Indian Cashless Health Insurance

Chanakya 2010, IIM Indore Team Unnati, Great Lakes Institute of Management

Nitin Pahuja: [email protected], 09884070606 Ujjawal Jain: [email protected], 09962082884

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Macro analysis of the Indian and Western Health Insurance Market

- Process dynamics of Cashless Insurance in both markets

- Highlight key gaps in the Indian structure leading to inefficiencies

- Identify key processes from the western model that can help bridge gaps in Indian market

Proposing plausible solutions to ensure seamless operation of Cashless Health Insurance facilities in India leading to

- Improve the quality of healthcare

- Enhance the coverage of Health Insurance

- Reduce the cost at all possible platforms

- Facilitate development of a co-operative eco-system in the industry

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. 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.

Indian Health Insurance Industry is still in its infancy and has just about reached a stage of transition. In order to take-off on a trajectory of unprecedented growth in correspondence with the economy’s overall growth prospects, it is important for the industry to plug inherent gaps and structural deficiencies.

Benchmarking the policies of the west comes across as an obvious choice in this context, however doing it blindly can lead to serious consequences. The western markets have failed in various respects like reducing the cost of health care and widening the cover of insurance over a long period of time. It is therefore important to critically evaluate the best practices across industry and customizing them to Indian markets’ needs.

It is with this endeavor to lay out a plausible and actionable growth path for the industry that we highlight the key leanings from the west that when customized to Indian needs can deliver great results. This study has committed itself to the cause of identifying factors, practices and strategies that can

1. Improve the quality of healthcare 2. Enhance the coverage of Health Insurance 3. Reduce the cost at all possible platforms 4. Facilitate development of a co-operative eco-system in the industry

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 charged

• Establishment of Standard operating procedures across the industry

• Establishment of internal controls alongside process audits

• Product innovation in the Indian health insurance industry

• Channel Distribution: Reaching out to “Bharat”

Health Insurance a national need

• India currently spends about 6% of its GDP on health care.

• Out of this more than 70% is “Out of pocket expense.”

• Despite such high share of individual expenditure, provision

of health care not satisfactory.

• More than 40% of hospitalized Indians have to borrow or sell

assets to meet hospitalization costs.

• Around 25% of hospitalized Indians fall below poverty line in a

single year as a result of hospitalization expenses, causing a

rise of 2% in proportion of poor population.

Source: Mckinsey

• Revenue attributable to insurance or Third Party Administrators (TPAs) has

grown significantly over the last few years

• Total credit billing is likely to increase further to 50 per cent by 2011-12.

• Domestic health policy premiums have shown significant increase in the in

the last few years

• The number of policies issued as Medi-claims, ESIS, and CGHS are

4,631,534, 8,400,000 and 1,040,000, respectively.

Health insurance: current and future scenario

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Health Insurance - potential to become a US$ 3.8 Bn industry by 2012. No. of elderly people in the Developing World will TRIPLE in 25yrs. (WHO) In India, the no. of people above 60 yrs is about 8% today, with that no.

expected to hit 21% by 2025. (Asia Insurance Review)

• Source: NIA Library

Potential in numbers

Health Insurance Structure in India

Social Health Insurance

CGHS ESIS

Private health insurance

Community Health Insurance

Insurance Company

TPA

Healthcare Provider

Consumer

Strategic tie-ups that give access to

discounted rates and high volume

for respective parties

Cashless Heath Insurance : Stakeholders

Cashless Heath Insurance : Basic Process Flows

Cashless Insurance Process in India

Network Hospitaliza0on

Cashless request submi8ed to Insurance

co at the 0me of admission

Insurance TPA reviews the request and informs the hospital with the authoriza0on status

In case of approval the bills are se8led by

Insurance Co

In case of rejec0on the customer needs to se8le all the bills

He can file a claim request which if approved shall be reimbursed by the

insurance co

Out of network Hospitaliza0on

Customer needs to se8le all the bills

He can file a claim request which if approved shall be reimbursed by the

insurance co

Healthcare Provider with a tie up with Insurance Co

Consumer

Healthcare Provider with no tie up with Insurance Co

COPAY: The consumer shares a pre-decided percentage of the total bill, the rest is paid by Insurance co

Consumer gets Cashless service and the Insurance co pays the

service provider

Consumer pays a certain percentage of the bill, which varies from policy to policy

Cashless Insurance Process Flows: US vs India

Cashless insurance Process in the US

• Improving health should be the ultimate objective: The U.S. l i fe insurance experience has shown that a secular improvement in life expectancy has kept the market profitable.

• C u s t o m e r E n g a g e m e n t : D e l i v e r segmented customer driven products that l e v e r a g e t r u s t g e n e r a t e d t h r o u g h transparency. Co-pay is an integral innovation from the US perspective

• Dynamic Pricing: Dynamic, market-based pricing is often the key enabler for innovation in any given industry hence the regulators shall provide ample scope of doing this.

• Removing Supply Distortions: Broad participation across different grades of service offering and geographies is critical to the growth of robust heath services. Therefore it is important to make the industry more inclusive.

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Competencies for a healthy health insurance industry

Pro

duct

Inno

vatio

n Build an innovative set of core health insurance products and an array of ancillary products and services. C

hann

el D

istri

butio

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

Ris

k M

anag

emen

t

Strong processes governed by a stringent monitoring body that periodically evaluates the tested and reinvented models with regards to latest conventions.

Key Action points for the Indian Market

Source: Mckinsey

Key takeaways from the western model

Indian Health Insurance: Key Issues and root cause analysis w.r.t stakeholders

Health Care providers

Insurance Companies

TPAs

Macro Issues for the Industry

Claims > Premium Collec3on

(Rs 6,991vsRs 6,734 crore)

No incen3ve for the insured to be vigilant on billing

High claim ra3o

Limited influence over healthcare delivery mechanism

Low level of consumer awareness

Sources http://businesstoday.intoday.in/bt/story/5874/1/the-cashless-insurance-row.html

Standard mediclaim policy across all

customer segments Different Prices charged by

different hospitals

Limited Market reach and delay in payments

Lack of process interac3on amongst insurance companies and hospitals

Lack of purchasing power and

Health insurance penetra3on in 3er2/3 ci3es

High discount demand from insurance

companies

Lack of standardiza3on and accredita3on norms for healthcare providers

Mul3ple contracts with differen3nsurance companies

Irregular and un3mely payments by insurance

companies

Lack of standardized opera3ng procedures

Limited funding support from the insurance company impac3ng the claims disbursement 3me

Limited influence over healthcare delivery network

Lack of standardiza3on & accredita3on in most

healthcare facili3es leading to difficulty in judging the

authen3city and procedures

Delays and issues in claims processing leading to negative

perceptions by insurance companies & consumers

about TPAs

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BeMer Quality of Health Care/Coverage at

lower prices Mindset – cost considered

as a burden

Insufficient data on Indian consumers & disease paMerns resul3ng in difficulty in product

development and pricing

Limited medical infrastructure

Poor check on pricing and service quality

Nega3ve percep3ons – low level of consumer

awareness

Suggestions

Integrated Standard Operating Procedures

Grading of Hospitals and Products

Surprise Audit and Customer Feedback

Co-pay

Channel Distribution:Reach out to “Bharat”

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Grade hospitals into dynamic classes (periodically revised) on the basis of

– Level of service offered

– Pricing

– Presence across multiple cities

Create a diverse product portfolio with new health insurance products based on

– Desired level of service

– Availability Co-pay option

– Availability of preventive care options

Recommendations Potential Implications

The problem is that there is a standard mediclaim policy across all customer segments, it is only the sum insured that varies. As a result, a policyholder with a sum insured of Rs 1 lakh and another policyholder with Rs 5 lakh would get the same amount reimbursed for a Rs 40,000 procedure at a top-end hospital,”

“In cities like Mumbai and Delhi, most of the policyholders are keen on being treated in only the top four hospitals. This is why there has been so much objection to the preferred provider network,”

Source: http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/Cos-plan-to-segment-insurance-mkt-to-ensure-cashless-facility/articleshow/6160895.cms

Industry Comments

Lowering of claim values for low premium accounts

Enabling better service providers to charge a premium

Clear identification of high value customers

Better coverage across demographics and regions

Increased penetration of health insurance

Stimulate competition amongst players to strive for better service offering

Development of a dynamic grading system that can take into account customer feedback and other key performance variables

Key Enabler

Co-operation amongst service providers and insurance companies to set price slabs for different procedures and treatments varying in line with the service provider’s grade

Opportunity for Cognizant

Higher claims which lead to hiking of policy premiums

A large portion of the population below the age of 45 left untapped (Preventive > curative)

Every customer has access to all network hospitals irrespective of the premium paid

Standard mediclaim

policy across all customer

segments

Getting ready for Product Innovation: Grading of Hospitals and Products

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Consolidation of multiple players from service provider and insurance into two representative bodies to enable

– Standard terms & conditions across industry

Establish a regulatory body with members from IRDA and AIMA to

– Establish Standard operating procedures for Health Insurance

– Ensure compliance and efficient service

Create an industry wide web based operational platform to enable

– Link all the parties involved through a single channel

– Seamless communication amongst parties involved

– Clear establishment of authority and responsibility


Absence of an integrated operating platform for multiple parties which leads to high turn around time and poor service delivery

Negligible understanding of customer’s past record and health history

High administration costs which translate into higher premiums for the consumer

Lack of internal controls leading to operating risks like

- Over billing - Delayed payment receipt

- Poor service

key issues

• Improved performance of all parties in terms of 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

Development of a linking operational platform for all parties with UIDAI or a Credit Information Bureau of India (CIBIL) like platform

Establishment of progressive Standard Operating procedures

Key Enabler

Co-operation amongst service providers and insurance companies to integrate their processes


Risk Management through Integrated Standard Procedures

INS Co-1

INS Co-2

INS Co-3

SP -1 SP -2 SP -3

TPA IRDA

Consumer

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Enable the regulatory body with members from IRDA and AIMA to – Administer a panel of independent Doctors appointed by IRDA for

regular audit of the claim cases at various hospitals

– The team shall be responsible for random checking and authentication of various bills and claims made from a hospital

– Mandatory audit of bills above 1.5 lacs post redemption of claims

– For default, if any, hospitals must be penalized for triple the amount of excessive charged plus an effect on the overall grade

Customer feedback on website – Secure customer feedback on service satisfaction for different

service providers through internet, audit surveys and data collected on the touch point of bill payment.


Lack of focus on quality as far as Heath Care service providers are concerned.

Absence of reliable rankings of service providers for the customers to choose the best options

Lack of incentive for Health Care Providers to improve the quality of their service.

Dominance of few players with financial muscle to advertise heavily which has led to the cartelization of the healthcare industry at the top

Problem definition

Well established controls on operating procedures

An important source of information for insurance company to negotiate on terms of strategic partnerships

Competition amongst service providers to offer better service quality

Transparent evaluation of service quality for the consumer

Creation and maintenance of a dynamic customer feedback system that generates rankings for service providers.

Key Enablers

Establishment of a strong and well represented independent body

Establishment of integrated Standard Operating Procedures across industry

Creation of a compliance mechanism with clearly defined rewards and penalties


Risk Management: Surprise Audit and Customer Feedback

Service Provider

Points Rank

ABS 290 1

GSF 265 2

BFG 210 3

TCB 190 4

Audit Scores

Customer Feedback

Data Processing Center

Ranking published on web and insurance ads across platforms

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All the state insurance companies should introduce health insurance policies with a Co-pay option in order to

– Promote rational usage of insurance cover

– Reduce possibility of the hospitals overcharging

– Improve coverage through relatively less premiums

What is Co-pay? – A policy option whereby the customer is bound to pay a small

percentage of the total bill by his own pocket – The percentage is small enough to secure the interest of

consumer

– Consumer gets the insurance at a relatively lower premium


Consumers fail to remain vigilant on the prescribed treatment in view of a cash-less insurance facility

The IRDA chief said his information bureau, where all mediclaim reports were archived, showed that while average charges for a medical procedure under the reimbursement category was Rs 25,000, the same went up to Rs 33,000 in cashless scheme.

Source: http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/Insurers-set-10-day-cashless-deadline/articleshow/6239744.cms

Industry Comments

Reduction in over-billing by healthcare providers

An incentive for the consumer to ensure rational spending on healthcare

Expanded market because of relatively lower premium

Expansion of the product portfolio A check on the rising health insurance

cost in the long run

Provide Market Intelligence services to the insurance companies, critical for rational product innovation in the Indian context.

Key Enablers

Product innovation on part of the state owned insurance companies

A standardized system to link co-pay percentages with premium paid


Product Innovation & Customer Engagement through Co-Pay

You have mild fever but may be we should get a

CT Scan done

Don’t worry, I have a cash less health insurance. Let’s get it done

Loss for Insurance companies

Rising premiums on insurance policies

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Investing in a robust sales workforce – Efficient hiring, training and performance management process

– Usage of web technology to constantly track, test and train employees

Strategic tie-ups with other organizations

– Securing tie-ups with Banks, NBFC’s, NGO’s and organizations like ITC e-Choupal.

Focus on e-selling and m-Selling – Creating advanced selling platforms to enable sales through web

and mobile phones.


• India’s general insurance business accounts for just 0.6 percent of the gross domestic product (GDP), compared to the world average of 2.14 percent. India ranks 136th on penetration levels and lags behind China (106), Thailand (87), Russia (86)

• The penetration of general insurance in India remains low on account of low consumer preference, largely untapped rural markets and constrained distribution channels

Source: Crisil & Assocham

Industry Comments

Reduction in distribution cost which will lead to wider market reach

A comprehensive measure to check the sales force performance which will act as an impetus for further growth of insurance companies

Reduction in total cost of healthcare services on account of better participation

Increase in awareness about insurance with large number of channels

Development of a performance management and training system to manage the sales workforce.

Development and integration of selling web and mobile platforms with those of partner organizations.

Key Enablers

Penetration of Broadband and 3G technology into Tier II and Tier III cities.

Strategic tie-ups amongst major insurance and financial services players.


Channel Distribution: Reaching out to “Bharat”

Underutilization of channels such as PSU banks, SHG’s and other NBFC’s with extensive penetration

Inadequate and inefficient sales and marketing manpower in the form of agents

Huge untapped

market

Low usage of technology in expanding penetration in the market

Thank You

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

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

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

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

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

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

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

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

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Acknowledgement

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We are extremely grateful to the organizing team of Chanakya, 2010 at Indian Institute of Management, Indore for their great support and help throughout the event. We would like to express our gratitude to Cognizant for mentoring the event and making it a great learning experience for us.

Nitin Pahuja Ujjawal Jain [email protected] [email protected] 09884070606 09962082884

Economy & Finance

Indian Cashless Health Insurance