What’s New in Health Insurance

Miscalculated and one-sided enforcement of negotiated rates may desist the medical fraternity from providing the best considered treatment since it may turn out to be more expensive than the rates set by the insurance companies

Deepak Mendiratta

Health insurance seems to be the buzzword these days in the healthcare industry. From a few hundred crores of premium five years ago, the health insurance premium kitty is looking at closing at Rs 4000 crore during this financial year. This figure can go up to Rs 15,000 crore by 2015. This increase in health insurance premium signifies that increasingly the financing mechanism from patients to healthcare providers is shifting and will further shift from cash to credit through cashless transactions.

In India, currently a plethora of activities are underway to promote the penetration of health insurance and some significant developments include the demand-driven growth of the industry making it an attractive investment opportunity, relaxation of pricing controls in the insurance sector and removal of cross subsidisation, leading to sensible pricing practices for health insurance products and the desire of the government to promote insurance penetration through promotion of standalone health insurers with new regulations expected to be in place, shortly.

The article highlights three major trends in this sector.

Emergence of New Products

Health insurance was hitherto a loss-making proposition for insurance companies and often viewed as an 'accommodation cover' to be given to corporate customers at a discounted rate in lieu of their other insurance business wherein no discounts could be offered, given the government-set tariff rates. But with the onset of 'detarriffing' in the insurance industry and rates for all lines in insurance becoming market driven, the focus on health insurance as a separate line of profitable business has emerged.

A new genre of health insurance products are now starting to come into the market focussed on wellness through diet counselling, disease management to assist chronic patients control their condition on self sustaining basis and avoid hospitalisation due to complications which can otherwise be prevented.

Star Health and Allied Insurance Company has introduced an innovation in product design to cover diseases which until now were excluded viz AIDS. All insurers now cover some major ailments which can be treated on an outpatient basis not necessarily requiring hospitalisation for a minimum of 24 hours. ICICI Prudential Life now offers a product that provides long-term health insurance cover, as much as for 20 years, unlike single year contracts as earlier. Another interesting feature offered by Bajaj Allianz Life Insurance as a rider is the ability to take second opinion from the best in class international hospitals including Mayo Clinic, John Hopkins etc for specified critical ailments.

There is a distinct possibility of introduction of Health Savings Account wherein a part of the premium paid by the policyholder will get deposited for utilisation at a later stage in life while continuing to offer a regular health cover. Such features will not only fill a void hitherto unaddressed by the Mediclaim, but will also offer insurance companies a differentiating edge to market their products.

Claim Control Mechanisms

A couple of years ago, it was reported that some healthcare providers have been observed to charge an insured patient as much as 1.6 times higher than an out-of-pocket paying patient! Compare this with developed insurance markets like the US where the leveraging capabilities of insurers as bulk purchasers of healthcare services are used to obtain increasingly large discounts from providers and has often led to pressures on profit margins for hospitals. Sooner than later, this trend will take root in India also.

A case in point is the CGHS model where in the payout to private healthcare providers is only a few hundred crore rupees. The rates negotiated by the CGHS are almost half or lesser as compared to the market rates charged by some hospitals. There are signs of insurance companies / TPAs looking at leveraging their buying power with providers, a move that was partially successful though mid way aborted sometime in 2004 -2005.

The insurers are increasingly looking at reducing their claim payouts to hospitals through negotiated rates, prudent cashless network design and management. This may include reducing the number of hospitals on their cashless network list, thereby increasing the flow of revenues to a few well spread network of hospitals and negotiating better discounts with them.

Recently, one public sector insurance company has instructed their empanelled TPAs to reduce their hospital network by more than 60 per cent around NCR in an endeavour to controlling claim payout on account of suspected fraudulent billing and high healthcare costs.

A word of caution here. What is the impact of claim control measures such as negotiated package rates have on quality and type of treatment provided by healthcare providers? Miscalculated and one-sided enforcement of negotiated rates may desist the medical fraternity from providing the best considered treatment since it may turn out to be more expensive than the rates set by the insurance companies.

For example, the introduction of Cell Saver Kits for the reuse of a patient's own blood during surgery is a significant medical advancement to avoid contracting a number of diseases through infected donor blood as well as in cases where blood may not be readily available. The use of such kits is not paid for by the insurance companies, leading to a disincentive for the doctors to use this for insured patients when the rates are set in advance. This may have legal implications given its possible impact on health outcomes and the adoption of newer technologies.

Other claim control measures dovetail into policy design and include enforcement of sub limits under various categories of hospital expenses viz room rent, doctors charges, drugs and consumable costs etc. Policies may include other components like co-insurance i.e. a fixed percentage payment of the bill amount- viz 10 per cent. Such features are expected to increase greater responsibility of the policyholder for the healthcare costs incurred during hospitalisation.

Electronic Transactions

This is a trend that is expected to increase in times to come with the authorisation approval up until the revenue accrual process becoming electronic. Already some aggregators are beginning to make their presence felt in this area including IBM India, which has started online claim management solutions. This will lead to a maturing of the Revenue Cycle Management business. This development will increase the speed of operations in processing, will introduce greater transparency in claims administration and quicker settlement for providers.

The writer is Managing Director Health & Insurance Integrated, which specialses in corporate employee benefits and revenue cycle management
Email: deepak@hii.co.in