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Cashles Chaos: Making sense of it all

News Flash:  “The General Insurance Public Sector Association consisting of four major state-run insurance companies - United India, New India, Oriental Insurance and National Insurance have decided to stop cash-less hospitalization in most hospitals”

Shock and outrage are the two words that describe the reaction of most of the customers and media reports on this piece of news.  We demanded to know how insurance companies could take such a decision one fine day, and what would the customer do. 

Before creation of PPN (Preferred Provider Network  by the Public health insurance companies, media and the industry experts were congratulating the sector for the phenomenal growth. It is this decision which has caused a huge backlash from all around- ustomers, hospitals, media and other insurance experts.

Cashless Chaos: The Blame Game

Let’s understand the issue:

There have been various reports about overcharging by the hospitals and the lack of standard pricing. The TPAs as well as the hospitals have been blamed by everyone for being the perpetrators for the huge losses faced by the insurance industry in their health portfolio. And now, without as much as a warning, the public health insurers have delisted most of the hospitals from their existing network of hospitals, creating PPN.

Insurers’ Stand: Insurance industry faces losses amounting to  thousands of crores each year now. Last year the losses further skyrocketed  and for these losses the Insurance industry is blaming the lack of standardized pricing in hospitals along with the trend of hospitals to overcharge the insured patients.  GIPSA has also criticized the TPAs overall efficiency in keeping the claims down.

Hospitals’ Stand: The corporate hospitals believe that they are being unfairly targeted by the health insurance companies., They argue that the price they charge is proportional to the quality of care they provide. Since the kind of care in a 100 bed hospital with latest technology will be different from that in a 15 bed hospital, cost of healthcare in a large, private hospital is more.

TPA’s Stand: TPAs are being blamed of everything from inefficiency to not controlling fraudulent claims. There is immense amount of pressure on TPAs to bring down the claims and there is talk that the PSUs may opt for a single common TPA. Abhitabh Gupta, CEO, Paramount TPA says “ TPAs cannot be blamed for the losses primarily because, most of the PSU Insurance companies had underwritten health insurance at an extremely low cost sometimes even selling Rs. 1 policies, so it is but natural that they would suffer from losses. Further medical inflation has been increasing at a rate of 10-15 % while the premiums are not increasing at the same rate.” He says TPAs weren’t given the rights to meddle with the treatment and unless there is some change in their role, TPAs can’t do much.

Customer’s stand: Customers are caught in the crossfire between Hospitals and Health insurance companies and they feel cheated. Since Cashless facility is now limited to extremely small number of hospitals; customers have to pay the medical bills from their own pockets and then claim reimbursement.

With Brokers being the neutral catalysts in the health insurance domain, we sought theopinion of Sudhir Sarnobat, Founder of Medimanage Insurance Broking Pvt. Ltd on this issue:

Whether Health insurance companies are justified in delisting the hospitals in the middle of the policy:“The policy periods are of one year and at any point you take a decision, itwill be mid-term for some members and hence, we cannot hold insurer responsible for this. People look at benefit of insurance claim and that’s the core product which insurer is not refusing. If insurer finds issues with non-core benefits, they have the right to tinker with them.

Also, Health Insurance in India is currently in nascent stage and hence, the stable decision making would take a little time. One MUST not forget that this portfolio is loss-making and hence, under pressure to reduce losses, insurers are taking some sudden decisions as they are not too worried about consumer reactions”  

Blame game between insurance companies and hospitals

On Corporate Hospitals taking advantage of the system:I think that these corporate hospitals have taken advantage of the system and not offered negotiated rates when insurance is their single largest customer. It’s actually clash of egos and I think after 3-6 months, both Insurers as well as Hospitals will come to sense and will resolve this in an amicable manner when the industry bodies will act as mediators. I think IRDA may also step in”.

 On Grading of Hospitals: “The grading is a very common concept and it will help manage the cost of treatment well and will help in creation of centers of excellence. Why should a person go to Lilavati (Premium hospital in Mumbai) hospital for Hernia just because he has bought 5 Lakh or 10 Lakh cover. It’s a secondary care procedure and hence, should be managed in a  secondary care hospital.”

On the impact of this move on the customer: This (move) may bring the malpractices and over-billing to check. However, I would maintain that you need to have tertiary care hospitals in network as smaller hospitals do not have the facilities, infrastructure and manpower to manage complex procedures. “

On 10.3% of Service tax for Cashless Facility: “That’s not fair as its an additional burden. It’s discriminatory as it’s meant for Cashless Insurance patients only. But as it’s a decision by Union Government, the consumer forums/bodies should take it up with Government.”

On whether this move to curtail hospitals in the Network list will make Health insurance unattractive:
“It’s a need of the hour and once the insurance penetration and clout increases, hospitals will try to be compliant with Insurers’ requirements. This would bring in cost consciousness along with customer focus. The churning what we are seeing now is good for long term sustained development of the industry and hence, one should not look at this as negative or unattractive”


Timeline for Cashless Hospitalization issue:

July 1: GIPSA (General Insurance Public Sector Association) delists most of the Private hospitals in Delhi, Mumbai, Bangalore and Chennai from their PPN (Preferred Provider Network) list. (Of the 800 hospitals in Mumbai only 90 remained)

July 13: Insurance Company leaders and Top Corporate hospitals met to increase the number of hospitals in the list.

  • It was decided that there would different grades of hospitals depending on the quality of health care provided; there would also be a common rate card across the hospitals.
  • It was decided to revive the cashless facility on a case to case basis.

July 15: A Public notice by Public Insurance companies made it clear that Cashless Facility will only be resumed once the hospitals adhered to the conditions of the Insurance companies. 

July 18: There is news that even Private insurance companies are looking at joining the PPN Network.


Health insurance industry as early as 10 years back was in its infancy with only public sector companies who were also life insurance players.  It was after the year 2000 that privately owned general health insurance companies came to India like HDFC, Tata, Max life, Kotak and Birla but it was only in year 2005 with Star health that a dedicated health insurance company came in India. It was followed with Apollo DKV now known as Apollo Munich and now Max Bupa which has launched in March.

foreign health insurance companies are coming to India

There are more coming!

Max Bupa health insurance Company which is launched in March 2010 is a tie-up between Max health care and UK based Bupa. There is news that there will more 3-4 more pure health insurance companies that will come in the next few months. Most of these companies are international insurance

companies with a tie up with a company in India. Among these there is Discovery of South Africa and Cigna and Aetna of United States who are in talks with Religare for a tie-up. Some other international giants have also expressed their interest to form a joint venture with Axis Bank which is India’s third largest money lender.

What’s bringing them here?

population in india

K S Sankar of Medimanage Insurance Broking Private Ltd says, “The primary reason is the largeness of the market with low insurance penetration.” What with a middle class of about 300 million people and growing, and only about 10 % of Indian population covered in health insurance that leaves around a potential market of 270 million people. Sudhir Sarnobat, Founder of Medimanage agrees with Sankar and says it is the growing number of people who can afford health insurance which is driving this trend.

Just a look at the numbers tells the whole story, health insurance premiums amounted 66.25 billion rupees in 2009 from 32.09 billion rupees just two years back, it is more than 50% hike in just two years.

K S Sankar also points out that the health infrastructure in India, though unregulated is better than other economies in the world. He also gives other factors that make investing in India a good idea for foreign companies like better regulated insurance environment, lower capital investment requirement, smoother and relatively less corrupt processes with a population that is young hence a good risk and the factor that health insurance in India means only hospitalization costs that drop the overall costs considerably.

Mr. Sarnobat also sees an improvement in the industry that will interest the foreign players, “The premium rates are hardening which can provide a sound profitable business model for health insurance companies in next 3-5 years. These companies can bring in innovation in product structuring which is lacking in India and thus the heightened interest by foreign players.”

What will it mean for us?

Sudhir answers this question in two words, “Innovative products and better service.” K S Sankar feels that since these companies will solely concentrate on the health sector, their in-depth knowledge of health will help us. He says, “Their knowledge will initially make their processes more customer friendly and in the long run, rein in the health service providers from the perspective of cost standardization and right pricing of health services – not by sheer force of volumes but through more scientific benchmarking”.

Mahavir Chopra, founder of online health insurance broking in India, says "Customer will be spoilt for choice. The flip-side is there are chances he will get overwhelmed and confused. Brokers have an opportunity here. Look at a parallel of the now highly competitive cellular mobile service market, its pretty difficult to know which company or plan is good. Even though there is innovation, lack of any IPR on the innovation, results in the new service being copied by other companies in a couple days of the launch. Cellular service is almost a commodity."

Pashupati Davella, Insurance IT entreprenuer says, " Foreign players will bring process innovations so that the client can take treatment wherever he or she is, with minimum hassles. Also, because of greater integration between hospitals and insurers and reduced fraud, the cost of buying Health Insurance products go down and we may get long term care products, lifelong cover and features which are customer friendly like portability."

Currently in India, there is no standardization of health care cost, one procedure may cost Rs. 20,000 in one hospital and may cost over Rs. 50,000 in other. Mr. Sankar hopes that the ‘health only’ insurers will bring to the table independently validated bench marks.

Will they survive?

profits for health insurance companies

The scenario though seems to be very bright seeing the growth in premium, the reality is that health insurance is a loss making industry, the claim rate is about 120-150%. The underwriting losses of United India increased from 541 Crore last year to 880 Crore this year, a whopping growth of 63%. The reason why most of health insurance companies are still showing profits is that they have a life insurance subsidiary that is making money or if they have invested in the market.

K S Sankar also believes that it is the non-health insurance activities that will keep them running. He says of the purely health insurance companies in India; Star Health has been successful because it is sponsored by the government in some states. He points out that of Max Bupa, Max is already into Life and Bupa is primarily a service provider for international insurances and this combination again will have synergies to sustain them. “It is not without reasons that they did not rush in (before) but are coming in only now. All these players are using these models for immediate sustenance hoping right pricing of health insurance in India will happen sooner than later.”

Sudhir Sarnobat also feels that things will become better now, he thinks that as the premium rates are hardening, there is possibility of creation of innovative products in retail spectrum which can provide profits. He says “Till last year, the retail Health Insurance portfolio of all insurance companies was profitable hence, this business, if done properly, can provide profits.”

Last words

Having more dedicated health insurance companies in India means more good news than bad news to us- the end users, it means more choice, better service and better products and innovations in the field. “The more the merrier” says the Indian middle class customer, for sure!

Health Insurance

If you had been considering the premium amount on health insurance policies to be too stiff, this will come as good news to you. Especially, at a time when most of the general insurance companies have raised their health insurance premiums by 20-30 per cent, the news of a public sector general insurance company, looking at launching one of the cheapest health insurance policies - with the premium being less than Rs.1000 for a yearly Rs 1 lakh sum assured – may come as a relief!

New India has always been one of the general insurance companies with a flair for innovation. Their differential pricing for health insurance between Metros and non-Metros is an example. And now, by looking towards launching one of the cheapest health insurance policies, they are on their innovation mode again.

But, while, the initiative comes with the prime motive of expanding the reach of their health insurance umbrella, the picture may not be as rosy for the prospective customer as it appears to be. Though the news seems profitable from the view of a customer, the reduction in the premium rates comes with a corresponding reduction in some of the related benefits that are otherwise, normally available under other health insurance policies.

An in-depth analysis of the initiative will enable you, as a customer, to understand the specifics behind the product (cheapest health insurance policy) and will also help you in making an informed decision.  

      First, Limited choice of hospitals:

The reduction in the price of the policy is accompanied by a corresponding limit in the choice of hospitals.

New India has identified a panel of hospitals with whom it has probably negotiated discounted rates for different procedures of treatment for its policy holders. For you, as a customer, this means that in order to avail of the claims benefit, you would have to get treatment done from the hospitals that have been identified by New India. This limits your choice of hospital from where to get treatment and if you do choose a hospital not identified by New India, then the entire reimbursement benefit will not be given to you, thereby making a dent in your pocket.

Second, Coverage of major illnesses only:

The low price policy comes with the condition that only major illnesses will be covered.

Through its ‘Cheapest policy’ initiative, New India plans to provide coverage only for certain major illnesses as the incidence of claims towards these illnesses is much lower than overall incidence of claims in the Health portfolio. For you, as a customer, this means that you can claim reimbursement for expenses accrued only in case those expenses cater to a major illness that you have suffered from, else, no other expense gets reimbursed.

So, what is in it for you?

Benefits for the customer

Mr. K.S. Sankar, from Medimanage.com, an expert in health Insurance for almost 30 years, puts it lucidly:

“This product of New India is not, repeat not, a substitute for your standard health insurance. As stated, this product covers only specified illnesses while the standard product covers all hospitalizations following any illness (both of course subject to the standard exclusions). Therefore, if you were to substitute your existing health insurance with this product, you would be left to fend for yourself for hospitalizations following illnesses other than those covered under this product”.

Does it mean you cannot take advantage of New India’s cheapest policy?

Indeed you can; all you need to do is to transfer the top layer of your existing insurance to this product.

Mr. K.S. Sankar explains, very vividly, how you can have the cake and eat it too...

“Whatever is the Sum Insured under your current health insurance policy, at the time of its renewal, ascertain the renewal premium for the same sum insured as well as for a sum insured that is less by Rs. 1 Lakh. If the differential is more than the price you would pay for this New India product for a Rs. 1 Lac Sum Insured, renew your existing policy for a Sum Insured that is less by Rs. 1 Lac in comparison to the current Sum Insured. In parallel, you get yourself this policy of New India for Rs. 1 Lac. This way, you pay less for both the polices together than you would if you renew your existing policy as it is. You use the New India Policy for any hospitalization following illnesses covered by the New India policy. You use your existing policy for all other illnesses.”

The amount of Rs.1 Lac mentioned above as Sum Insured under New India policy is only suggestive. You need to determine how much you will knock off from your existing policy Sum Insured and transfer to this New India policy. We would be happy to provide comparative arithmetic for you if you could approach us a month prior to renewal of your existing policy.

If your current health insurance is only for Rs.1 Lac:

“If so, independent of this new product, it is time you ought to be looking at increasing your Sum Insured. May be this product could be the trigger. You could take this in addition to your existing policy and if you do not already have a health insurance policy, we suggest you buy a standard policy in addition to you New India’s cheapest policy.

Yes, while doing the price comparison, you need to consider the fact that the New India policy will pay for Hospitalizations only in the hospitals listed in the policy, and then decide whether the differential in price is worth the while for you.”

It is a good thing innovations are happening in the insurance market place. Like in any other market place, not all new products will make sense to every customer. Same holds good with this product also. With professional guidance you need to decide how best you could get the advantage of any innovation, including this one.  


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