IHS Global Insight Perspective | |
Significance | Major national insurance companies in India are to withdraw the cashless treatment option from top corporate hospitals, and will restrict the amount of healthcare covered by medical insurance. The companies plan to offer a reimbursement scheme under which corporate hospitals that agree to the revised rates will be put on the preferred provider network (PPN), while hospitals that do not will be delisted. |
Implications | The alterations in insurance terms may help companies address key issues—such as limited influence on healthcare delivery, high claim ratios, and limited data—by increasing their involvement in the hospital business. For patients, this will mean increased out-of-pocket expenditure on health services with reduced patient hospital choice. |
Outlook | The above changes could help insurance companies reduce costs and increase profitability, as well as promoting increased competition among corporate hospitals, potentially promoting growth in the insurance market. The changes may also lead to increased consumer awareness as patients look to control their out-of-pocket expenditures. |
Major national insurance companies in India are to withdraw the cashless treatment option from top corporate hospitals and restrict the amount of healthcare covered by medical insurance, according to DeccanChronicle.com. This decision was made by all private health insurance companies, including the four public sector insurance companies—Oriental Insurance, New India Assurance, United, and National Insurance. The companies plan to offer a reimbursement scheme under which corporate hospitals that agree to revised rates will be put on the preferred provider network (PPN), and hospitals that do not will be delisted. The PPN system came into operation on 1 July 2010 and limits cashless claims for individual policy holders in high-cost hospitals. The move is said to be an attempt by the insurance companies to make healthcare affordable for all to sustain and increase industry growth. This initiative will also underline efforts to bring in the burgeoning corporate hospital industry into the fold. Big corporate hospitals have higher treatment bills in comparison with smaller hospitals—for example, an abdominal surgery procedure typically costs 20,000 rupees (US$425) in a small hospital, while in a larger hospital it could cost 80,000 rupees. The companies are still working on the costing of certain ailments, and details pertaining to the reimbursement scheme were not provided. In addition, insurance companies will not place group health insurance policies under the PPN of public-sector general insurance because of pricing freedoms and flexibility in this segment of the market. This move was queried by the Insurance Regulatory and Development Authority (IRDA) and the same explanation was provided by the companies. According to the Financial Chronicle, the insurers told the regulator that companies looking to purchase new group policies or renew their existing ones will have the option to accept PPN rates. However, for individual policy holders, the new PPN rate will be mandatory if they wish to use the cashless claims facility.
Under the IRDA norms, insurers are allowed a maximum increase of 75% of the previous year's premium on individual policies, irrespective of the past claims experience while on group insurance schemes, the increase in premium is based entirely on previous claims experience.
This move has been met by opposition from larger corporate hospitals, claiming that it will not be viable to implement low rates in these hospitals when their technology, expertise, treatment, and facilities are on a par with any Grade 1 hospital in India, yet are lacking in smaller hospitals. Patients have offered mixed reactions, with some stating the moves will prevent overcharging by hospitals that maintain different tariffs for those insured, while others are worried about the cost, and the reduction in hospital choice.
Health insurance companies also rejected a move to a single insurance product with features of both life and health insurance, as the guidelines issued by IRDA in December required a tie-up between a life insurer and non-life insurer to provide the product, which health insurers did not consider profitable.
The Indian health insurance industry is divided into three sectors—private, paid for by individuals or companies; social, provided by the government mainly for below-poverty-line groups; and community-based/micro-insurance, paid for by communities and health groups. The insurance market in India was valued at 51.25 billion rupees in 2008, with only 2% of the population covered and the potential to grow to 250 billion rupees by 2012, according to Reliance General Insurance.
Outlook and Implications
The new changes reflect a significant shift in business operations for health insurers in India. The changes in insurance may be a move to address some of the issues faced by private health insurers, such as limited influence on healthcare delivery, and high claim ratios by increasing their bargaining power through which they may be able to standardise the treatments and procedures for certain ailments. With no uniform standardisation and accreditation of hospitals, however, this process may be impaired by hospitals with inadequate facilities being added to the PPN system, meaning patients are not offered essential services. Moving individual policy holders to the PPN system, insurance companies will potentially reduce problems of limited data on consumers and disease patterns, which make them unable to provide tailored health insurance policies to suit patient needs. The lack of such data leads to bias in cases where patients are aware of their disease patterns but do not disclose them to the insurer, and thereby claim more than they pay in insurance, which affects insurance companies' revenues. For patients, the changes could mean increased out-of-pocket expenditure on health services with reduced patient hospital choice. Conversely, the reimbursement schemes should lead to increased consumer awareness about the different treatment options and costs, which may result in reduced insurance payment levels. The changes could see insurance companies reducing their costs and increasing their profitability, as well as engendering more competition among the corporate hospitals and hence market growth in the medium term.