Economic Times
11 August 2010
By Mayur Shetty

It is a measure of the success of one of the most popular products introduced by India’s non–life insurers – the cashless servicing of claims under mediclaim policies, first unveiled in 2001.

Over a decade, this product has taken off so well that the demand for mediclaim insurance has grown by leaps and bounds. But ironically, it has come to bite the product providers – insurers, especially state–owned firms. That is because health insurance policies in India are loss–making.

State–owned firms, which first offered these policies, are now trying hard to stem the bleeding of their portfolios given the huge claims to the premium ratio. In short, what this means is that they pay out a far higher amount in the form of claims lodged by policyholders compared to the premiums they collect from them. For a while, insurance companies have been at work to stem these losses. The first such attempt to cut losses was made at the underwriting stage itself. Insurers discouraged older people from buying insurance and also rejected claims for any ailment they were suffering prior to buying the cover.

Having failed to curb losses at the underwriting stage, insurers are now trying to curb losses by withdrawing benefits after the policies have been sold. For over a month now, PSU insurers have withdrawn cashless treatment at leading tertiary hospitals across the country because of their failure to adhere to a tariff prescribed by insurers.

It would be foolish to expect that the current dispute of healthcare costs, exceeding the premium collected, would get resolved merely by hospitals agreeing to rates prescribed by insurers or by the regulator issuing a diktat to continue with cashless cover. The problems that insurers are against are age old.

In the initial years, companies made good the losses by making money on property insurance. Also, because public sector companies are unlisted and chose to focus on just the topline means that there has been a thrust on health insurance which has been contributing significantly to the topline in recent years.

Unfortunately, despite the growth and their leading market share, state–owned insurers have not been able to give focused attention to health insurance through the creation of a health insurance division. The grapevine has it that the current imbroglio over cashless is partly because of differences between two senior executives entrusted with health insurance in a leading public sector firm. Instead of arriving at a middle of the road solution, such as asking for co–pay or segmenting their policies, PSU insurers have chosen to renege on their contracts with policyholders and withdraw cashless facilities with most of the tertiary–care hospitals. The result of this decision has been a frenzied round of finger pointing which makes it almost impossible to state the problem.

Insurers have alleged that hospitals are padding up their bills for policyholders. This is in sharp contrast to the practice in markets, such as the US, where insurers are able to bargain for better discounts. They have therefore decided to flex their muscles and have stayed away from the negotiating table, despite feelers from hospitals.

Third–party administrators (TPAs) have all along been having fights with hospitals over the need for tests and billings. This has resulted in TPAs being blacklisted from time to time. Hospitals, on their part, accuse TPAs of interference in medical decisions, needless harassment caused by their verification processes and delay in receiving reimbursement. "The days of naadi shastra are over.

Today, we can decide on treatment only after conducting tests. TPAs cannot apply the wisdom of hindsight and tell us that a particular test was unnecessary," says a medical director of a leading hospital in South Mumbai, defending the medical practices of using the process of elimination through various tests.

Even if the insurance and health–care industry manages to put in place a viable system where cashless benefits are available to policyholders, it does not solve the larger issue. The increased penetration of insurance will make quality healthcare more affordable to the middle class. In an ideal situation, increased demand would lead to increased supply. But in the case of healthcare, there is a separate set of issues that are causing capacity constraints. Despite the ban imposed by insurers, none of the top hospitals have seen a drop in the number of patients. This will ultimately make healthcare highly inaccessible for those who are outside the insurance net for whatever reasons.

The insurance and healthcare industry will, therefore, need to work together to make cashless treatment possible under the Rashtriya Swasthya Bima Yojna (RSBY) – the government’s universal health insurance policy. Also, as healthcare experts point out, health insurance cannot take a narrow view of reimbursing hospitalisation costs. At the lower level, there is a need to increase availability of primary healthcare. For the middle–class, there is a need to manage lifestyles and foster a system of health checks to ensure that ailments are addressed at an early stage.

The quality of healthcare facilities in the state sector is not adequate to provide cashless services under RSBY. Insurers will need to work on innovative solutions such as mobile clinics and teleconsulting. To address lifestyle relationships, health insurers will have to maintain long–term relationships with policyholders and build up a database of individual health records. The challenge also lies in ensuring greater healthcare requirements as people grow older in a country where life expectancy is rising. Ultimately, all the constituents, including the health and the finance ministry, will have to join hands to put in place a system that works.