Health Insurance: Is it Going towards Moral & Financial Bankruptcy?

Recent headlines in a national daily said: “With high charges for insurance, India is no country for old men”. It highlighted why senior citizens are helpless against the system. They face multiple jeopardy of having limited income horizons but premiums rise steeply as people age, as also hospital costs. Further increasing longevity makes them face a health care black hole – unaffordability and consequent uninsurability, limits on policy benefits along with high co-pay and deductibles.

A Research Paper was published in 2018 by National Institute of Public Finance and Policy, New Delhi, (https://nipfp.org.in/media/medialibrary/2018/05/WP_228.pdf) titled: Fair play in Indian Health Insurance. In the abstract itself it notes the following: “Our analysis of the claims ratio and the complaints rate in the health insurance industry, suggests that there are important difficulties with the working of health insurance. The lack of fair play in this industry is derived from deficiencies in regulations, weak enforcement of regulations and faulty institutional design of consumer redress.”

One of the worst moments for health insurance was the Delhi HC judgement on genetic exclusion. The Court raised the question whether persons having genetic disorders can be discriminated against in the context of health insurance. This read with a further point raised by the insured that the exclusion of genetic disorders was not a part of the initial policy which was issued to him but was added as part of the `Exclusions' in later years, without specific notice to him and hence he felt that this exclusion did not bind him.

The Court first examined the core issue: there are several medical conditions which could be partially attributable to genetics, but could also be attributable to several other factors, such as lifestyle, environmental conditions, dietary habits, etc. Many countries have studied the issue. In the European Union, for instance, there is a stipulation that “Insurers should not require genetic tests for insurance purposes." Since the 1990s the movement against misusing genetic information to deny cover or repudiate claim is seen across the world. The court went further and stated that “the issue spills into the broader canvas of Right to Health.... The broad exclusion of genetic disorders from insurance contracts/claims is illegal and unconstitutional”.

Insurers have been always fearful of claims ratios in health insurance as the chance of claims overshooting premium is real, unless handled carefully. Hence there has been many initiatives and efforts to see that claim costs are contained and frauds are weeded out. However, all such initiatives may not be true to the best insurance practice.

One such appears to be about room rent dominating health insurance claims. Under the traditional understanding of health insurance, there is a distinct difference between hospitality charges and cure charges. Here limits on hospitality charges dominate curative charges turning up-side down the practice of health insurance. A senior Advocate (very well to do), who is in the panel of all insurers, known to the author, had for many years taken a policy for Rs. 5 lakhs, but suddenly when his father fell ill had him admitted in a Rs. 10,000 room and thereby lost 50% of the total claim. He could have easily taken a policy even for Rs.1 crore sum insured, but no insurer updated him on this iniquitous clause. What riles people is that due to inflation, old policies have low limits and they are not aware of the clause, and further that when there is an emergency, the cost of the room is not in the hands of the patient but in the hands of the hospital. They say there is no room except the costly ones. No one has generally a problem in limiting the room rate, but it should not prejudice the fundamentals of indemnifying in full the, ‘reasonable and necessary’ costs of treatment. One newspaper describes this room rent linked clause as being ‘buried in the policy wording’.

Many things that make health insurance get into difficulties and problems lie in not understanding insurance. Insurance is all about fortuity. Health treatment costs, however, can be a mix of fortuity and foreseeability. Insurers themselves keep confusing everyone by offering bells and whistles, which indicate that they like to pamper sections of customers, and thereby sacrifice the delicate balance in health insurance which is characterised by high claim frequency. Many covers are offered to defray expenses relating to possible health costs which are plannable, selectable and not necessarily, a disease or illness. Recently a disturbing statistic from an insurer showed a disproportionate high ratio for maternity claims indicating an anti-selection possibility.

In the case of persons in old age, it clear that the margin of fortuity keeps falling as people age. Hence in countries like USA, people move to government schemes after the age 65. In India, the system has imposed old age health insurance till death, on insurers, without commensurate alleviation of the financial burden of insurers, to defray costs that are not always fortuitous or unforeseen. In addition, despite the right to health termed as a constitutional right, as per Delhi HC above, there is a GST of 18% leading to throttling people, especially senior citizens, who have to pay high premium. It is necessary for the government to step in and remove taxes and fulfill their obligation to the senior citizens by providing high subsidies to cover the foreseeable part of health costs. They can also compel hospitals to provide subsidies and reasonable costs for seniors and other disabled individuals.

Coming back to GST on health insurance, it is heartening to see from a recent newspaper report that Bank Employees Forum has demanded waiver of GST on medical cover premium. Universalisation health insurance is a national priority. It is useful both for consumers and insurers. It can make insurance viable and also offer value added services. However, worldwide there is a constant effort to pass on costs in health insurance to insurance – shifting the burden as it is called, which makes health insurance unviable. Typically, governments do that by regulation and legislation; hospitals do it by raising up charges for the insured persons. Understanding the play of the ‘shifting the burden’ forces by all concerned helps to make insurance viable. It is not easy to admit insurers’ own play in this: allegations are raised that individual policyholders subsidise group insurance; that the rural insureds subsidise the urban and so on.

In a recent edit page of a daily, the title was: “Bad policy: We have no insurance against being openly cheated by health insurance companies”. The first lines are telling: “Every day, across the country, thousands of cases of robbery are reported but the authorities seem powerless to stop them. These robberies are not called robberies; they are called health insurance policies. But, frequently, they end up robbing those who subscribe to them.” It ends with: “the government should put a mandatory warning on all health insurance policies: This health insurance policy might be injurious to your financial health”.