"Why now" series: Will Health insurance inflect now? (Part 1)

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I am a big fan of systematic changes or “why now” moments - be it technology shifts, regulations, macro events, customer preference shifts that can often lead to irreversible impact. These moments are the core reason why something that has failed multiple times in the past, can exist only NOW. This series of blogs would be an ode to "why now". I plan to capture some subtle changes that are in action now, which might lead to exponential growth in future. It’ll be slowly at first and then all at once.??

To continue this chase for inflecting curves, one of the sectors where everything is changing, all at once is health insurance!

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The problem

?Despite havocs like COVID where value of health insurance has become widely obvious, the penetration and growth has been underwhelming with economics not being very lucrative.

• High under penetration with “missing middle”: Only 220M lives in India are covered under retail/ group health insurance with 50%+ spends being "out of pocket" (vs 15-20% guidance by WHO). There is a 250M+ missing middle that is uninsured, with 75%+ living in T2+ cities
• Low growth and poor profitability: Two segments of insurance - retail (40% of GWP, 55m lives covered) and group (45% of GWP, 180m lives covered) are both plagued with different issues Retail health: Although this is a relatively profitable segment (60-80% loss ratios), the growth has only been 6% in last 3 years despite rapid awareness created by COVID Group health: Although this segment has been growing well (25% CAGR, penetration of lives covered increased from 5% to 16% in 5 years), the loss ratios are ~110% (vs <80% in retail) indicating poor profitability. This is because of higher degree of competition, limited product differentiation and lower coverage amount.

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Even though health insurance seems a no-brainer, there hasn't been a large inflection in last 10 years. The last time it happened was when SAHI (stand alone health insurer) licenses were introduced and Star Health exploded the retail health insurance market with its FOS/ "LIC agent as a seller" model. To dig deeper, why hasn't there been a rapid inflection? Short answer - chicken and egg problem of solving for patient and hospital value prop.

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Patient value proposition - Highly complex product with limited hospital coverage, painful and uncertain claim processing

• Limited hospital network: Only 20k hospitals are part of the insurer network with 70%+ mainly in M/T1 cities
• Perception of high rejection rate of claims driving low trust
• Average claim processing experience: Currently roughly 60%+ of insurance claims are “cashless” for customers and for rest, reimbursement takes 30 days+. Even within cashless, patient ends up having a wait time of 8-9 hours at least after discharge

Hospital value proposition - limited ROI and working capital nightmare?

• Unclear ROI for longtail hospitals: Hospitals partner with insurers if they see a clear incremental demand generation (at least 30-40% of their revenue). In T1+ cities, limited customer pull leads to lower ROI which leads to lower hospital adoption - creating a vicious cycle
• "Cashless" is a working capital nightmare: Insurers pay hospitals after 30-90 days impacting their cashflow cycle and now 60-65% of all claims are cashless

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Given this challenge, health insurance has been growing but it hasn't been skyrocketing.

This brings me to my favourite thing to ask - what is changing now? Everything!

In the last 12 months, regulatory bodies like IRDAI / NHA (leading Ayushman Bharat Digital Mission) / GIC have brought in some powerful changes that are attacking the patient/ hospital pain points right in the nail.

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• "100% cashless" claims across ANY hospitals All hospitals irrespective of whether they're part of an insurer network need to accept insurance for all covered medical treatments Claim has to be 100% cashless where a patient needs to inform insurer 48 hours in advance about their preferred hospital. Hospital-insurer then need to agree on the treatment price and enable it purely cashless for patient
• 3 hours limit to clear cashless claims: Insurers need to authorize cashless hospitalization within 1 hour of a request being made and need to approve claims within 3 hours of discharge(vs 10+ hours currently)
• National health claim exchange (NHX): Online platform that enables sharing of claim information digitally and in a standardised format, standardises all claims and enables digital processing amongst all hospitals, insurers and TPAs. This is enabled by digitally extraction information from medical record/ calim and converting that into medical code. The result would be faster and lower cost claim processing which currently is done manually and takes 30-60 days for full completion.
• ABHA ID: Aadhar-like? health identity for all with digital linked, standardised medical records (to form the foundation for NHX)

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The combination of these policy changes can potentially be a step change in terms of patient/ hospital value proposition, if executed well. This is the regulator's way of fixing a broken flywheel by bringing structural changes to hospital's insurance acceptance rate.

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• Patient value prop - step change in insurance acceptance and experience improvement Making every hospital (>15 beds) accept insurance is a very powerful move. The unsaid advantage is empowerment of patients to go to hospital of their choice. This instantly makes attractiveness of insurance very evident especially in T1+ cities. If executed well, this can lead to increase in acceptance by 4x (from 20k hospitals currently with majority being inactive). Cashless claims implies that customers don’t have to wait 30-75 days to get the reimbursement and process of discharge to be smooth/ seamless
• Hospital value prop - demand boost and working capital improvement Adopting 100% cashless would lead to working capital challenges for hospitals. However if NHX is executed well, it will reduce the time of reimbursement to hospitals from ~30-60 days to 1-2 weeks with cost of claim processing improving to INR 50-100 (vs INR 700+ initially)

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The other implication of these changes is also that it's the best time to start a SAHI in India especially aimed towards T2+ cities. This is because a new insurer would no longer have to create their hospital network from scratch.

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Everything looks great but what is the catch?? Hospital adoption is at the heart of these policy changes but are they truly adopting it? Is it easy for them to start accepting cashless claims from Day 1? More on this in Part 2…