HEALTH INSURANCE IN INDIA

HEALTH INSURANCE

INDIA IS NEVER AS GOOD AS IT LOOKS AND NEVER AS GLOOMY AS IT LOOKS.

GROWTH ENGINE OF INSURANCE INDUSTRY:

Health insurance has emerged as major growth driver and as most prominent segment in the insurance space today. Growth of health portfolio is significant and already contributing a sizeable chunk of business to insurers.Growth in private health insurance has also expanded demand for hospital services at secondary and tertiary level. The greater utilization of hospital services not only has contributed to longer expected life for all including poor and aged but has also lifted the face of health care in India.

HEALTH INSURANCE PREMIUM                            INR Crore
INSURER	2003-04	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
PSU TOTAL	1212	3824	4884	6913	8133	9265	10842
PVT TOTAL	142	2801	3421	4257	5255	6076	6957
INDUSTRY TOTAL	1354	6625	8305	11170	13388	15341	17799
MARKET SHARE PVT	10.49	42.28	41.19	38.11	39.25	39.61	39.09
MARKET SHARE PUBLIC	89.51	57.72	58.81	61.89	60.75	60.39	60.91

Table-1

The growth in this segment is expected to remain northward as it has tremendous growth potential for the fact that only 15 percent of Indian people have some form of health insurance coverage. This is pathetically low. A vast geographical spread of population remains out of the reach for medical and nursing care.It reminds that there is an urgent need to revitalize the health insurance coverage in the country where out-of-pocket payments are still among the highest in the world.

ACCESS TO HEALTH CARE IN INDIA:

Access to health care service whether should be measured in terms of health insurance coverage or the availability of doctors and hospitals is the moot question. It is fact that there is a huge gap between the objectives of Universal Health Insurance (UHI) and the current state of health care in India. Health spending in India does not compare well even with some of the developing countries.86% of medical care is met out-of-pocket by Indians. In US these expenses are 21%, In UK & China these are 53% & 58% respectively. Only Russia’s out of pocket expenses stood 88%. High out-of-pocket expense is exactly the reflection of low health insurance coverage in India.

Health care delivery to common man especially the people below poverty line (BPL) has remained a highly debated issue in the country. One illness episode in their lifetime may put them in trap of bankruptcy. Universal Health coverage, only can serve as a powerful social tool towards building an inclusive society. This needs a multi stakeholder approach of the consumers, health care providers, insurers, regulator, third party administrators and importantly the Government to take it to its goal. There are many complexities in providing UHI and this should be seen realizing that 75% of health care is in the private sector and it is functioning in an unregulated environment. This is a great challenge for the Payers (Insurers), who operate in highly regulated environment to deal and partner with the Providers of health care (hospitals, nursing homes, diagnostic centers) which operate in unregulated environment except for the archaic legislations enacted by some States. There is a need for bringing health care under the purview of regulator for ensuring orderly & systematic growth. Creating National Health Regulator under Ministry of Health and within the framework of Clinical Establishment Act can give an impetus to this challenging situation where you find no standard protocol on treatment of diseases and the costing of which varies widely from one hospital to other who happily have different SOC (Schedule of charges) giving lot of difficulties to consumers, insurers and TPAs.

As per the Constitution of India public health falls in the State list. Each State has developed its own system of health care delivery. Quality control in manufacture of drugs is however in Concurrent list and both State and Centre can issue legislation. In addition Government of India also supports key health sector initiatives and one such initiative is RSBY (Rashtriya Swasthya Bima Yojna). RSBY is a powerful vehicle for ensuring UHI. This is operative in select districts and extending it to the entire country by making it scalable can be a good option for ensuring UHI.

HEALTH FINANCING IN INDIA:

Health financing models rely on five main sources of funds for paying health care costs in India:

HEALTH FINANCING MODELS
GOVERNMENT FUNDED	EMPLOYER FUNDED	PRIVATE HEALTH INSURANCE	COMMUNITY FUNDED	OUT-OF-POCKET PAYMENTS

In tax-funded system of India the citizens contribute indirectly for health care in government funded schemes. According to the statistics of the WHO, in 2011, India has spent only 3.9 per cent of GDP on health which is the lowest amongst the BRICS (Brazil, Russia, India, China, South Africa) member countries. The blue-collar workers of the country are covered under ESIS (Employees’ State Insurance Scheme) and it is largely financed by employers and employees. The scheme is supplemented by the Central and State Governments. This scheme covers over 50 million beneficiaries. The central government employees in civilian assignment and their families are covered in CGHS(Central Government Health Scheme) and it is funded by employees and largely by Central Government (Employer). This scheme covers over 3 million beneficiaries.

There are community based schemes and government funded schemes operational in some States like Tamilnadu and Andhra Pradesh in addition to RSBY scheme but largely the health financing is dependent on commercial Insurance products or is funded out-of-pocket by households. The commercial health insurance was started in India in 1986 when the subsidiaries of General Insurance Corporation of India launched a hospitalization indemnity product popularly known as ‘Medi-claim’. This product has dominated the indemnity-based category despite so many private insurers with global experience have entered in Indian market. Now there are many variants of health products in the market:

·        Hospitalization Indemnity products

·        Benefit products like daily hospital cash products

·        Critical illness products

·        Top up products & high deductible products

·        Disease Management products

·        Products with outpatient coverage & maternity benefit coverage

·        Micro insurance products

·        Travel and overseas medi-claim products

·        Personal accident products (As per Health Regulation travel and PA falls within health definition)

Rating & underwriting of these retail products is done as per the Board approved Underwriting Policy of the Insurer and as per product & price filed with IRDA. These insurance products are now greatly accepted as financial tool for medical emergencies especially in ever-growing middle class.

Tailored health covers are also available for employer sponsored groups and other groups in addition to retail products. In-fact lot of customization goes into these group policies and pricing of these products is a real challenge for the insurers. Insurance companies do not have the flexibility of pricing health insurance premium for retail buyers as they can not deviate from prices filed with IRDA).But they can price their group insurance premium according to market forces and negotiating skills of the companies aided by their brokers. Obsession to growth has resulted in ridiculously low & unsustainable premium rates for these group accounts. Insurers cannot afford to lose their big renewals and they agree for price cuts on unviable rates. If not, there are many growth obsessed takers of these employer-sponsored risks ignoring outgo related to risk, medical inflation and aging population. This scenario seems to stay for some more time in India.

Another challenge to price group-products is to arrive at burning cost and to have the fair estimation of risk which insurer intends to carry for a period that will also be affected by medical inflation. If it is not the renewal of the insurer it is very difficult to get the correct claim dump and real cost outgo as there are no standard disclosure guidelines either by GI Council or by the Regulator. The efforts are being made at industry level to bring some standardization in disclosure of related information but at present the rating of these products is being done with some assumptions being made to the calculation of the assumed risk. These assumptions are formula to incidence rate and average claim cost prevailing in industry or more specifically in particular geographical area.

VITALIZING HEALTH INSURANCE-CHALLENGES UP-FRONT

Growth in Health insurance business is also fraught with numerous challenges of accessibility, affordability and efficiency in the system in which it operates along with other stake holders. Health insurance is unique from all other forms of insurance as multiple stakeholders are involved in its operational environment. Health care market’s idiosyncrasies stem particularly from 2 sources:

1.       The unevenness of knowledge between physician/provider and the consumer.

2.       The restrictions on profit maximization behavior of physicians imposed by profession consideration & not-for-profit health care entities.

The Eleventh Report of the Committee on PSU (14^th Lok Sabha) in their report, ‘Health Insurance-A Horizontal Study’, stated that the unregulated mushrooming of Health Service Providers across the country has resulted in escalation of health care prices, undependable & deteriorating quality of health care & rampant instances of under-treatment & over-treatment by doctors & hospitals/ nursing homes. All these phenomena, besides being detrimental to the medical & financial welfare of patients, also inhibit the health growth of health insurance sector. Fee-splitting arrangements between General Practitioners, Specialists are also practiced in exchange of patient referrals. The Health Care Providers lead a major role in determining the level of health care and its cost and this makes it complex for insurers who pay for hospitalization cost. Such behavior could seriously damage the trust relationship between patient and physician and this abuse that increase unnecessary health care cost. Patients seeking more health care services and health care providers giving more services than required, referring unnecessary diagnostics & costly surgery in name of precision is very common in health insurance is a great challenge for Payers as even TPAs have not been able to control these abuses prevalent in industry.

Health insurance operates in imperfect market scenario where the normal market forces remain absent and what is quite observed here is information asymmetry, risk selection (adverse or cherry picking) and moral hazard. The information available to insurer and the insured, about each other, is not perfectly transparent or complete and pricing, if made on assumptions, may go awry. It is very common to find old age persons, persons with morbid history as takers of insurance product and this adverse selection if not addressed may produce unviable results bringing a surprise factor to prices filed with the Authority on actuarial assumption of fair distribution and spread of risk.

Absence of Standard Protocol on treatment of diseases and their costing which varies widely is another challenge up-front. Every hospital has his own schedule of charges (SOC) and even where the treating doctors are same the rate varies from one hospital to another even in same colony and even when the infrastructure of the hospital is more or less the same. Surprisingly the cost of procedures for different patient in same hospital has been found different in almost same period of stay. This is expected in any unregulated environment. This challenge is so evident that CAG reported on performance audit of PSUs that:

·        The claim paid by the TPAs varied widely for the same disease for the same period. And

·        The TPAs failed to bring about standardization with the result the hospitals were claiming widely different rates for the same disease for the same period.

High loss ratio especially in group health insurance is another challenge for insurers. Severe price competition is witnessed in group health pricing. Ideally there should be no cross subsidy between identified underwriting segments but insurers have to recognize the volume of business where market and operational compulsions demand otherwise, to have a pricing that allows market to develop and then meet the standards of self sufficient portfolio price. The rating under significant pressure on the marketing teams facing renewal lapses is great challenge for insurers in group health pricing. The competitive forces make it difficult for the insurers to charge the burning cost as premium for group accounts. They face the competitive challenge to absorb the medical inflation, acquisition cost of brokers or agents, servicing cost of the Third party administrators for these accounts and this surely not lead to a sustainable growth. To meet this challenge the other way is to control the cost and the major variable for indemnity based health products is the hospitalization cost.

Against the backdrop of such mounting challenges to control loss ratios the PSUs operating in India initiated a joint Preferred Provider Network (PPN) initiative in July 2010 in 4 cities and initially 42 surgical procedures were brought under the negotiated rate regimen. Today this initiative is operative in 10 cities and number of surgical procedures has also expanded to 104. The objectives for the Preferred Provider Network are:

·        To enable effective claim management in health insurance.

·        To increase the utilization of cashless treatment at pre-negotiated package rate.

·        To bring the cost of treatment to affordable level for patients & to package cost of surgical procedures.

·        To provide a platform for negotiating rates with health care providers.

·        To develop a sound data base that would help in analyzing cost of health care delivery.

It is a win-win situation both for Payers and Providers. Providers get more footfalls and Payers are relieved from cost burden. It is a welcome situation for the insured too as he can get more care utilization within his sum insured limits.

India faces both opportunity and the challenge to achieve sustainable growth in health care services and its financing by insurance products where patients get treatment at affordable cost. Scenario is not as good as it is reflected from the growth in the sector and not as gloomy as it looks from its high cost incidence. The reality lies somewhere in between. Collaboration amongst various stake holders can revitalize the health insurance market no matter how competitive it is.

Vinay Verma, M.Com, FICWA, ACS, PGDMM, PGDIM

The author is Chief Manager in The Oriental Insurance Company Limited and the views expressed are in his personal capacity.