Need of the Hour for the Health Insurance Industry in India

This interview was first published in the IIB Bulletin, Vol 1, Issue 4
https://iib.gov.in/IIB/Articles/IIB%20Bulletin%20Q4%202014-15.pdf

Mr. Sanjay Datta is Chief - Underwriting & Claims, ICICI Lombard General Insurance Company Limited, the largest private sector General Insurance Company in India. With over 24 years of experience in General Insurance, Datta was a part of the startup team at ICICI Lombard in 2001 and has since then grown the business into a market leadership position.

At ICICI Lombard, Datta is responsible for underwriting and claims division across the organization. He heads customer service for all product lines of the business and spearheads underwriting discipline, operational excellence, product development and pricing across Wholesale and Retail products. Datta also drives company's foray for quality service delivery across all products.

In a conversation with Dr. Nupur Pavan Bang of the Insurance Information Bureau of India, Datta talks about the business of Health care in India, the role of the Insurance Industry and the things that the Industry as a whole needs to do to be able to serve the population.

An evolved Health care system in a way represents the quality of life in a nation. How evolved is India, relative to the developed and the developing nations, in terms of Health care system?

India has made significant progress in terms of economic growth and overall development. But not much has changed on the healthcare front. Basic measures of health standards remain at alarmingly low levels even today. India spends between 1-3% of its Gross Domestic Product (GDP) on healthcare which is among the lowest in the world. A large percentage of Indians are still deprived of adequate healthcare facilities.

Can you give a few examples?

Bed density or number of hospital beds per 1000 remains below World Health Organization (WHO) standards of 1.5 beds. Doctor density or number of doctors per 1000 patients stands at 1.8. Comparisons with other developed and many developing nations show that we are lagging far behind.

An average Indian still pays around 60% of his or her healthcare expenses from out of pocket, much higher than even Lower Middle Income countries where individuals pay not more than 37% of healthcare expenses from their own resources.

For the poor, this self-funding has a crippling effect - various studies including those conducted by the (National Sample Survey Office) NSSO have shown that 64% of the poorest population in India gets indebted due to health related expenditures. Still only a small percentage of the Indian population is insured.

Is there anything specific in any of the Developed nation, which you would like to highlight, that can be emulated in India?

If you were to look at Japan, you will realize the current issues and get a sense of what needs to be done. In India, the cost of treatment varies widely between public and private hospitals due to the lack of a regulating body. In case of Japan, a patient pays more only if he or she is not insured, thus promoting insurance purchase.

The other key difference is in terms of the insurance approach. While in India, primarily In-Patient Department (IPD) expenses are covered for the majority of population; Japan allows virtually all access to preventive, curative and rehabilitative services at an affordable cost.

In India, there is no metrics defined to assess quality of care provided, in Japan it is all about care. A doctor in India spends minimal time on each patient, there is no set protocol or pathway to report medical fraud or exaggerated bills and the country doesn’t practice evidence based medicine which is common in developed nations. Indian healthcare system has started using technology. However, it is leading to expensive treatments. The concept of telemedicine too is at the pilot stage.

In fact, the Japanese healthcare system is perceived as an exemplar by many countries. Hospitals, by law, are run as non-profit and managed by physicians in the country. Medical expenditures are strictly regulated to keep them affordable. Measures have been taken to promote insurance and price them depending on the family income and age of the insured. Also, models like activity-based funding, where hospitals are paid based on the services provided and Diagnosis Related Group (DRG) type financing have resulted in reduction in the days of hospitalization and total average claim size, thus reducing costs.

This clearly shows that it is time for India to take stock, improve access to and raise the service standards of its healthcare system to truly harness the power of its billion strong population.

Including the Government schemes, based on optimistic estimates, about 25 percent of India's population has access to some form of health insurance. But the balance 75 percent are yet not covered. Can the Insurance Industry do much in a country where nearly one million Indians die every year due to inadequate healthcare facilities and close to 700 million people have no access to specialist care?

India’s health insurance sector is growing at a CAGR of 25 -30 % for the past 8 years. Despite this there is a significant shortfall in terms of health coverage with majority of individuals struggling to meet their healthcare needs. As you rightly pointed out, a meager 25-26% of the population is covered through some form of pre-paid scheme, including General Insurance Companies, Employees' State Insurance Scheme (ESIS), Central Government Health Scheme (CGHS), schemes for Railways and Defense employees.

Amidst this low penetration, availability of wide variety of products and government incentives are key drivers. In India, providing affordable quality healthcare is a challenge with 80% healthcare centers located in urban areas and catering to only 30% of the population. To achieve the goal of Universal Health cover, efforts should be made towards developing an integrated system that ensures affordable, accessible and equitable care for all.

Encouraging public private partnership model to address these challenges can be the first step. Insurers can help by supporting the government in network management, cost control, data and analytics etc.

It may be argued that bringing Insurers in the fray would add a layer of intermediation, resulting in high healthcare cost inflation.

Yes, some may argue that. However, it must be understood that the interest of insurers and the individual is aligned, with insurers wanting customers to stay healthy and avoiding hospitalization, thus keeping treatment costs low. The starting point would be to customize diagnosis, care and cure while engaging patients before, during and after the ailment and its treatment.

There is a clear need to pursue a model which ensures operational efficiency and cost effectiveness. 

Here, it would be worthwhile to evaluate the framework adopted for certain mass health insurance schemes such as Rashtriya Swasthya Bima Yojana (RSBY).

In a brief period of time, social insurance schemes led by RSBY have made commendable progress and covered over 300 million people – mostly the poorest - of the population. RSBY, the flagship scheme of the Central government in particular has achieved tremendous success in terms of coverage and won international recognition for its design and architecture, including adoption of technology; paperless & automatic claims settlement processes, coverage of pre-existing diseases, competitive package rates for treatment, price discovery through bidding, customer choice, etc. 

Can you elaborate on the model adopted by RSBY and the role of Insurers?

Moving away from its traditional approach, the government, in the case of RSBY, focused on the role of ‘Payor’ while allowing private entities including Insurers to take up the responsibility of provisioning.

Without insurers, the government as a ‘Payor’ would have to ‘buy’ the services of the providers directly – a model fraught with obvious risks. Even if the procurement process was managed efficiently, it would be difficult for the government to control leakage and misuse without the fraud control and analytics capabilities of insurers, resulting in cost inflation in the long term.

Insurers can further facilitate specialist and adequate care by offering primary care and out-patient (OPD) benefits to help beneficiaries get essential cover at the diagnosis or early stage of ailment. Primary care facilities will act as a gate keeper to limit instances of high expense in-patient treatments.

Second, like the Government, it is in the interest of the Insurer to reduce the cost of treatment. This is because treatment expenses directly influence the quantum of claim. As such, cost effective treatments can help reduce amount of claims paid, the benefit of which can be passed on to consumers in the form of reduced premium.

Third, use of insurance will give flexibility to the Government to design different levels of financial support across economic strata of the society and over time as families move up the income brackets.

Insurers can also play a significant role in driving awareness and influencing change in terms of health status of the community at large. Finally, insurance will provide an individual choice without tying the patient to a provider.

Inadequate healthcare facilities are a bane in India. How can the Insurers ensure that a hospital meets the basic minimum requirements to treat a patient?

Insurers first and foremost should ensure that a hospital holds accreditation from a reputed association before empanelment. Quality Council of India provides the necessary accreditation. National Accreditation Board for Hospitals and Health care Providers (NABH) is another constituent board of Quality Council of India, which is set up to establish and operate accreditation and allied programs for healthcare organizations.

A large number of hospitals face challenges and difficulties in implementing all the Accreditation Standards. NABH has developed Pre Accreditation Entry Level Certification standards, in consultation with various stake holders in the country, as a stepping stone for enhancing the quality of patient care and safety. The aim is to introduce quality and accreditation to the Health Care Organizations (HCOs) as their first step towards awareness and capacity building.

Currently, accreditations are not necessary and are just add-ons to build trust amongst patients. National registry of hospitals can be another good initiative which can help classify the list of hospitals that meets minimum standards.

Insurers can evaluate them on the basis of factors like infrastructure (bed capacity, strength, speciality, age of the building, infection control, patient safety, staff and accessibility, laboratories, ambulance, dietary service, housekeeping, laundry and linen, fire safety, pharmacy, power backup, operation theatre etc.). In the long run, insurance companies can follow these standards and ensure that no hospital is empanelled without necessary certifications leading to quality healthcare facilities for all.

Apart from the basic facilities mentioned by you, what are the other attributes that the Insurers look for before empanelling a hospital for Cashless facility?

There are various other factors which insurers look for before empanelling a hospital for cashless facility. Features which help in reduction of medical inflation such as package rate for procedures, discounts offered by providers for various medical treatments and infrastructure costs for ICU, biomedical gases, laboratories, radiology etc. play a major role while empanelling a hospital. Location and demography is also considered as an important factor. However, these are not the sole parameters for selection of a hospital by insurers.

It is also taken into account that any of the above factors is not leading to increase in operational costs and grievance with regards to the hospital. Insurer’s internal teams empanel a hospital post sound background check and audit. Popularity, trust, group identity and background of the medical institution stand out to be the most important parameters for any health provider.

The Health Insurance Business in India is mostly unviable as of now, with claims and costs being higher than the premiums collected. What are a few steps that need to be taken to make the business more viable?

Increasing incidences and claim size is a challenge faced by the Health Insurance industry today. The Net Incurred Claims Ratio for FY 2012-13 and FY 13-14 has been as high as 97% and 101% respectively. While unregulated medical inflation and hectic lifestyle is the primary reason behind the increase in the claims size and incidence; the industry is also confronting the issue of predatory pricing.

Insurers will have to collectively take a step forward to stop such pricing practices. The Insurance Regulator’s step directing insurers to claim above previous year’s claim is an effort which when implemented will bring in some solution.  This proposition will also compel insurance companies to undergo regular reviews of their Health Insurance products.

The other viable steps will be to manage the network effectively and prevent leakage.  Efficient network negotiations can result in less claims outgo through cashless transactions, helping almost 55% cases. While, leakage - which is of two types’ leakage due to fraud and leakage due to inefficiency- can be prevented with strict control on operational efficiency.

Exaggeration of expenses like adding emergency visit, unnecessary doctor rounds, needless tests are soft frauds, which along with many hard frauds- where the case claimed is completely false- eat up approximately 20% to 25% of an organization’s premium. While soft frauds can be addressed by defining proper care procedure and protocols, hard frauds can be tackled with the help of data analytics and regular audits of the hospitals.

Preliminary leakages due to inefficiencies like approving claims above sum insured, providing claims to people who are not enrolled, missing a disease sub limit, paying for exclusions, paying above tariff, missing co-pay etc. can be controlled internally. Organizations can prevent such losses through prudent underwriting practices.

One way to make a business viable is to reduce costs. The other way is to price the risks better. What is the kind of data or analytics that can help the Insurers recognize and price the risks better?

Pricing risks better is indeed a prudent move towards the viability of the General insurance business.  However, risks can be priced better only at an industry level. Data analytics is the key and an anchor to better risk pricing. Industry data on claim experience with demography, disease with respect to age, incidence claim size, industry type and individual customer assessment for both retail and group health will help as parameters for the analysis.

While for the retail portfolio factors such as demography, morbidity tables and individual health profile will impact the pricing; for group health, past claim experience-generally considered as industry practice- will help in the evaluation. In case the group has no past experience, then data analytics on demography, industry category and related experience can be considered as an ideal practice.

The use of such data analytics will lead to defining and designing covers differently for the same premium as per the insured’s portfolio. Thus, pricing risks better. Analytics will also help insurers to offer exclusive provider network for cases such as cataract, chemotherapy or dialysis. It will also help in the selection of alternative and cost effective platforms - such as telemedicine for second opinion- for treating diseases and doing away with unnecessary treatments and procedures. This will have a huge impact not only in terms of risk pricing but will finally benefit the insured in terms of premium as well.

Lastly, According to Annual Report, to the people, on Health by the Ministry of Health and Family Welfare, Government of India (December 2011), about 71% of the total health care expenditure in the country was borne by households out of their pockets. Can the industry as a whole do something to increase awareness about the need for Insurance?

It is alarming that close to 71% of the total healthcare expense is still out of pocket in India. The expenditure can be bifurcated into in-patient department (IPD) and out-patient department (OPD). While, IPD can burn deep holes in ones pocket, OPD expenses makes it difficult to control finances on a day to day basis.

Industry, with the assistance of government, can play a major role to create awareness towards health insurance purchase. Introduction of Universal Health Care under the National Health Assurance Mission is a step in the right direction. While the government adopts the role of the ’Payor’, it will always face efficiency issues in view of the vast landscape and population of the country. Tax incentives linked to purchase and higher limit for senior citizens will propel insurance awareness and purchase. Along with the government, insurance companies can initiate activities like office on wheels creating community awareness on insurance and introduction of insurance in schools and colleges at a low premium, to boost insurance awareness.

As people buy insurance, more and more of the private healthcare space will be routed through insurance. Private insurance as the ‘Provider’ will thus have stronger control and thereby better chance of influencing the way healthcare delivery happens in India. It will be able to manage the healthcare space both in terms of quality as well as the cost of delivery. It will be in a better position to build a sustainable healthcare system which focuses on the preventive as well as curative aspects of healthcare.