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CCI to investigate cashless mediclaim issue

The Competition Commission of India (CCI) may take up the cause for consumers who have been hit hard due to the new arrangement entered into by leading insurance companies. In the new arrangement, the insurance companies will stop making direct payments to hospitals on behalf of their policy holders a pre-requisite as per the cashless mediclaim policy they offer.

According to CCI sources, though the commission is yet to take a final call, however, it may soon start a thorough review of the matter to see if there have been any breach of the Competition Act, 2002.

Earlier this month, leading health insurance companies that provide mediclaim policies withdrew the cashless arrangement with all major hospitals, including private hospitals like Fortis, Apollo and Max in Delhi and NCR, thereby forcing the consumers to shell out the entire money on the spot.

Under the Competition Act, CCI is empowered to take up suo moto cases and if enough evidence is found can even order an investigation. MM Sharma, head, competition law practice at Vaish Associates, a corporate law firm, said on two fronts there appears to had been a breach of sections 3 and 4 of the Competition Act.

To read full news, click here

Experts from Medimanage.com give their opinion:

Sudhir Sarnobat:

Sudhir Sarnobat from Medimanage.com

This is an interesting example where combined withdrawal of a particular service by state-owned insurers is seen as monopoly mal-practice. However, cashless is an service which is offered as extension of pay-out of claim. The addition & deletion of hospitals is continuous process & if insurers find that some hospitals are indulging into unfair trade practices which are harming their interest, they are free to take action against them. Not paying a claim at such hospital can be breach of policy condition but non-issuance of cashless cannot be termed as same.

Recently, we came across news in an online Publication, mydigitalfc.com

Health insurance policyholders may face problems as I-T dept seals TPA accounts

Several health insurance policyholders may face problems in getting cashless hospitalisation as the income tax department has sealed accounts of several third party intermediaries (TPAs) for non-payment of tax deducted at source (TDS).

Industry officials say TPAs whose accounts have been sealed are Mumbai headquartered Pa­ramount Health Services, United Healthcare Services, Dedic­ated Health Care Ser­vices and Health India TPA.

Industry sources said sealing of accounts means that the TPA cannot render its services till the issue is settled. TPAs are inte­rm­ediar­ies between the ins­ured, ho­spital and the insu­rance fi­rm and facilitate hospitali­sation of the insu­red by pay­ing the hospital from fu­nds allocated to them by insurance firms.

To read full news, click here

Experts from Medimanage.com give their opinion:

Sudhir Sarnobat:

Sudhir Sarnobat from Medimanage.com

This is purely the area of failure to fulfil the obligation of deducting the TDS from the payments made to Hospital.

Though the insurance claims pay-outs to individuals are not treated as income, the pay-outs to hospital are treated as income by the hospital & the TDS should have been applied. This was not done by the TPAs & hence, the Income Tax department has taken this action.

As the TPAs in South have been able to manage a Stay on the order, there is a precedent & the issue should get resolved without any major disruptions. Also as IRDA (which regulates TPAs) & Income Tax Dept. both report to same ministry, an amicable solution can be identified to ensure that policy holder is not hassled unnecessarily.

Loss in health insurance industryWhat!? But you’ve heard that health insurance industry was growing like never before, didn’t it just record a growth of 20% in premium collected last year and there was also news of more foreign health insurance companies coming to India… While all you heard is true, it is also true most of health insurance companies which are general insurance companies, in are in fact in losses, the underwriting losses which states the premium collected against claims, for New India Assurance was a whopping 117% this year.  A similar story follows for other health insurance companies too. 

The other side of the story

The reason for the losses is the amount claimed, is higher than the amount of premium collected, in fact, according to health insurance officials, the claims to premium ratio is 180% in group health insurance. Which means that claims are 180 percent of the total premium collected, with such a loss rate, it is surprising to see rosy pictures represented in the newspapers.

The reason why this side of the story wasn’t gaining importance earlier is because most of the general insurance companies make investments that offset some of the underwriting losses but last year’s recession took its toll and the underwriting losses of general insurance industry increased by 37 per cent to Rs 5,326 crore against Rs 3,899 crore in 2007-08.

Heavy Losses

For the Public sector companies (National, United, New India and Oriental), the underwriting costs increased by 28 % and investments fell by 23%. For the private insurers, the losses were a whopping 84% which was offset by a growth of 47% in investments in the year 2008-2009 according to a report in Hindu Business line.

The Reasons behind the losses

Bad Pricing is the reason for the health insurance industry suffering losses

Most of the Insurance companies see the group health insurance as the reason behind the losses. They claim that few limits and conditions on group health insurance as well as clauses like coverage of pre-existing diseases have added to the high claims ratio of health insurance policy.

The PSUs assert that large volumes and large share of group health insurance as the reasons for the losses. The other cause which is often stated by health insurance companies is that, TPAs, the representatives of the Insurance companies which are responsible for settling the claim, are not doing a good job managing the costs.

We asked health insurance experts K S Sankar with more than 30 years in Health Insurance industry and Sudhir Sarnobat, founder and director of Medimanage health insurance Broking firm, about their take on this trend. 

Are the Hospitals to blame?

K S Sankar feels “No regulation/standardization of the rates charged by health service providers or hospitals” is to be blamed for the losses.  Another reason he states is that the current system allows hospitalization in any hospital which fulfills a very basic definition of a hospital like having minimum number of beds, basic amenities available.

The solution he thinks by enlisting a restricted number of health service providers to whom the insured population will be given access. He also suggests that there be a reward and deterrent process where in you reward by having less or no co-pay in network hospitals (hospitals in which insurance company have a tie up) and deterrent by not offering  cashless in non network hospitals.

Health insurance companies can better negotiate with these hospitals now that larger volumes will flow in the hospitals. Insurance companies can also review the service of these hospitals to bring in fresh hospitals and delist those who fall short of the standards, he reasons.

Bad Premium Pricing also plays a part!

Sudhir Sarnobat, however disagrees with the statement that hospitals are to be blamed for the losses suffered; he draws parallels with the hospital expenses abroad and in India to compare the premiums.  He says that since the hospitals’ major cost are equipments and consumables and taking the cost of living, the hospital expenses aboard would only be higher marginally however the premium rates in India are very low compared to other nations. He gives the example of US and says “In US, an individual pays around 600-800 US dollars per month for coverage, In India, for a cover of 5 lakh; the annual premium is around USD 500. That is less than 1/10th whereas the cost of care is not 1/10th.”

Thus, he thinks that the losses faced by the health insurance companies is not just due to non- standardized rates in the hospitals but also due to wrong premium pricing.

How to control the losses?

K S Sankar feels that if the health insurance companies charge the premiums according to compliance of the insured to remain healthy, (less premium if you are healthy and loading if you are not), they could effectively tackle the situation.  He thinks that health insurance companies can get the inputs through IT driven health insurance broker to drive this reform.

Sudhir feels that the health insurance companies should start by refraining from pricing the current year’s premium based on last year’s claim amount. He says that they should do what any other manufacturing company would do, that is, by looking at the cost of inputs, spending capacity of the market and cost of marketing initiatives. The lack of scientific methods to decide the pricing of the premium is what he claims is the reasons behind the losses.

When would the correction happen?

About when the correction of premium pricing will occur, K S Sankar feels that insurance companies till date have a knee-jerk reaction to new challenges and it requires efforts of outsiders with close association to insurance industry like brokers to drive a change. Sudhir Sarnobat feels that the correction is currently happening in the corporate sector and will come in the retail industry at least 5 years down the line.

We would hope for the industry to start correcting the premium prices because another bad financial year would again throw the insurance companies into losses which in the end would affect the customer!

Reference: http://www.thehindubusinessline.com/2010/01/09/stories/2010010952010600.htm



Recently, we came across news in an online Publication, business-standard.com

Buy Health Insurance to improve your Health

You need not shell out the big bucks to be pampered. Buy a health insurance and enjoy luxury treatment at a spa, join a gymnasium or a yoga centre and get the necessary incentives that suit your budget.

Insurers, including ICICI Lombard General Insurance Co Ltd and Bajaj Allianz General Insurance, are tying up with yoga centers, gyms and spas to provide policy holders an opportunity to improve their health — and looking for avenues to sell more heath insurance. Some of the other insurers are also exploring collaborations with these centers.

“We can pass on the benefit of these initiatives if policyholders start taking preventive measures,” said Datta. “Globally, the benefits are transferred to policyholders in terms of discount in premium. It may happen in another two years in India also.”

To read the full news, click here

Experts from Medimanage.com give their opinion:

KS Sankar:

K S Sankar from Medimanage.com

I would however suggest that the insurance companies, rather than carrying out these initiatives themselves, will stand to benefit by outsourcing these activities to entities enabled to carry this out better. Reasons:

1)      Core competencies: Insurance companies’ core competencies lie in underwriting, not preventive health management.

2)      Customer perspectives: We live in a world where, for all that it is a good to do thing, the mere fact that it is rolled out by the insurance companies who would also tomorrow determine admissibility of my claims, makes me suspect motives. Is it that the insurance company is seeking to establish I am non-compliant with something, using which they could say ‘no’ to my claim.

3)      Focus: Except for Apollo Munich, the other insurance companies are not even dedicated health insurance companies. This activity would obviously not be an activity of prime focus for them.

4)      A lone tree does not make the woods: Just a visit to a spa or participation in gym exercises or yoga is only a part of the more wholesome approach – diet, lifestyle modification, etc. need to be integrated.

5)      Non-specific: Each individual needs a customized holistic prescription of the above combinations. To dish out memberships as panacea for all will not be the most effective way to ensure good health.

6)      Sustained involvement of the beneficiary: Most of the endeavors mentioned here seem merely to take the horse to water. Mere providing a spa/gym/yoga centre membership does not ensure the beneficiary will work through the fitness regimen. The woe of many a gym, we know, is the very high drop out percentage.

To ensure success in this, the following are essential:

a)      Thorough knowledge of pro-active health care and health insurance.

b)      Working dedicatedly in this sphere so that focus is not diffused.

c)       Ability to customize lifestyle modifications that are right fit for each individual.

d)      Interactive IT driven robust processes that will gently but effectively monitor and help the beneficiary through the fitness regimen. 

It would make better sense for these insurance companies to outsource these activities to an entity that has all the above capabilities. This entity could, on one hand, guide and monitor the beneficiary through the regimen and on the other, provide compliance reports to these insurance companies – with complete knowledge of the beneficiary, of course.

Sudhir Sarnobat:

Sudhir Sarnobat from Medimanage.com

Though the moves by the insurers would be called visionary & pragmatic, if these are looked at as remedies for immediate claims reduction, it would not happen so.

The real reasons for current higher claims ratio are:

  • Faulty pricing – The current premium rating emanates for old claims data which is hiked by certain percentages over a period of time. The corporate health insurance, which contributes to 50% total health insurance premium & around 70% of losses, is still priced differently when there are other portfolios like Fire & marine that are bundled together. The pricing across all customer segments should be based on stand-alone basis only.  
  • Unrestricted covers – This pertains more to the corporate segment where the maternity cover or pre-existing cover is offered at nominal premium which brings in huge losses. Also the optional parental cover is also another drainer which brings in anti-selection for the insurer.
  • Uneven spread – Over a period of time, the average age of the insured members is on rise which shows that either more old people are getting the insurance cover (which would bring in claims in immediate future) or not enough young people (below the average age) are buying the health insurance.
  • Low penetration – The low penetration remains a big concern as more than 90% population (among those who can afford insurance) if still uninsured. More than 85% of the payouts at the hospitals remain out of pocket.  

The tie-ups with Gyms are flimsy & one need to create more penetrating program if real change is expected out of such efforts. The gyms have 90% drop outs & that’s how they make their money & remain viable. The diagnostics tie-ups may bring in other diseases which may warrant hospitalisations at the behest of the doctors (read blog by Dr. Aniruddha Malpani here)

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