India Cashless Health Insurance

Nitin Pahuja & Ujjawal Jain An analysis of the Indian Cashless Health Insurance Industry identifying the key structural deficiencies leading to a situation of distrust between parties involved. The study as a part of IIM, Indore’s Consulting competition, Chanakya, organized in association with Cognizant also proposes solutions for resolving the present imbroglio between the service providers and insurance companies.

Indian Cashless Health Insurance: A window of opportunity

T e a m U n n a t i , G r e a t L a k e s I n s t i t u t e o f M a n a g e m e n t

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Table of Contents

Introduction ........................................................................................................................3 The new India ..............................................................................................................................3 Being Pro-active..........................................................................................................................3 Role of Health Insurance..........................................................................................................3 The recent spats..........................................................................................................................4 Going forward..............................................................................................................................4 Shift of focus .................................................................................................................................5 Getting it right and opportunities for Cognizant .............................................................5

Methodology........................................................................................................................7 Proposed Solutions ...........................................................................................................8 Grading Healthcare Service Providers: Foundation of broader product variety .8 Broadening the product portfolio .................................................................................................... 8 Customer Segmentation ....................................................................................................................... 8 Grading Methodology ............................................................................................................................ 8 Marketing the grades............................................................................................................................. 9

Establishment of Standard Operating Procedures across the industry ............... 10 Need for Standardization .................................................................................................................. 10 Bringing clarity...................................................................................................................................... 10 Action Plan .............................................................................................................................................. 11

Risk Management: Surprise Audit & Customer Feedback......................................... 12 Product Innovation & Customer Engagement through Co-Pay................................ 13 Product Innovation.............................................................................................................................. 13 Action Plan .............................................................................................................................................. 13

Channel Distribution: Reaching out to Bharat .............................................................. 15 Building and managing new retail channels............................................................................. 15 Choosing channels ............................................................................................................................... 15 Stronger, consumer-‐oriented branding...................................................................................... 15 Marketing effectiveness..................................................................................................................... 16 Action Plan .............................................................................................................................................. 16

Works Cited ...................................................................................................................... 17 Appendix............................................................................................................................ 18

Appendix I (Specimen Grading Account Sheet) ...................................................................... 18 Appendix II (Service Provider Grading Matrix) ...................................................................... 19 Appendix III (Globally Successful Health Insurance Models) ........................................... 20 Appendix IV ( Wellness Products Offered in the US) ............................................................ 21

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Introduction

The new India

India is on the anvil of becoming an economic superpower leveraging its demographic dividend. A dynamic & healthy workforce in context of our rapidly growing service economy is critical. Ensuring that our young population remains healthy and continues to operate at maximum productivity is an important imperative. Indian growth has seen a transformation of the average Indian into a formidable commercial power with huge disposable income.

While the growth is far from inclusive, it has led to the creation of a prospering middle class, which is expected to increase to 500 million by 2025. It is also proclaimed that food, transportation, housing and utilities, healthcare and personal

products/services will account for over 80 per cent of total cumulative spending in India over the next 20 years. It is worthwhile noting that the last 20 years have seen healthcare consumption growing rapidly at 8 per cent, approximately double the rate of growth for overall consumption. This strong growth trend is expected to accelerate over the next 20 years creating a nearly 9 trillion rupee healthcare market. (Singhal, 2007)

World-class and inclusive healthcare financing is critical for India’s 2020 vision as most of the healthcare expenditure is still paid out of pocket by individuals, leading to financial distress or inadequate care. In this context, there is a clear need for a rapid increase in access to health insurance.

Being Pro-‐active However it will be naïve to assume that the massive expected growth of the market will have an absolute positive correlation with the growth in Health care industry. “The belief that profits are assured by an expanding and more affluent population is dear to every industry,” wrote Theodre Levitt in his famous HBR article, Marketing Myopia. He went onto explain that such assumptions often lead to a myopic perspective leading to a self-deceiving cycle of bountiful expansion and undetected decay, which ultimately leads to the fall of the industry. It is therefore important that the health care sector remains pro-active and innovates to leverage the huge opportunity that the Indian market will offer going forward.

Role of Health Insurance Health insurance as a component of the overall health care eco-system in the country holds tremendous importance. Indian Health Insurance Industry is still in its infancy and has just about reached a stage of transition. Its expansion is critical to providing health care facilities in an inclusive manner. Cashless health insurance especially holds the key to stimulating further penetration in the market. In a recent study of IMRB commissioned by KPMG, majority of the focused group participants across six cities in India expressed Cashless Insurance as a primary advantage. The arrangement of Cashless Insurance has led to the increase in sales of

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Health Insurance policies. (Lombard, ICICI)

The recent spats The cashless model however has been undergoing rough times with multiple problems stemming out of the structural deficiencies prevalent in the multiparty setup. There have been few controversies over the hefty billings done by large hospitals to the patients that are covered by insurance companies.

This has been followed by a decision by public sector health insurance companies to deny cashless services for some of the networked hospitals. While progress has been made on this issue with regulators, healthcare providers and insurance companies coming together, a lot remains to be achieved.

Going forward We strongly believe that the insurance industry especially in the health care segment will have to emerge into a retail driven model thereby taking relevant cues from the advanced retail oriented way of business. Right from product innovation in terms of Co-pay to distribution realignment powered through alliances with SHG’s in rural India, the health insurance model of business is slated for significant change.

Product Innovation Build an

innovative set of core health insurance products and an array of ancillary products and services. Ch

annel Distribution Build expertise

in managing retail channels and bolster their approach to distribution by improving their branding and marketing.

Risk Managem

ent Strong processes

governed by a stringent monitoring body, periodically evaluates, tested and reinvented in line with latest conventions.

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Tracking the western markets that have evolved into an advanced retail set up, it is rationale to believe that strategic elements like product innovations combining financing mechanisms, elements of managed care and advice; the ability to manage multi-channel distribution; and capabilities for risk-based pricing, will emerge as the key drivers of business going forward. (Ehrbeck & Kumra)

Shift of focus An important aspect critical to Health Insurance’s future in the country would be its ability to shift the focus from curative care to preventive care. Insurance companies thus far have focused on improving their products with respect to better coverage and support for curative care but have failed to give due importance to preventive care. This has led to a huge market notably the young remaining oblivious to the health insurance product and also has a significant role in the high claims to premium ratio in the Indian framework. Health Insurers need to come up with product innovations that focus on preventing fatal diseases by having regular checkups or yearly evaluation as a free option for all policyholders.

As depicted by the figure above, forty per cent of the disease burden in India is caused by infectious and parasitic diseases, nutritional deficiencies, prenatal and maternal conditions, and respiratory conditions. These are relatively easily preventable and arguably a matter of public health programs. India’s expenditure on primary prevention and public health is low by international standards (US$13 per capita on a purchasing-‐power-‐adjusted basis compared to, for example, US$17 per capita in Vietnam, US$22 per capita in Mexico, and US$25 per capita in Egypt) and can be significantly increased in line with the Central Government’s declared intentions. (Ehrbeck & Kumra)

Getting it right and opportunities for Cognizant It is with view of these issues that we have attempted to dig deep down to the root causes of these symptoms of structural misalignment. We have carried out a thorough research and incorporated the views of industry experts in defining the core problems from the perspective of the stakeholders. We have studied different models of operation as followed in the western economies and benchmarked the best practices followed in those markets as a driving force for our suggestions.

We have concluded with five broad solutions that are aimed towards development of a process driven and well monitored cashless health insurance setup. We have also been

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able to clearly outline opportunities for Cognizant to fill the structural gaps through its technology and consulting practices.

We have deliberately abstained from offering myopic solutions and stuck to suggestions that are comprehensive and form the basic foundation for robust, long-term development for the sector. This approach we believe will offer Cognizant a much larger role in changing the whole landscape for this domain of the Indian insurance industry.

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Methodology

In this study we have outlined the key dynamics of the Indian Health Insurance market. We have covered critical macro aspects of the Industry like its structure, potential for growth and key stakeholders. The macro analysis of the industry is followed up by a focused overview of the basic processes involved in the functioning of ‘Cash-less insurance’ (being the primary area of exploration for this study).

The next segment of the report deals with key learnings from the western Health Insurance model. We have outlined core competencies for a healthy health insurance industry drawing its origin from the US Health Insurance industry. The penultimate section deals with an insight into the Indian industry with a focus on key problems and their respective root causes categorized with respect to the following perspectives:

1.Insurance Companies

2.Healthcare Service Providers

3.TPA’s

4.Industry as a whole (Macro Issues)

The last section deals with suggestions that can facilitate Indian Health Insurance Industry’s evolution into a truly world-class healthcare management system which is affordable, inclusive and flexible. The suggestions have been elaborated under the following heads

• Grading of Healthcare Service Providers and products on the basis of service quality & premium price

• Establishment of Standard operating procedures across the industry • Establishment of internal controls alongside process audits • Introduction of Co-pay schemes in the Indian health insurance industry • Channel Distribution: Reaching out to “Bharat”

Health Insurance Providers

Heath care Service providers

Third Party Assurance

IRDA Government

Media

Consumer

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Proposed Solutions

Grading Healthcare Service Providers: Foundation of broader product variety Health Insurance offerings over the years have not undergone much change leading to unsatisfactory levels of market penetration and low consumer recall. The recent chain of events has also highlighted the problems with respect to insurance companies incurring losses due to high claim ratio.

Broadening the product portfolio We believe that lack of customized offerings for consumers across demographics, needs and regions is the primary driver of the above-mentioned eventualities. Therefore in our opinion an immediate expansion of health insurance products is an imperative. Insurance companies must broaden their product portfolio in order to cater to the different consumer classes, profitably.

Customer Segmentation The implementation of this recommendation however is heavily dependent on insights drawn from market data that captures customer needs, consumer perceptions, and quality of service delivery apart from other key metrics that will serve as the basis of customer driven product innovation in the future.

Key issues with Standard Mediclaim Policies across segments

Grading Methodology We propose the establishment of a dynamic grading methodology that will grade healthcare service providers on the basis of quality of service, affordability and geographic coverage amongst other key variables. Customer satisfaction will also be an integral component of the overall score for the service providers and therefore play a critical role in determining the actual spread of grades. The specimen of Grading Account Sheet and Grading Matrix has been attached in Appendix I & II respectively.

These grades will help the insurance companies identify conspicuous customer segments on the basis of their unique needs. For e.g. a customer looking to secure quality service in a multicity hospital chain should ideally be charged differently from a small town customer who is satisfied with access to nursing homes and small hospitals in his city. Insurance companies can therefore create products that are based on the quality of service, availability of co-pay and coverage of preventive services on the basis of these grades.

We are confident that insurance companies can reduce their claims to premium ratio significantly by offering diverse products based on these grades matching the unique needs of the customers. They can charge an extra premium from the buyers of policies that provide cover in the top grade healthcare service providers while they can stop clients with low insurance premiums from overspending in these highly priced facilities by restricting access except in the case of emergency.

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Marketing the grades These grades should be available on the websites and policy brochures of all the insurance companies and serve as a benchmark for price negotiations with the service care providers themselves.

Note: It is important to note that we don’t suggest restriction of access in case of emergencies. Such a step will lead to serious dilution of trust between the parties thereby leading to an overall bad impact on the insurance companies.

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Establishment of Standard Operating Procedures across the industry The health insurance industry comprises several key players across its value chain. The following can be listed as the major players engaging with each other throughout the value chain, very often with mutually conflicting goals.

1. Insurance companies 2. Third Party Administrators (TPA’s) 3. Reinsurers 4. Healthcare Providers 5. Distribution Channel Partners 6. Regulators

Need for Standardization The recent spat between the service providers and the insurance companies is testament to the prevalent distrust amongst the parties involved. It is unreasonable to expect mutual trust to be able to drive a robust operational framework in a market of such high stakes. Therefore it is imperative for the industry participants to be aligned with a set of industry wide standard operating procedures filling key process gaps and structural deficiencies in the present framework.

Source:(KPMG & CII, 2008)

An off-shoot of the lack of standardization of healthcare providers is the differing qualities of service, costs, procedures, treatments across different providers. This has resulted in low customer satisfaction, unethical practices such as long hospital stays, expensive treatments and drugs. For building a strong and consistent healthcare infrastructure, standardization of healthcare costs and introduction of accreditation norms is a pre-requisite. (KPMG & CII, 2008)

Bringing clarity We propose the formation of a regulatory body with participation from all parties involved with a clear goal of establishing and monitoring compliance to industry wide standard operating procedures.

We are positive about the ability of this move to even counter the failed attempts in some states to institutionalize uniform standards for hospitals, with health being a state subject in India. We foresee the creation of an industry wide web based operational platform to enable

• Linking all the parties involved through a single channel • Seamless communication amongst parties involved • Clear establishment of authority and responsibility

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Action Plan This proposal demands industry wide support and cooperation from all the parties involved and the following schematic elaborated upon the role of all the parties in great detail.

Source: (KPMG & CII, 2008)

We are positive that this will lead to the following favorable outcomes for the industry as a whole

• Improved performance of all parties w.r.t service quality and turn-around time • Reduced administration and processing costs • Effective risk control across processes • A key input for grading service providers • Elimination of multi-party bargaining and contracts which led to confusion • Development of a co-operative model, critical for evolution of the health insurance

industry as a whole

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Risk Management: Surprise Audit & Customer Feedback Cashless insurance creates disincentives to control costs as it appears to be a ‘free’ good for the patient and the provider, often resulting in excessive treatment by the provider (induced demand) and frivolous use by the patient taking treatment even for a condition which he would normally have ignored or cured with a home remedy (moral hazard)(Rao, 2008). Also problem such as asymmetry in information put the patient and the insurer at a disadvantage due to their inability to resist or challenge medical opinion regarding an existing condition or future treatment. Besides, in the absence of knowledge of prices, the provider can shortchange the two by overcharging. Some of the key initiatives and the actions required to tackle this are:

Independent regulatory body: One of the key issues identified from the insights that we have received is the absence of an independent regulatory body. A panel comprising of independent Doctors appointed by IRDA should be formed. The team should be responsible for

Audit of bills: A random check of claim cases to assess the necessity of various treatments. The team should be responsible for checking of bills and claims made from hospital. Higher the amount of claim, more the chances for fraudulent bills, to tackle this we propose a mandatory audit of bills above Rs. 1.5 lac post redemption of claims

Ghost Audits: Mystery shopping as a patient to assess the quality of advice/suggestion made by the health care service provider with regard to the insurance coverage

Customer Feedback: Feedback evaluation for service providers through a dynamic customer feedback system that generates ranking for service providers on various parameters such as

• Responsiveness

• Reliability

• Empathy

There are various touch-points where technology can help create and monitor processes in a much more efficient way. Feedback can be collected for different service providers through Internet, data collection at bill payment by audit team during surprise visits etc. The objective is to establish integrated standard operating procedure across the country and build a ranking system on the basis of overall customer satisfaction & compliance to industry standards.

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Product Innovation & Customer Engagement through Co-‐Pay In a retail-oriented world, health insurers need straightforward, segment-tailored, quick-to-market products. Consumer industries gain limited advantages from any single innovative offering, as rivals are quick to copy. However, competency in developing distinctive products faster than competitors delivers substantial value in the long run. To achieve leadership, health insurers must focus on building a broad product portfolio and managing products more effectively.

Product Innovation Health insurers in a retail context need an innovative set of core health insurance products and an array of ancillary products and services. Breadth is important to realizing economies of scope (e.g., in distribution) and covering the range of risks and expenses that consumers face. We have looked at the following four broad categories of product innovations from the prospective of all stakeholders.

Coverage of incidental costs and more diseases: While hospitalization forms a substantial cost in medical care, pre-hospitalization entails visits to specialists, diagnostic tests etc., and post-hospitalization care also entail high costs. Therefore, coverage of these expenses is desirable. As per a research done by, (CII, 2008) consumers expect coverage of diabetes, blood sugar, dental ailments, surgeries such as eye surgeries, root canal etc that do not require hospitalization, and specialized coverage for women to be part of their Model Health Insurance offerings. A wellness oriented policy model followed in the US has been attached in Appendix IV and it reflects the needs of a maturing market.

Product Bundling: Sophisticated bundling approaches will be needed to combine product distribution synergies, consumer preferences, and ease of communication. One such approach is one U.S. insurer’s attempt to bundle individual health insurance, dental, and life insurance

Long-term policies: Consumers should also have an option to take longer-term health insurance policies compared to the existing one-year policies.

Pricing Innovation: Currently for most policies, the frequency of payment of premium is yearly. However, an alternative possibility of a one-time premium with life-long coverage will be preferred especially by self-employed people who could have a spurt in earnings during a particular year, which can be invested in a policy as a onetime investment. Another alternative is the payment of a one-time large premium, followed by yearly top-ups to cover a family for a long period

Co-‐Pay

Co-pay is a policy option whereby the customer is bound to pay a small percentage of the total bill by his pocket. Whenever possible all enrollees should contribute, even if only symbolically, to premium and co-pay to increased perceived ownership and manage utilization. Co-payments can be tiered as per different network to encourage patients to look at other hospitals in alliance

To ensure extensive penetration of health insurance in India, companies can test the acceptability of two successful global health insurance models stated in Appendix III amongst Indian consumers.

Action Plan Product & pricing innovations is expected to be the key driver for penetration of health insurance in India. Some of the key initiatives and the action steps for various stakeholders include:

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Channel Distribution: Reaching out to Bharat To increase the penetration of Health Insurance in India, there is a need to explore innovative distribution channels. Health insurers must build expertise in managing retail channels and bolster their approach to distribution by improving their branding and marketing. Whether they distribute directly to consumers or through intermediaries, they will also need distinctive brands and an overall brand communication strategy that gains the consumer’s trust.

Building and managing new retail channels Reaching individuals requires a host of channels and sales approaches. Five types hold promise:

Direct-response channels. These include a captive sales force, call centers, the Internet, direct mail, mobile medium and television commercials. WellPoint in US, primarily uses the Internet, for example, to sell a product aimed at consumers aged 18 to 29 (“young invincible”) who think they do not need health insurance. The online channel is also gaining in importance—web agencies sold roughly 10 per cent of new individual policies in 2006. The online channel has the potential of attracting younger and healthier customers

Retail stores. Health insurers are offering health benefit products through Costco and Wal-Mart, and pharmacies such as Walgreens in US. One of the biggest success stories for payors has been in selling Medicare-related products to the elderly through bricks-and-mortar retailers. Kiosks can be established at the waiting areas of stores to garner information about the products, which can be further followed up by the insurance providers

Affinity-marketing relationships. Health insurers that have used such relationships successfully include Humana (with Virgin) and United Healthcare (with the American Association of Retired Persons, or AARP). Organizations like “Baghidari” in Delhi should be approached for this purpose

Partnerships with financial institutions As consumers pay more for healthcare and health-oriented financial products, these two areas will naturally converge. Royal Sundaram, for instance, has employed partnerships with CitiFinancial, Citibank among others in India for distribution of insurance. More such tie-ups are needed with NBFC’s, Banks, SHG’s, NGO’s and organizations like ITC’s e-Choupal for wider insurance inclusion

Worksites. The worksite provides an attractive channel as it garners a natural trust among employees that their employer has vetted the carrier. In addition, it provides access to payroll deductions as well as opportunities to implement wellness programs. Individual insurance carriers are, for example, working to partner with small employers to offer individual products at the workplace, with or without financial contribution from the business.

Choosing channels Different consumer segments have different preferences and attitudes, and payors must understand them. Some consumers, for example, want a trusted adviser who can make decisions for them, while others desire information and tools to make their own decisions. Preferences also vary by demographics; for example, most retirees like greater support. Understanding such preferences is important when companies decide whether to use direct channels or channels that provide for human intervention. Because a consumer’s risk profile (that is, health status) is correlated with demographics, the choice of channels can be a significant driver of profitability.

Stronger, consumer-‐oriented branding Whether health insurers distribute directly to consumers or through intermediaries they will need to develop distinctive brands and an overall brand communication strategy. At a minimum, health insurers must gain the trust of consumers, which frequently does not exist. If done well, a strong consumer brand can deliver significant value in the way of price premiums, positive risk selection, and lower distribution expenses.

• Develop multiple sub-brands under an umbrella brand to provide more targeted support to different products, channels, and/or customer segments

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• Continue experimentation with affinity marketing and co-branding, both of which can be effective

Marketing effectiveness In a retail context, health insurers need to effectively manage their marketing spend because their distribution approaches will become exponentially more complex and the nominal amounts in play could be significant.

• Build up ability to track and measure the performance of each marketing spend, such as the impact on the response rate of changing the type of envelope used for a direct mail piece

• Health insurers will need segment-specific targeting and positioning

Action Plan Some of the key initiatives and the action steps for various stakeholders include:

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Works Cited CII, K. (2008). Health Insurance Inc: The Road Ahead. Health Insurance Summit 2008, (p. 18). Mumbai.

Ehrbeck, T., & Kumra, G. Sustainable Health Insurance. McKinsey & Company, Inc , Healthcare Payors and Providers Practice . McKinsey & Company, Inc .

ICICI. (n.d.). Tips for Insurance Card Holders. ICICI Prudential Life Insurance Brochure . India: ICICI Prudential.

KPMG & CII. (2008). (p. 31). Mumbai: KPMG, CII.

Levitt, T. (2004). Marketing Myopia. Harvard Business Review .

Lombard, ICICI. (n.d.). Popularizing Cashless Hospitalization. Delhi, Delhi, India.

Rao, K. S. (2008). Financing and Delivery of Health Care Services in India. New Delhi: Commission on Macroeconomics and Health, Govt of India.

Singhal, S. (2007). Sustainable Health Insurance : Global perspectives for India. McKinsey & Company, Inc . New Delhi: McKinsey & Company, Inc , FICCI.

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Appendix

Appendix I (Specimen Grading Account Sheet) Service Provider: Grading Account Sheet

Grading Dimensions Methodology Score

Infrastructure

Local Coverage No of beds/Population of city

No of Operating Theaters No of beds/Population of city

Capacity of ICU No of beds/Population of city

Total

Expertise

No of permanent Doctors No of Doctors/Avg Patient In

No of MD Doctors MD Doctors/Total Doctors

No of DM Doctors DM Doctors/ Total Doctors

No of MS Doctors MS Doctors/ Total Doctors

Total

Value for Money Index

OPD Charges Expressed as a percentile score

Bed Charges Expressed as a percentile score

Surgery Charges Expressed as a percentile score

Heart Surgery Charges Expressed as a percentile score

Total

Customer Satisfaction Index

Responsiveness Expressed as a percentile score

Empathy Expressed as a percentile score

Reliability Expressed as a percentile score

Total

Comprehensive Score Weighted average of the dimension scores

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Appendix II (Service Provider Grading Matrix) Grade Matrix

Grading Index Score Range

Grade A More than 90

Grade B+ 76-90

Grade B 66-75

Grade C+ 50-65

Grade C Below 50

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Appendix III (Globally Successful Health Insurance Models)


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Appendix IV ( Wellness Products Offered in the US)

Economy & Finance

India Cashless Health Insurance