To break the stalemate with big corporate hospitals, the four state-owned insurers are planning to introduce a new variant of health cover — the Premium Mediclaim. Subscribers will be charged a premium higher than that of a regular health insurance policy, but will be offered cashless facility at all major hospitals on the insurer’s network.
“Big hospitals have agreed to revise their package rates and share it with us in a few days. We will compare it with a list of ‘reasonable rates’ that we have prepared in consultation with doctors and third party administrators (TPAs). If they are within a reasonable range, it is fine. Else, we may introduce a premium product for customers who insist on getting treated at 5-star hospitals,” an insurance official privy to the negotiations told The Indian Express.
The four general insurers — National Insurance, New India Assurance, United India and Oriental Insurance — had taken about 150 hospitals, including the big ones, off their network list from July 1 following instances of differential treatment and charges for insured patients.
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Experts from Medimanage.com give their opinion:
Underwriting, which is one of the most important part of Insurance, is based on minimising risk & identifying innovative solutions to make the product attractive. The idea being used here lacks both. It’s like if the hospitals are charging “high” let them charge high. If there are buyers who want to buy this, we will have product to match.
Another way to look at it is the “adverse selection” angle of the insurance. Insurers deny risks which are basically skewed and which may bring heavy losses to them without any doubt. The basic premise of this product is that the insurer is ready to pay claims in big hospitals. Then the buys would be those selective members who wish to spend money. The premium being high, the insurer would have tendency to recover & will consume high, not because he needs it but because he has paid higher premium for it. It’s akin to those members in current scenario who buy 5,00,000 cover & then go to big hospital & spend 3.5 lakhs for a simple Hernia or Gall Bladder. These are the tendencies which are bringing losses to insurers (apart from other lack of controls & faulty underwriting) & one more product like this will only further the losses.
What!? 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.
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
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!
Recently, we came across news of a judgement in a leading online Publication, Zeenews.com
New Delhi: The National Consumer Commission has upheld the rejection of a Mediclaim of person, who suffered a heart attack within a week of taking an insurance policy, saying he failed to disclose the past history of the disease to the company. "It is well settled that principle of insurance is fundamental to utmost good faith which must be observed by the contracting parties and good faith forbids either party from non-disclosure of the fact which the parties know," the Commission said.
Whilst on our friend Chandra I will refrain from commenting for want of adequate information on facts of the case, purely from the legal perspective, I actually see the silver lining behind this apparently dark – not in favour of consumer – cloud. Read decision.
Insurers in their policies had been trying to disown liability for claims traceable to preexisting conditions, irrespective of whether the insured person was aware of such conditions are not. In the subject judgment, however, the Ld. Commission’s surmise that Chandra ought to have known about his heart condition stems more from the legal position of ‘res ipsa loquitar’ (In the normal course) than from a ‘reasonably expected to know’ stand point.
Let’s talk English and not Law. In simple English, the difference is this:
Through their policy wordings, insurers attempt to disown liability for claims traceable to any pre-existing condition that the insured person is reasonably expected to know. Imagine I had been having some symptoms of hypertension but had not recognized them to be such symptoms – In its strict application, the pre-existing condition exclusion in the policy will render me ineligible for a claim. ‘Cause I was reasonably expected to recognize these symptoms to be indicative of Hypertension. This is the ‘reasonably expected to know’ stand point.
The judgment however evolves around Chandra suffering heart attack within a week of taking the policy. The Ld. Commission has taken specific reference to this occurrence happening within a week - "It would be too much of a coincidence to argue that within a week of the complainant taking the policy, he had a sudden heart attack and from the available records, we cannot but hold that he had a past history which was not disclosed for reasons best known to him," the Commission said. This judgment will therefore not become an authority (an authority is a previous judgment relying on which a current case can be decided) in a case where, say, a Surya suffers a heart attack in the eleventh month of his first policy.
The judgment also specifically says "It is well settled that principle of insurance is fundamental to utmost good faith which must be observed by the contracting parties and good faith forbids either party from non-disclosure of the fact which the parties know," the Commission said. (Highlighting mine). So, the insured knowing and not disclosing is what can result in insurer rescinding liability, not merely the insured being reasonably expected to know.
Significantly again, the Ld. Commission, in its wisdom, has passed this judgment based on the basic principle of insurance (utmost good faith), and not a reference to the exclusion condition in the policy contract.
So this judgment does not uphold insurer’s self proclaimed ‘right’ to disown liability on non-disclosure of what the insured person does not know or was merely reasonably expected to know.
Thank Lord Dharma there still are judges who give speaking judgments!
This is an interesting decision under Mediclaim policy where the judgement is given against the health insurance buyer.
Many of the insurance agents misguide the buyers & push them to Buy health insurance policy so that they can get a claim.
They believe that Health Insurance Company will overlook this & they can get their claim by managing the officials at TPA or Insurer or by suppressing the facts while getting the hospitalisation done.
Health insurance is not a lottery where people can pay a premium of Rs. 5000 and get guaranteed return of 2-3 Lakhs.
We believe that with this judgement Mediclaim buyers would not wait till the illness strikes them to buy health insurance policy. They would buy it earlier to gain peace of mind which is essential principle of the insurance.
OK. Assume you are a journalist in a business daily. You get a press release with the following figures.
1. XYZ Ltd. Sales grows by 20%
2. XYZ Ltd. Operating Loss grows by 63%
Which would you select as your headline?
All major dailies reported "The News" from one of the general insurance companies, mostly copy-pasted from the press release they received from the insurance companies. What they missed (as always) was "The Real news" - or what they call as "Breaking News"
Business Sections of National Dailies Reported United India Insurance's rise in gross premium as well as net profits, without actually digging deep into what actually is a big-big hole - called Underwriting Losses. The Underwriting loss of United India grew from 541 Crore last year to 880 Crore this year, a whopping growth of 63%.
In simple language Underwriting loss or profit, means Premiums collected minus Claims Paid minus Overheads. Underwriting Profits or Loss is one of the most important parameter to analyze any Insurance Company's efficiency and performance.
The Net Profit press-released by all Public Sector Insurance Companies actually includes huge income made as a result of investments of premiums collected, which in all respects is non-core to their business of risk underwriting.
The real news is the 880 Crore of Underwriting Loss! Hello?!
The losses are a result of 2 major challenges faced by the General Insurance Industry:
1. Unhealthy Claim Ratios on Health Insurance (mostly Group business) ranging from 110 to 150%.
2. The government regulated/tariffed premium for third party motor insurance.
More on this Later.Watch this space.
Views Expressed are Personal