Unreasonable Rates & Vanishing Insureds in Health Insurance

Health Insurance is universally hailed as a necessary and essential component for optimum health outcomes. Ideally, health costs should be fully financed by the State through tax collection, but this has been found fiscally impossible to most countries and hence, the second-best option is insurance.

It is axiomatic that an insurance product has to be affordable, and in the case of health insurance. It is a public good, so much so that the Delhi High Court in the case M/S United India Insurance vs Jai Parkash Tayal (2018) quoted the Supreme court case LIC of India & Anr. v. Consumer Education & Research Centre & Ors. (1995): “We make it clear at this juncture that the insurer is free to evolve a policy based on business principles and conditions before floating the policy to the general public offering on insurance of the life of the insured but as seen earlier, the insurance being a social security measure, it should be consistent with the constitutional animation and conscience… (para 53) The appellants or any person or authority in the field of insurance owe a public duty to evolve their policies subject to such reasonable, just and fair terms and conditions accessible to all the segments of the society for insuring the lives of eligible persons. The eligibility conditions must be conformable to the Preamble, Fundamental Rights and the Directive Principles of the Constitution.". The Hon’ble Judge has rightly joined Health Insurance with Life Insurance.

The significance of the judgement is also that both the Government and the Regulator should get proactive to protect the hapless renewal consumer who finds the rates unaffordable and is forced to leave health insurance after many years of paying premium, sometimes with no claim ever being filed.

What is the concept of premium affordability?

Premium affordability is an unstated concept that when a policy is drafted, it is necessary to make it affordable to the intended buyers. This is from the side of the customer. From the insurer perspective, premium has to be made affordable but it must cover the losses that can arise and give a small margin after costs. For this the insurer R&D makes every effort to limit losses by the many ways insurers do this without remove the core health insurance benefits in such a manner that claims are restricted to come within the loss ratio that is optimal.

What is happening in Health Insurance currently?

Anecdotally, there is a widespread impression that insurers have raised premiums for those in the higher age bracket to as high as 15-20% of the sum insured. This appears to be a sudden and unexpected blow without warning. One person told the author that two years ago the premium per lakh sum insured was Rs. 6000, then it jumped to Rs. 10,000 and this year it further skyrocketed to Rs. 23,000 (this statement has not been verified). It is not clear whether the Board of the insurer, the GI Council, the IRDAI and the government are aware of this, and what steps are being contemplated to bring these insureds back and that too without penalty of losing their earlier benefits to the extent possible.

If we look at affordable rates from other portfolios, it is seen that in motor insurance the average rates for the full cover used to be around 2.5%. It was in agriculture insurance that the average rate was found to be around 10%, but as per the government agriculture insurance scheme, the insured pays around 2.5% only and the rest is provided as premium subsidy. It is supposed that everyone knows that in SF&SP insurance the rates are in mille and hence most rates are well below 1%.

Of all the insurances, health insurance is the most essential. It is necessary to finance the goal of a disease-free wholesome full life. This has great personal value and thus health is seen as more than ?mere an economic good or service. A healthy life assures opportunities and capabilities to actualize the potentials that each person hopes for. Thus, issues concerning health are often sensitive public issues. Given all these concerns, it is the moral duty of the insurance industry to focus on reduction of premium costs by proper R&D and collaboration with the government and all other stakeholders.

How premium costs can be reduced?

Once a reasonable ceiling is determined by the industry as what is affordable, then insurers, when they devise covers, especially for those in the vulnerable category such as senior citizens, need to shape the policies and rates to meet their essential healthcare needs so that such consumers can receive the maximum coverage for the premium paid. Some of the steps that can be contemplated can include the following:

1.?????Keep reducing the long list of benefits to the necessary and even essential such as only named critical illnesses for hospitalisation covers.

2.?????Rate makers/setters can get more imaginative – health insurance theories state that there has to be some form of use of law of large numbers to subsidise the higher risks of various deserving groups. Thus, the rich can subsidise the poor, the young may do the same for the old and so on. Currently people cynically point to the fact the poor using rural hospitals subsidise the rich in the metros. Even in metros, those habitually usually using government or charitable hospitals subsidise those habitually using the superspeciality hospital, even for ordinary illness.

3.?????There can be proper risk management in case of expensive surgeries. It is often reported that quite a few costly surgeries are actually not needed. This is a double blow. No one likes a painful surgery with accompanying risks and the insurer/patient paying for the same, when the same is not a necessary surgery. Obtaining second opinions from trusted surgeons is not yet common in India. Insurers need to promote and facilitate this.

4.?????There can be named hospitals where treatment may be taken. The policy itself may incentivise such a stipulation or have separate MOUS with hospitals such as government hospitals or charitable and similar hospitals where treatment costs are moderated.

5.?????Vulnerable consumers may be directed to trusted and empanelled preventive care facilities that specialise in chronic conditions such as diabetes clinics and ensure that they abide by the preventive programmes through real time linkage with the insurer.

6.?????Health Insurance is a non-catastrophic mass insurance and hence in some countries, the regulations stipulate that a minimum of 80% premium should be earmarked for claims and rates should be moderated keeping in mind this stipulation. This should be made mandatory in India.

7.?????The Government must be petitioned to remove the 18% GST on Health Insurance premium.

8.?????Government may incentivise hospitals to offer 25% discount on charges to senior citizens and other vulnerable population.

The above are some ideas. The insurance industry can find many more ideas as they have granular knowledge of both the policy drafting and rating issues, as also the behaviour of the health care providers.

Non-Insurers may offer their services to protect vulnerable customers

There were comments that there are many insure-techs and others are willing to offer to insureds to pay for the gap in the claim payment made by insurers. There could be now many willing players to offer mutual insurance benefits to individual insureds and to groups, who have been forced to leave owing to unaffordability, for a fee. It is obvious that quite a few of them may fail. Hence, it becomes a public duty for the insurance industry to find ways to make health insurance premium affordable to all and also other terms and stipulations reasonable.