HEALTHY GROWTH OF HEALTH INSURANCE

 

Clocking a compounded annual growth rate (CAGR) of 20 per cent, India’s health insurance premium is likely to cross Rs 32,038 crore by 2016-17, from Rs 15,701 crore recorded in 2012-13, on the back of rising income levels and health insurance premium. Increase in healthcare costs, rising per-capita incomes, burden of new diseases, health-related risks and high financial burden on the poor are key factors that have contributed towards growth of health insurance market in India.

 

Over 65 per cent of people covered by health insurance sector in India come under the ambit of private companies, whereas public insurance companies account for coverage of only 35 per cent people. While the public sector
insurance companies garner maximum share of health insurance premium to the tune of 61.5 per cent in India, private health insurers account for just 38.5 per cent.

 

The growth has been especially magnificent in the last five years, following the advent of standalone health insurers and various government-sponsored health insurance schemes.

 

The healthcare sector has grown at a 15 per cent CAGR and jumped from USD 45 billion in 2008 to USD 78.6 billion in 2012 and expected to touch USD 158.2 billion by 2017. India being a country with growing population, country’s per capita healthcare expenditure has increased at a CAGR of 10.3 percent from USD 43.1 in 2008 to USD 57.9 in 2011 and going forward this figure is expected to rise to USD 88.7 by 2015. In 2013, the health insurance industry got a great fillip, with several noteworthy events making the news headlines.

 

The success and sustainability of health insurance sector in India will depend upon the development of a strong governance framework, efficient management and monitoring systems along with introduction of cost containing and product improvement mechanisms. The health insurance industry has witnessed consistent growth since its launch in 1986, more so after the liberalization of the insurance sector in 2000. Most people are yet to accept insurance as a tool for financing healthcare expenses.

 

They usually procrastinate when it comes to buying health insurance unless faced with a challenging situation. To counter this, GIC and the Insurance Regulator launched a comprehensive marketing media campaign aimed at boosting awareness across different segments of the population. This effort, will aid the growth of awareness in the long run, and help health insurance evolve as an important financial tool. Although the need for adoption of health insurance is obvious, people are hesitant to purchase medical covers due to the confusion they harbour.

 

There are many products available in the market nowadays that vary in terms of the benefits offered, exclusions, waiting periods and inclusions. In order to bring in better clarity among customers and create a level-playing field, IRDA has created ‘Health Insurance Standardization Guidelines’, to all health insurance providers. The guidelines have standardized the 46 most commonly used definitions/ terms/ conditions in health insurance policies.

 

They also include definitions of 11 common critical illnesses covered under various health insurance policies in India. All this is done to ensure there is no ambiguity among products and so that customers can make informed decisions while choosing a policy. The creation of the standardized guidelines is a step in the right direction and it will bring in a number of spin-off benefits.

 

Greater Connect:
The Insurance Information Bureau (IIB), through the IRDA, plans to connect with third-party administrators (TPAs), insurers and hospitals to evolve and maintain a health insurance information grid. This will help the health insurance industry develop a rationalized system of insurance claims management, leading to transparent treatment costs and efficient pricing of health insurance products.

 

IIB has launched a pilot hospital unique ID master, enlisting hospitals in the preferred provider network serving the health insurance sector. Through this national registry of hospitals, it will enable the industry to have data on the list of hospitals and the charges for different procedure.

 

IIB an independent body endowed with the IRDA’s mandate and functions as a single-window analytics organization for the entire data requirements of the insurance sector. IIB has been collecting health insurance transaction level data from insurers and TPAs for the last several years and publishing useful reports after analyzing the data. In this process, the data on hospitals providing treatment for insurance customers were also getting captured. IIB provides various services like processed information, regular and customized reports on vehicle insurance, health insurance and other lines of business, besides fraud analytics.

 

IIB also plan to launch a motor insurance grid linking National Crime Records Bureau (NCRB), National Informatics Center (NIC) and state police agencies, pre-owned car dealers, auto financial institutions, etc, for effective claims management. IIB is also in the process of collecting life data to produce analytics for the life insurance segment. It will operate the mortality and morbidity among different classes of assured lives.

 

Using analytical data, newer models can be developed for various businesses and sophisticated risk can be analyzed. IIB is in the process of partnering with global data institutes across the globe for developing a robust, real-time database. Good companies are concerned about employee health. However, it’s a fact that insurance costs as a share of employee costs are going up every year.

 

There is a symbiotic relationship between hospitals and insurers and there is also a symbiotic relationship between the pharmaceutical companies and hospitals. There is also a nexus between doctors and bio-medical labs. All stakeholders need to do their bit, but the fact is that customers are paying for this and there’s no doubt that hospitals do tend to charge more if patients are covered by insurance.

 

Product Innovation:
One size no more fits all, and to keep pace with changing consumer behavior and demographics, the industry has started moving from the basic indemnity format to coverage of specific ailments, laden with benefits and features. This year, disease-management products have made an appearance in the market, and these policies are aimed at specific diseases. With preventive care being used worldwide as a means to reduce the effect of lifestyle-related ailments, it’s time India moved towards disease-specific health insurance programmes.

 

Unfortunately, it’s not a happy situation since claim ratios average upwards of 80% with both the frequency and severity of claims very high. Under-pricing appears to be rampant, particularly in the group-cover segment, where corporates have a lot of bargaining power. Consequently, most health insurers are bleeding even as hospitals continue to over-charge for their services.

 

Clearly, the Regulator needs to get to the bottom of this and find a way out so that all stakeholders benefit. It is true that hospitals are overcharging. In the segment – insurance companies, healthcare providers, TPAs and the regulatory body – must work as a cohesive unit to ensure long-term growth. Insurance companies must be able to bring all these parties together to ensure that the customer benefits the most and is able to handle medical emergencies without any hassle.

 

Currently, health insurance is a corporate product, few people buy a cover and insurers need to increase the pool. Corporate hospitals are moving into tier-II cities and insurers need to move there too. The services too need to get better; right now they are restricted as insurers want to restrict the claim.

 

Boosting Penetration:
Thanks to high medical inflation, paying for healthcare expenses out of personal funds is no longer viable for the common Indian. Unfortunately, only about 30% of Indian population has some kind of financial tool to cover its medical expenses either partially or wholly. The industry has been unable to expand its reach, especially in Tier 2 and Tier 3 cities, with lack of effective distribution channels a cause of concern.

 

To improve health insurance penetration, the regulator has taken a step in the right direction by allowing standalone health insurers to distribute their products to bank customers. This will ensure wider reach for health insurance products, and it can happen at a very brisk pace. For mono-line companies, it is not feasible to set up branches in locations with limited potential as it takes at least 5-7 years to break even. By partnering banks for distribution, these companies get a shot in the arm as far as widening reach is concerned.

 

Now all life, non-life and standalone health insurance companies selling health insurance policies will have to ensure exhaustive dissemination of product information on their websites, which will include description of the product, policy clauses and premium rates, inclusive and exclusive of service tax. The scale of creation in healthcare access will require a strong partnership between the public and the private stakeholders.

 

The first step in this direction can be by creating healthcare infrastructure by the government through the establishment of a healthcare infrastructure fund (HIF) with an initial corpus of 15,000 crore. Another step can be allowing business trusts and real estate investment trusts (REITS) in healthcare. Establishment of a nodal agency for healthcare to spur the growth of the sector and creation of healthcare infrastructure is another important step for increasing the access.

 

On the cost to patients, a transparent and viable pricing formula for reimbursement is another key factor, while suggesting establishment of a central government Health Scheme (CGHS) pricing formula similar to the one used for the power sector. Partnerships (PPPs) in the creation of healthcare infrastructure and enhancing financial access through Universal Health Coverage for every citizen will be other important factors.

 

Healthy Choice:
While there are some insurance companies in India that have specific products for senior citizens, most of them still prefer to service the under-60 segment. Factors like premium charged, coverage amount, the co-payment clause, exclusions, pre-existing diseases’ waiting period and other features offered should be analyzed while choosing a policy.

 

The premium to be paid for a health policy is a significant factor as the income earned during this phase of life is limited. State-run players like National Insurance and New India Assurance have policies with attractive premium rates. Private players, on the other hand, charge much higher premiums.

 

Generally, higher health coverage is needed at the old age. Most public sector players offer very low coverage to senior citizens. Generally, senior citizens already have some diseases when they opt for a health policy. All companies specify pre-existing diseases. The lower the waiting period is, the better it is. Policies by National Insurance, New India Assurance, Star Health and Bajaj Allianz have a lower waiting period. Unlike policies for the young, all senior citizen plans come with a co-payment clause.

 

This means that the policyholder will have to contribute a part of the claim made. Understandably, it is better if this proportion is lower. Policies by New India Assurance and National Insurance require 10% co-payment; Bajaj Allianz, United India Insurance and Max bupa require 20% co-payment, while Apollo Munich requires 30% co-payment. Co-payment is the highest for Star Health’s policy at 50% for pre-existing diseases and 30% for all other diseases.

 

In addition to the basic features, some policies like those offered by Max Bupa and Apollo Munich provide value-added services like a discounted value of health services and products or free second opinion from a medical panel. Usually, such benefits mean a loading on the premium. Thus, one must assess the benefits against the premium paid. Like other policies, some senior citizen policies also come with a cumulative bonus clause, which results in an increase in coverage amount on completion of a claim-free year. Pre-existing diseases are a critical determinant. Sometimes, companies don’t issue a policy if there is a pre-existing disease.

 

Investment in Healthcare Sector:
A report by Pricewaterhouse Coopers in association with industry body NATHEALTH says, The Indian healthcare sector will need a total capital investment of Rs 1,62,500 crore to provide accessible and affordable healthcare during the 12th Plan period. India will need to add at least 6,50,000 beds by 2017 to help improve access to healthcare infrastructure from the current 1.3 beds per 1,000 population in 2011 to 1.7 beds per 1,000 population by the end of the 12th Plan period in 2017, The addition of 6,50,000 beds in India by 2017 will require a capital investment of Rs 1,62,500 crore.

 

This translates to more than 50 per cent of India’s annual healthcare expenditure. Based on the publicly announced government plans approximately 1,30,000 beds will be put up in the government or the public sector. This will necessitate the addition of nearly 5,20,000 beds by the private healthcare providers implying a capital investment of around Rs 1,30,000 crore over the next four years. Raising the needed Rs 1,30,000 crore will require an equity infusion of Rs 39,000 crore by the private healthcare providers and a long term debt funding of Rs 91,000 crore.

 

With a view to bringing together all stakeholders in the health insurance space, the Authority has created the Health Insurance Forum in February, 2012 taking in representatives from all related heads including non-life insurers, life insurers, standalone health insurance companies, concerned Ministries, National Accreditation Board for Hospitals and Health Care Providers (NABH), Hospitals, Service Providers, Third Party Administrators, Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry, etc.

 

The objective of the Forum is to aid, advise, and assist the Authority in further improvements in health insurance, health provider services and all health insurance related issues. The Forum meets periodically to discuss topics of common interest and works on areas of relevance in the health insurance area.

 

Grey Areas:
The problem with health insurance is that the business is bleeding and because it’s bleeding, insurers haven’t been able to develop the business and take it to people. Hardly 20% of Indians are covered, and of this, 12% is through government schemes, where the premium is subsidized.

 

There is no regulation of hospitals, they can charge whatever they want-Rs100 or Rs10,000 for the same ailment. Sector regulator IRDA doesn’t have control over providers; three years back public sector insurers came together to set up a preferred provider network, which created a furore but it was the first time insurers and hospitals talked to one another.

 

It may be a fact that some hospitals are charging more than they should, but there are others that don’t. But there is a lot within the control of insurers. They can be more efficient in managing the network of hospitals, claim processing and underwriting. They need to note that costs for hospitals are also going up; medical equipment, for instance, has become more expensive with the rupee depreciating.

 

All governments do focus on healthcare costs, in the US, it is 18% of GDP and a McKinsey study says that by the end of the century, it will be as high as 50%. Clearly, something’s got to give, this is totally untenable. India has the lowest priced medicines in the world, have 53,000 brands, competition is really the killer. The recent pharma policy brings all drugs and formulations under price control.

 

So, the value of pharmaceuticals, as a share of total healthcare costs, which was earlier 6-7% will fall further. The bigger challenge is access, given that beyond e cities the facilities are negligible. It’s also a fact that hospitals do tend to focus on insurance while pricing their services. The challenge is that India is a country of many markets; and insurers need to address all segments.

 

There are too many companies chasing small business now, and they’ve been too used to the social way of pricing, and as commercial pricing happens, people are not ready to pay the real price for healthcare in India. So, artificial pricing leads to artificially excess competition, and everyone is trying to hit the bottom on pricing. So when the claims hit home, that’s when realization strikes; pricing is a big challenge.

 

But what’s also unfortunate is that corporates seem to be cutting back on healthcare. The nexus between the hospitals and insurers isn’t really helping health insurance industry. It’s a fact that even for the best of hospitals, not more than 30-35% of revenues come from insurance. When this ratio moves to 60 and 70, the discussions will be different.

 

India doesn’t have good hospital infrastructure beyond the cities. There are hospitals that don’t care about insurers, especially those that have a big brand because they will get customers anyway. Insurers have to control them but they have not been successful, that’s the reality. Probably it will take five or seven years, but this war has to go on. Otherwise, insurers can just balance their premiums and claims by charging more, they can increase retail premiums every year by saying costs are going up, which many of them are already doing.

 

On the group side, it’s a different ball game because there is a bouquet of business, not just group health, insurers have got other business, so they look at overall profitability and may cross-subsidize certain lines. But, at the end of the day, are they going to manage the portfolio by just increasing premiums? In that case, they will be restricting people who can afford health insurance.

 

Premiums go up, the pool might become smaller since it is a push product. The insurers need to cross-subsidize the health business with other policies. Also, insurers need to practice fair business practices -they can list the hospitals and a fair tariff – that’s a win-win situation for everybody. They also need to remember that the average age of employees is going down. So the claim ratios will go down and premiums will go up. This could be a big opportunity for health insurers.

 

The IRDA has made the health insurance sector more transparent, the insurance regulator has amended certain guidelines on standardization. It has underlined that co-payment will not reduce the sum assured; a newborn baby will mean those born during the policy period and aged between a day and 90 days where both the days will be included; and portability will mean transfer of policy by an individual health insurance policyholder, including family cover, with the credit gained for pre-existing conditions and time-bound exclusions from one insurer to another.

 

The Insurance Regulator has clarified that deductible is a cost-sharing requirement under a health insurance policy that provides that the insurer will not be liable for a specified amount in case of indemnity policies and for a specified number of days in case of hospital cash policies. A deductible, however, will not reduce the sum assured. Post-hospitalization and medical expenses incurred immediately after the insured person is discharged from the hospital are covered provided that such medical expenses are incurred for the same condition for which the insured person was hospitalized and the inpatient hospitalization claim is admissible by the insurance company.

 

The regulator has clarified that cumulative bonus will mean any increase in the sum insured granted by the insurer without an associated increase in premium. Also, maternity expenses includes medical treatment expenses traceable to childbirth, which includes complicated deliveries and caesarean expenses incurred during hospitalization and also expenses towards lawful medical termination of pregnancy during the policy period.

 

The Insurance Regulator hopes that the regulations will create a more robust and consumer friendly health insurance system in the country. For senior citizens, the premium charged for health insurance products will have to be fair, justified, transparent and disclosed up front and any loading charged on the premium have to be intimated to the policyholder. Health insurers and third-party administrators have to address a separate channel to address the health insurance-related claims and grievances of senior citizens.

 

After receiving the complete document from the insured, insurance companies have to settle claims within 30 days and even have to stipulate a time limit by which the claims and documents should be furnished by the insured. If there is any delay in the filing of documents by the insured, the insurers will not deny such claims unless the delay was deliberate. Insurers have to empanel government medical institutions from which pre-insurance medical examination is to be done.

 

Policyholders having multiple health insurance policies can make claim from multiple insurers, if the benefits covered are fixed in nature and the contributory clause all not be applicable in this case. The regulator has also clarified that an insurer can call upon other insurers liable to the same insured to share the cost of an indemnity claim on a proportion of sum insured.

 

The country’s healthcare system is developing rapidly and it continues to expand its coverage, services and spending in both the public as well as private sectors. The private sector has emerged as a vibrant force in India’s healthcare industry, lending it both national and international repute. Private sector’s share in healthcare delivery is expected to increase from 66 per cent in 2005 to 81 per cent by 2015. Private sector’s share in hospitals and hospital beds is estimated at 74 per cent and 40 per cent, respectively. There is substantial demand for high-quality and specialty healthcare services in tier-II and tier-III cities.

 

To encourage the private sector to establish hospitals in these cities, government has relaxed the taxes on these hospitals for the first 5 years. Many healthcare players such as Fortis and Manipal Group are entering management contracts to provide an additional revenue stream to hospitals. Over the years, health insurance is gaining momentum in India. This trend is likely to continue, benefiting the country’s healthcare industry.

 

Strong mobile technology infrastructure and launch of 4G is expected to drive mobile health initiatives in the country. Mobile health industry in India is expected to reach USD 0.6 bn by 2017. To standardize the quality of service delivery, control cost and enhance patient engagement, healthcare providers are focusing on the technological aspect of healthcare delivery. Digital health knowledge resources, electronic medical record, mobile healthcare, hospital information system are some of the technologies gaining acceptance in the sector.

 

Going forward, the healthcare sector’s spending on IT products and services is expected to rise. Telemedicine is also a fast-emerging sector in India. In 2012, the telemedicine market in India was valued at USD 7.5 million, and is expected to rise at a CAGR of 20 percent to USD 18.7 million by 2017. With increased private participation, the healthcare sector has also witnessed rise in FDI inflows. As per law, 100 per cent FDI is permitted for all health-related services under the automatic route. Demand growth, cost advantages and policy support were instrumental in attracting FDI inflows into the healthcare sector. During April 2000 – March 2013, FDI inflows for drugs and pharmaceuticals stood at USD 10.3 bn, while inflows into hospitals and diagnostic centers, and medical appliances stood at USD 1.6 bn and USD 0.6 billion, respectively. India’s primary competitive advantage over its peers lies in its large pool of well-trained medical professionals in the country.

 

Also India’s cost advantage compared to peers in Asia and Western countries is significant– cost of surgery in India is one-tenth of that in the US or Western Europe. India’s competitive advantage also lies in increased success rate of Indian companies in getting Abbreviated New Drug Application (ANDA) approvals. Insurance continues to be one of the rapidly growing sectors in the Indian insurance industry. The growth of health insurance industry lies mainly in better customer orientation in terms of servicing the customers, standardization of procedures and definitions across the industry.

 

Standardization provides simple yet innovative products, better understanding of the terms by the public and easy penetration in the market. Increased awareness about the benefits of health insurance, particularly in urban areas has occurred due to rise in medical costs and also as a result of popular Government schemes. This in turn, has steered the Authority to take a number of initiatives through Health Insurance Regulations, 2013 and Guidelines for Standardization in Health Insurance, 2013.