaken before that, the committee will decide if it has to be done by us or by an institute/body specialising in rural health management,” he adds.

To make health insurance an alternative and acceptable method of personal finance risk management tool for individuals, the report suggests that various segments need to be identified, and have product options available at various price points to each segment. One of the ways of segmenting is to have two main categories i.e. urban and rural. Each main category can then have sub-categories i.e. rich, middle class and poor. Products could be designed for pre-existing serious chronic conditions and terminally ill for different customers such as new born babies, school and college-goers, single and earning, double income but no kids, middle aged citizens and senior citizens.

Covering terminally ill people/ Congenital ailments

Since insurance companies don’t cater to the terminally ill category, the Group has suggested that a “common pool of funds” be created which can be used to provide insurance policies to terminally ill people or for specific categories that the Group can define for whom buying insurance policies could be difficult.

Attracting younger age group

Speaking about the recommendation of attracting younger age group by launching a product called “Medical Savings Product”, the expert said, “Here, customers can deposit some money with an insurance company (under the annual tax benefit under Section 80D or against other provisions of the income tax). This amount should be allowed to accumulate till utilised by the customer. The unclaimed amount can be accumulated by the insurance company and can be used for any kind of medical expenses by the customer in future. These can be paid out against claims made by the customer. On the outstanding balance, the insurance company can pay a return which either could be added to the accumulated corpus or be paid to the customer. This is also the first step in creating a financing tool for customers to create a corpus for long term care.”

Distribution and Marketing of health insurance

The report has suggested that electronic selling options such as selling insurance over the phone and the web be used. Since legislation regarding distribution of insurance is limiting in nature to the demands of a dynamic retail distribution, the report suggests that one of the options would be to keep the overall commission structure the same, but motivate agents by sales promotion programmes, which are competitive in nature.

Life insurance companies to sell health insurance

Says the report, “Since Life insurance companies have a wider distribution reach, guidelines for medical underwriting, the industry could work further to develop underwriting guidelines for health insurance related medical underwriting as well. The distribution of life insurance companies has already been integrated to take care of the medical check-ups etc for life insurance policies and the same infrastructure and process could be used to deliver health insurance policies.”

Ensuring credibility

The report emphasises that product documentation has to be very clear. All information needed by the customers should be made available and accessible by the insurance companies. To put an end to the difficulties which the claims service providers i.e. Third Party Administrators (TPA’s) face for handling claims, the report suggests that insurance companies take concrete steps to provide clear guidelines and instructions enabling TPA’s to effectively manage and settle claims. Citing the issues of pre-existing illnesses and its application on claims, the report recommends that “the contracts between the TPA’s and the insurance companies should be watertight.”

Fraudulent claims

Fraudulent claims when discovered and proved should be liable to strict legal action including imprisonment.They should be treated as a criminal offence.

Product Innovation from the insurance company’s perspective

To make health insurance business viable for any insurance company to be interested in investing in this business; concepts of co-payment, co-insurance and voluntary deductibles should be used by the companies to control frauds and to refrain customers wanting to avail luxury facilities as this can impact the insurance company adversely.

Products for Rural India

A major reason for the limited success of rural schemes is the logistics management of the distribution and claims aspects of health insurance. The report suggests that panchayat machinery be actively used in promoting and managing health insurance and primary healthcare units in the rural areas. For people below the poverty line living in the rural areas, it is important that the government plays an active role in helping them get basic health care and it maybe important to look at options to finance health insurance premiums.

Concept of Pre-existing conditions/ ailments (extracts from the report)

One of the major sources of asymmetric information for health insurance policies is the presence of adverse health conditions either known or unknown to the insured, but not known to the insurer at the time of application. As a result, under certain circumstances, insurance companies are legally entitled to deny or reduce coverage or deny claim payment related to a condition that existed at or prior to the date on which the policy was issued.

From a customer perspective, however, the concern expressed is that some insurers are using the concept of “pre-existing condition” as an unfair means of denying or reducing coverage or payment. Such practices affect the credibility of the health insurance product and are one of the potential reasons for the lack of acceptance / popularity of the health insurance products in India.

Therefore, the Group recommended that a standard interpretation be framed and all insurance companies adhere to the definition and interpretation and the framework while offering any product which does not offer coverage to pre-existing conditions / ailments.

Definition of Pre-existing

“Pre-existing condition” is a concept, not an invariable definition. And what may be a prohibitive “pre-existing condition” in respect of some policies, may not even be relevant in respect of others. For example, an insurer whose health policies specifically exclude AIDS from coverage. If a policyholder contracted AIDS prior to purchasing the policy, and died from AIDS, it would be a “pre-existing condition” for policy purposes, and would entitle the insurer to refuse payment. However, if the policyholder died from something totally unrelated, it would not be a “pre-existing condition” for the purposes of the policy, and the insurer would not be entitled to refuse payment.

The concept of “Pre-existing” can come under two heads : n Pre-existing conditions (e.g. obesity, hypertension, diabetes, etc.) n Pre-existing ailments (e.g. asthma, angina, Coronary Artery Disease etc.) n The line of division between the two concepts is very narrow.

Pre-existing conditions

Pre-existing conditions was defined as a “medical condition”, any physical or mental condition resulting from an ailment, illness, injury, disease, lifestyle, occupation, sickness or congenital malformation. It could broadly be classified as congenital or acquired which could further be categorized into two categories that is ‘Static’ where there is no further impact on the health of a person. For instance a person loosing a finger in an accident. The other category is ‘Progressive’. Conditions in this category could potentially have further impact on the health of a person. For instance diabetes.

Pre-existing ailment

Signs or symptoms of the pre existing illness, ailment should be reasonably apparent at the time of buying the policy. The concept of “lookback period” should be introduced. This means that when an insurance policy doesn’t cover pre-existing and where the customer has not declared the existence of any pre-existing at the time of buying insurance, insurance companies can at the time of a claim can go back only upto a period of 18 months, look back into the medical history of the customer and deal with claims as appropriate based on this information.

The Group has suggested that the insurer identify and obain information on matters that are important for adequate underwriting purposes and the customer declare correct and complete information.

The Group has suggested options for covering Pre-existing conditios/ailment. Either by doing a medical check-up. In addition to this, the insurance companies should obtain a declaration for pre-existing conditions/ailments as part of the proposal form. If the applicant indicates the existence of any pre-existing or if the medical check-up results indicate any pre-existing, the insurer can either issue the policy by imposing an additional premium or deny issuance of the policy. It may be advisable to start with an approach where named pre-existing ailments / conditions could be covered and as the companies gain experience more and more ailments / conditions could be added for coverage eventually leading to scenario where only named pre-existing ailments / conditions are left out of coverage.

Creation of Common Pool

Any thing that is excluded from an insurance policy which covers pre-existing should be covered from a central pool which is maintained by the IRDA for this purpose. There should be a clear definition of ailments which if pre-existing or otherwise should be payable from the pool. This pool could either be used as a source from which re-insurance could be provided to health insurance companies or a central regulatory authority could run its own independent scheme for health insurance to eligible persons.

After another review, the report is to be submitted to the Union Health Ministry next month.

falak@expresshealthcaremgmt.com