Ever since it was first introduced, Cashless Hospitalization remains one of the most attractive services provided by health Insurance companies, to provide advance payment of the hospitalization expenses incurred by policy holders in a “network hospital”. Increasingly, Cashless service has assumed growing importance and almost every insurance company has ensured it provides this benefit to its customers. But, enter Budget 2010 - 11, and the government decides to impose service tax on payments made by insurance companies in settlement of claims for the cashless service. So, you might ask, how does this impact the customer? Well, imposition of service tax on the cashless benefit means higher premiums and soaring hospital bills. Read on, to know how.
In the Finance Bill 2010-11, the proposal of levying 10.3 per cent service tax on hospitals for cashless settlements, tabled by Minister of Finance, Mr. Pranab Mukherjee, received mixed reactions from various sections of the health insurance industry.
The Bill says
‘Tax will be levied on a person covered by health insurance scheme, for any health check-up or treatment, where the payment for such health check-up or treatment is made by the insurance company directly to such hospital, nursing home or multi-specialty clinic. This will be only applicable to cashless insurance claims’.
Before looking at the impact of the decision on policyholders, let us understand just what led to this proposal being flagged off in the first place. It goes like this: Each year the non-life industry, which includes Health Insurance, pays around Rs 6,000 Cr. by way of claims to the healthcare sector (read hospitals, nursing homes, etc). And over half of these payments made are by way of cashless settlement. This in turn makes tax on the ‘Cashless Service’ high revenue generator for the Government of India.
Now that you know what led to the decision, let’s understand how the decision indirectly impacts you, the policyholder, and makes a further dent in your pocket.
The Bill clearly says that the hospital will have to pay the service tax. But actually this tax burden will clearly pass on to the patients because if the hospital pays the service tax for treating any patient, it will have to add 10.3 per cent tax separately to the patient's bill. And if the patient has a health insurance policy, it would mean that the insurance company that pays the hospital by way of cashless settlement would have to shell out 10.3 % more, as the hospital bill would shore up by 10.3 %. And the insurance company, in order to be able to bear this service tax burden, would charge a higher premium to the customers to make up for the amount of this tax. Hence, in short, this service tax burden clearly falls onto the policy holders’ lap. Without even being hospitalized, policyholders will have to pay a higher premium. And if they were to be hospitalized, their bills will get inflated by 10 per cent to accommodate the service tax.
This means that henceforth, you will have to pay service tax on all expenses related to health services under health insurance schemes offered by insurance companies settled through the Cashless process. Health check-up provided by hospitals or medical establishments for corporate employees will also come under the umbrella of service tax. But as per Budget 2010, the tax on these health services would be payable only if the payment for health expenses is made through the cashless service, that is, directly by insurance company to the hospital.
All in all, with the government deciding to impose service tax on the cashless service, health insurance costs are definitely set to soar, and at such times what matters most to a customer is quality healthcare, which if present, may offset the cost.
She is the second most populous country in the world. She has been successful in gradually overcoming the global recession and is very much on her way towards achieving a double-digit growth and donning the mantle of being the fastest-growing economy in the world within the next four years. But even as she continues to march ahead and bask in the glory, there are certain challenges which she must meet, before her dream of becoming a power to reckon with, can turn into reality.
Of the many concerns which she must attend to, one of India’s pressing concerns pertains to the healthcare of her billion plus people. The World Bank report has cited health as the most significant challenge that India will face on her way to becoming an economic superpower. The rapidly increasing healthcare inflation, fast creeping lifestyle ailments and the increasing gap between professional and affordable healthcare, make health a costly affair and insurance a pertinent need. Hence, there is a need to undertake serious initiatives and bring about a reform in the way health insurance is handled in India.
With a 20% growth rate, health insurance has turned out to be the fastest growing segment in the non-life insurance industry in India. However, the Government’s attitude towards taking health not as a mainstream agenda for citizens coupled with unregulated nature of the healthcare provider industry, have brought in many concerns.
Measures that are essential for the all-inclusive growth of the Indian Health Insurance market:
Changing the mass perception
Most people have certain notions pertaining to health insurance policies, that keep them from investing in such policies. Some of the most common presumptions are, reimbursement of claims is difficult, certain ailments are not covered in many policies and the ones that are covered have waiting period of at least two years, the waiting period is too long and the terms and conditions included in the health policies are made in a way to provide excuses for non-reimbursement of claims, Health insurance is meant for the rich and educated, it is suitable only for those not over the age of 45. Many even think that health insurance benefits hospitals more than the policy holders. Here, the solution is to spread awareness.
Government’s increasing role
The experience from other countries suggests that if health insurance is left to the private market in India, the poor may become more vulnerable. Hence, an active Government involvement in health is the need of the hour, agrees, Sudhir Sarnobat, Founder, Medimanage Insurance Broking Pvt Ltd, “The Government needs to bring the idea of ‘Healthcare for All’ at the centre of its political commitment and should promote small and medium hospitals’ growth in India. It should not get involved in providing healthcare at the secondary and tertiary care levels as the Government is bad at service delivery”. Also, the existing health insurance programs by the Government must reach the intended beneficiaries. Government should catalyze and guide the development of such social health insurance in India.
Regulator for the Healthcare Industry
Sudhir Sarnobat very emphatically explains the need for regulation, “Government should set up an efficient regulator for the Healthcare Industry and buy health insurance for its population from the insurers. This way government’s money will be utilized to buy healthcare for citizens while the responsibility of efficiency lies with the insurer. This way the Health Insurance portfolio will become very large in India and Health Insurers will innovate products to cater to the diverse requirements of the masses. There should also be a regulator set up to define the eligibility criterion for hospital infrastructure and service delivery parameters. The regulator’s role would be as watchdog for the industry where the interests of individual members would be tackled on priority.” Agrees Mahavir Chopra, Head, E-Business, medimanage.com, as he believes that self regulation by the Healthcare Provider Industry can help bringing in uniform billing for treatments.
The current manner of functioning of the IRDA attracts a lot of criticism from the industry experts and intellectuals alike. Mahavir Chopra laments, “The IRDA currently works in a very ad hoc and reactive manner, and the authority has hardly led a development initiative”. About the absence of government’s active role in increasing the importance of Health Insurance (by buying it directly from Insurers), “IRDA”, says Mr Sarnobat, “can ask the insurers to develop insurance plans for lower middle class and poor of the country and set up targets for Insurers to increase sales of these products.
This could be treated as social sector responsibility by insurers and their urban sector growth should be linked to this. IRDA can also set up a sub-regulatory body to keep check on Healthcare Providers for insurance purpose only.”
A stunning lack of innovation in health insurance products remains one of the prime challenges faced by the sector. To add to this, “health insurance products for the lower middle class population are virtually non-existent” explains Mr Sarnobat. At such times, innovation must rule the roost, for products to be recognized and for sale to be catalyzed. In a well thought out manner, Mahavir Chopra, puts forth the telecom industry’s success as an example of product innovation. “Most health insurance products are push marketing type, rather than the pull marketing type. Most of the Insurance products are sold, but are rarely bought. Innovation can lead to increasing product penetration which in turn can help insurance companies in becoming a stronger part of the payment mode pie of Hospitals, and hence influence charges”.
A complete Database
“There is a lack of a global database of the numerous patients’ health and claims history. This again acts as a deterrent. Insurance Companies should get together to form a uniform database of insured customers. In the West, there is a social security number which tracks health details of each patient. Hence, Universal Identification Number (UID) must be introduced, but if the database is not maintained, execution for healthcare records will be a herculean task” says Mahavir Chopra.
An Insurance Ministry
A separate ministry for the Insurance Industry, just like the Telecom Ministry is set up for the telecom industry, is an interesting idea floated by Mahavir Chopra. He says this can help in bringing a huge focus on the industry. For starters a Health Insurance Sub-Ministry under Health and Welfare Ministry with professional members could also be a welcome initiative, he says.
The growth of the Health Insurance industry can be smoother and faster, if these steps are taken in full measure and there is a healthy Government-private coordination.
Views expressed by experts in this story/article are personal.
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?
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.