- 1. Indian Cashless Health Insurance: A window of
opportunityNitin Pahuja & Ujjawal JainAn analysis of the Indian
Cashless Health Insurance Industry identifying the key
structuraldeficiencies leading to a situation of distrust between
parties involved. The study as a part ofIIM, Indores Consulting
competition, Chanakya, organized in association with Cognizant
alsoproposes solutions for resolving the present imbroglio between
the service providers andinsurance companies.Team Unnati, Great
Lakes Institute of Management
2. Table of ContentsIntroduction
.........................................................................................................................
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
..............................................................
5Methodology
.........................................................................................................................
7Proposed 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
.............................................................................................................................................
16Works Cited
.......................................................................................................................
16Appendix
.............................................................................................................................
18 Appendix I (Specimen Grading Account Sheet)
......................................................................
18 Appendix II(Service Provider Grading Matrix)
.......................................................................
19 Appendix III
...........................................................................................................................................
20 Appendix IV
...........................................................................................................................................
21 2 3. IntroductionThe new IndiaIndia is on the anvil of becoming
an economicsuperpower leveraging its demographic dividend. Adynamic
& healthy workforce in context of ourrapidly growing service
economy is critical. Ensuringthat our young population remains
healthy andcontinues to operate at maximum productivity is
animportant imperative. Indian growth has seen atransformation of
the average Indian into aformidable commercial power with huge
disposableincome.While the growth is far from inclusive, it has led
tothe creation of a prospering middle class, which isexpected to
increase to 500 million by 2025. It isalso proclaimed that food,
transportation, housingand
utilities,healthcareandpersonalproducts/services will account for
over 80 per cent of total cumulative spending in Indiaover the next
20 years. It is worthwhile noting that the last 20 years have seen
healthcareconsumption growing rapidly at 8 per cent, approximately
double the rate of growth foroverall consumption. This strong
growth trend is expected to accelerate over the next 20years
creating a nearly 9 trillion rupee healthcare market. (Singhal,
2007)World-class and inclusive healthcare financing is critical for
Indias 2020 vision as most ofthe healthcare expenditure is still
paid out of pocket by individuals, leading to financialdistress or
inadequate care. In this context, there is a clear need for a rapid
increase inaccess to health insurance.Being Pro-activeHowever it
will be nave to assume that the massive expected growth of the
market willhave an absolute positive correlation with the growth in
Health care industry. The beliefthat profits are assured by an
expanding and more affluent population is dear to everyindustry,
wrote Theodre Levitt in his famous HBR article, Marketing Myopia.
He went ontoexplain 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 thefall
of the industry. It is therefore important that the health care
sector remains pro-activeand innovates to leverage the huge
opportunity that the Indian market will offer goingforward.Role of
Health InsuranceHealth insurance as a component of theoverall
health care eco-system in thecountry holds tremendous
importance.Indian Health Insurance Industry is still in itsinfancy
and has just about reached a stageof transition. Its expansion is
critical toproviding health care facilities in an
inclusivemanner.Cashless healthinsuranceespecially holds the key to
stimulatingfurther penetration in the market. In arecent study of
IMRB commissioned byKPMG, majority of the focused groupparticipants
across six cities in Indiaexpressed Cashless Insurance as a
primaryadvantage. The arrangement of CashlessInsurance has led to
the increase in sales of3 4. Health Insurance policies. (Lombard,
ICICI)The recent spatsThe cashless model however has been
undergoing rough times with multiple problemsstemming out of the
structural deficiencies prevalent in the multiparty setup. There
havebeen few controversies over the hefty billings done by large
hospitals to the patients thatare covered by insurance
companies.This has been followed by a decision by public sector
health insurance companies to denycashless services for some of the
networked hospitals. While progress has been made onthis issue with
regulators, healthcare providers and insurance companies coming
together,a lot remains to be achieved.Going forwardWe strongly
believe that the insurance industry especially in the health care
segment willhave to emerge into a retail driven model thereby
taking relevant cues from the advancedretail oriented way of
business. Right from product innovation in terms of Co-pay
todistribution realignment powered through alliances with SHGs in
rural India, the healthinsurance model of business is slated for
significant change. Build an Build expertise Strong
processesProduct InnovationRisk Management Channel Distribution
innovative set ofin managing governed by a core healthretail
channels stringent insuranceand bolster their monitoring products
and anapproach to body, array of distribution by periodically
ancillaryimproving their evaluates, tested products and branding
andand reinvented services.marketing.in line withlatestconventions.
4 5. Tracking the western markets that have evolved into an
advanced retail set up, it isrationale to believe that strategic
elements like product innovations combining financingmechanisms,
elements of managed care and advice; the ability to manage
multi-channeldistribution; and capabilities for risk-based pricing,
will emerge as the key drivers ofbusiness going forward. (Ehrbeck
& Kumra)Shift of focusAn important aspect critical to Health
Insurances future in the country would be its abilityto shift the
focus from curative care to preventive care. Insurance companies
thus far havefocused on improving their products with respect to
better coverage and support forcurative care but have failed to
give due importance to preventive care. This has led to ahuge
market notably the young remaining oblivious to the health
insurance product andalso 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
fataldiseases by having regular checkups or yearly evaluation as a
free option for allpolicyholders.As depicted by the figure above,
forty per cent of the disease burden in India is caused
byinfectious and parasitic diseases, nutritional deficiencies,
prenatal and maternal conditions, andrespiratory conditions. These
are relatively easily preventable and arguably a matter of
publichealth programs. Indias expenditure on primary prevention and
public health is low byinternational 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 inEgypt) and can be significantly increased in line with the
Central Governments declaredintentions. (Ehrbeck &
Kumra)Getting it right and opportunities for CognizantIt is with
view of these issues that we have attempted to dig deep down to the
root causesof these symptoms of structural misalignment. We have
carried out a thorough researchand incorporated the views of
industry experts in defining the core problems from theperspective
of the stakeholders. We have studied different models of operation
as followedin the western economies and benchmarked the best
practices followed in those marketsas a driving force for our
suggestions.We have concluded with five broad solutions that are
aimed towards development of aprocess driven and well monitored
cashless health insurance setup. We have also been5 6. able to
clearly outline opportunities for Cognizant to fill the structural
gaps through itstechnology and consulting practices.We have
deliberately abstained from offering myopic solutions and stuck to
suggestionsthat are comprehensive and form the basic foundation for
robust, long-term developmentfor the sector. This approach we
believe will offer Cognizant a much larger role in changingthe
whole landscape for this domain of the Indian insurance industry.6
7. MethodologyIn 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 forgrowth and
key stakeholders. The macro analysis of the industry is followed up
by afocused overview of the basic processes involved in the
functioning of Cash-less insurance(being the primary area of
exploration for this study). Health Insurance ProvidersHeath care
ConsumerServiceproviders Third Party Media AssuranceGovernment
IRDAThe next segment of the report deals with key learnings from
the western HealthInsurance model. We have outlined core
competencies for a healthy health insuranceindustry drawing its
origin from the US Health Insurance industry. The penultimate
sectiondeals with an insight into the Indian industry with a focus
on key problems and theirrespective root causes categorized with
respect to the following perspectives:1.Insurance
Companies2.Healthcare Service Providers3.TPAs4.Industry as a whole
(Macro Issues)The last section deals with suggestions that can
facilitate Indian Health InsuranceIndustrys evolution into a truly
world-class healthcare management system which isaffordable,
inclusive and flexible. The suggestions have been elaborated under
thefollowing 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 7 8. Proposed
SolutionsGrading Healthcare Service Providers: Foundation of
broader product varietyHealth Insurance offerings over the years
have not undergone much change leading tounsatisfactory levels of
market penetration and low consumer recall. The recent chain
ofevents has also highlighted the problems with respect to
insurance companies incurringlosses due to high claim
ratio.Broadening the product portfolioWe believe that lack of
customized offerings for consumers across demographics, needsand
regions is the primary driver of the above-mentioned eventualities.
Therefore in ouropinion an immediate expansion of health insurance
products is an imperative. Insurancecompanies must broaden their
product portfolio in order to cater to the different
consumerclasses, profitably.Customer SegmentationThe implementation
of this recommendation however is heavily dependent on
insightsdrawn from market data that captures customer needs,
consumer perceptions, and qualityof service delivery apart from
other key metrics that will serve as the basis of customerdriven
product innovation in the future. Key issues with Standard
Mediclaim Policies across segmentsGrading MethodologyWe propose the
establishment of a dynamic grading methodology that will
gradehealthcare service providers on the basis of quality of
service, affordability andgeographic coverage amongst other key
variables. Customer satisfaction will alsobe an integral component
of the overall score for the service providers andtherefore play a
critical role in determining the actual spread of grades.
Thespecimen 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 segmentson
the basis of their uniqueneeds. For e.g. a customer looking to
secure quality service ina multicity hospital chain should ideally
be charged differently from a small town customerwho is satisfied
with access to nursing homes and small hospitals in his city.
Insurancecompanies 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
ratiosignificantly by offering diverse products based on these
grades matching the uniqueneeds of the customers. They can charge
an extra premium from the buyers of policiesthat provide cover in
the top grade healthcare service providers while they can stop
clientswith low insurance premiums from overspending in these
highly priced facilities byrestricting access except in the case of
emergency.8 9. Marketing the gradesThese grades should be available
on the websites and policy brochures of all the insurancecompanies
and serve as a benchmark for price negotiations with the service
care providersthemselves.Note: It is important to note that we dont
suggest restriction of access in case ofemergencies. Such a step
will lead to serious dilution of trust between the parties
therebyleading to an overall bad impact on the insurance
companies.9 10. Establishment of Standard Operating Procedures
across the industryThe health insurance industry comprises several
key players across its value chain. Thefollowing can be listed as
the major players engaging with each other throughout the
valuechain, very often with mutually conflicting goals.1.Insurance
companies2.Third Party Administrators
(TPAs)3.Reinsurers4.Healthcare Providers5.Distribution Channel
Partners6.RegulatorsNeed for StandardizationThe recent spat between
the service providers and the insurance companies is testamentto
the prevalent distrust amongst the parties involved. It is
unreasonable to expect mutualtrust 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 industrywide standard operating procedures filling key
process gaps and structural deficiencies inthe present
framework.Source:(KPMG & CII, 2008)An off-shoot of the lack of
standardization of healthcare providers is the differing
qualitiesof service, costs, procedures, treatments across different
providers. This has resulted inlow customer satisfaction, unethical
practices such as long hospital stays, expensivetreatments 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 clarityWe propose the formation of a regulatory body
with participation from all partiesinvolved with a clear goal of
establishing and monitoring compliance to industrywide standard
operating procedures.We are positive about the ability of this move
to even counter the failed attempts in somestates
toinstitutionalize uniform standards for hospitals, with health
being a state subjectin India. We foresee the creation of an
industry wide web based operational platform toenable Linking all
the parties involved through a single channel Seamless
communication amongst parties involved Clear establishment of
authority and responsibility 10 11. Action PlanThis proposal
demands industry wide support and cooperation from all the parties
involvedand 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 awholeImproved performance of all parties w.r.t
service quality and turn-around timeReduced administration and
processing costsEffective risk control across processesA key input
for grading service providersElimination of multi-party bargaining
and contracts which led to confusionDevelopment of a co-operative
model, critical for evolution of the health insurance industry as a
whole11 12. Risk Management: Surprise Audit & Customer
FeedbackCashless insurancecreates disincentives to control costs as
it appears to be afree good forthe patient and the provider, often
resulting inexcessive treatment by the provider(induced demand) and
frivoloususe by the patient taking treatment even for
aconditionwhich he would normally have ignored or cured with ahome
remedy (moralhazard)(Rao, 2008). Also problem such as asymmetry in
information put the patient andthe insurer at a disadvantagedue to
their inability to resist or challenge medicalopinionregarding an
existing condition or future treatment. Besides,in the absence
ofknowledge of prices, the provider can shortchangethe two by
overcharging. Some of thekey initiatives and the actions required
to tackle this are:Independent regulatory body:One ofthe key issues
identified from the insights that wehave received is the absence of
an independent regulatory body. A panel comprising ofindependent
Doctors appointed by IRDA should be formed. The team should be
responsibleforAudit of bills: A random check of claim cases to
assess the necessity of varioustreatments. The team should be
responsible for checking of bills and claims made fromhospital.
Higher the amount of claim, more the chances for fraudulent bills,
to tackle thiswe propose a mandatory audit of bills above Rs. 1.5
lac post redemption of claimsGhost Audits: Mystery shopping as a
patient to assess the quality of advice/suggestionmade by the
health care service provider with regard to theinsurance
coverageCustomer Feedback: Feedback evaluation for service
providers through a dynamiccustomer feedback system that generates
ranking for service providers on variousparameters such as
Responsiveness Reliability EmpathyThere are various touch-points
where technology can help create and monitor processes ina much
more efficient way. Feedback can be collected for different service
providersthrough Internet, data collection at bill payment by audit
team during surprise visits etc.The objective is to establish
integrated standard operating procedure across the countryand build
a ranking system on the basis of overall customer satisfaction
& compliance toindustry standards.12 13. Product Innovation
& Customer Engagement through Co-PayIn a retail-oriented world,
health insurers need straightforward, segment-tailored,
quick-to-market products. Consumer industries gain limited
advantages from any singleinnovative offering, as rivals are quick
to copy. However, competency in developingdistinctive products
faster than competitors delivers substantial value in the long run.
Toachieve leadership, health insurers must focus on building a
broad product portfolio andmanaging products more
effectively.Product InnovationHealth insurers in a retail context
need an innovative set of core health insurance productsand an
array of ancillary products and services. Breadth is important to
realizingeconomies of scope (e.g., in distribution) and covering
the range of risks and expensesthat consumers face. We have looked
at the following four broad categories of productinnovations from
the prospective of all stakeholders.Coverage of incidental costs
and more diseases: While hospitalization forms asubstantial cost in
medical care, pre-hospitalization entails visits to specialists,
diagnostictests etc., and post-hospitalization care also entail
high costs. Therefore,coverageofthese expenses is desirable. As per
a research done by,(CII, 2008)consumers expectcoverage of diabetes,
blood sugar, dental ailments, surgeriessuch as eye surgeries,
rootcanal etc that do not require hospitalization, andspecialized
coverage for women to be partof their Model Health Insurance
offerings. A wellness oriented policy model followed in theUS 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 productdistribution synergies, consumer
preferences, and ease of communication. One suchapproach is one
U.S. insurers attempt to bundle individual health insurance,
dental, andlife insuranceLong-term policies: Consumers should also
have an option to take longer-term healthinsurance policies
compared to the existing one-year policies.Pricing Innovation:
Currently for most policies, the frequency of payment of premium
isyearly. However, an alternative possibility of a one-time premium
with life-long coveragewill be preferred especially by
self-employed people who could have a spurt in earningsduring 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
periodCo-PayCo-pay is a policy option whereby the customer is bound
to pay a small percentage of thetotal bill by his pocket. Whenever
possible all enrollees should contribute, even if onlysymbolically,
to premium and co-pay to increased perceived ownership and
manageutilization. Co-payments can be tiered as per different
network toencourage patients tolook at other hospitals in
allianceTo ensure extensive penetration of health insurance in
India, companies can test theacceptability of two successful global
health insurance modelsstated in Appendix IIIamongst Indian
consumers.Action PlanProduct & pricing innovations is expected
to be the key driver for penetration of healthinsurance in
India.Some of the key initiatives and the action steps for various
stakeholdersinclude: 13 14. Source: (KPMG & CII, 2008)14 15.
Channel Distribution: Reaching out to BharatTo increase the
penetration of Health Insurance in India, there is a need to
exploreinnovative distribution channels. Health insurers must build
expertise in managing retailchannels and bolster their approach to
distribution by improving their branding andmarketing. Whether they
distribute directly to consumers or through intermediaries,
theywill also need distinctive brands and an overall brand
communication strategy that gainsthe consumers trust.Building and
managing new retail channelsReaching individuals requires a host of
channels and sales approaches. Five types
holdpromise: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
theInternet, for example, to sell a product aimed at consumers aged
18 to 29 (younginvincible) who think they do not need health
insurance. The online channel is alsogaining in importanceweb
agencies sold roughly 10 per cent of new individual policies
in2006. The online channel has the potential of attracting younger
and healthier customersRetail stores. Health insurers are offering
health benefit products through Costco andWal-Mart, and pharmacies
such as Walgreens in US. One of the biggest success stories
forpayors 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 garnerinformation
about the products, which can be further followed up by the
insuranceprovidersAffinity-marketing relationships. Health insurers
that have used such relationshipssuccessfully include Humana (with
Virgin) and United Healthcare (with the AmericanAssociation of
Retired Persons, or AARP). Organizations like Baghidari in Delhi
should beapproached for this purposePartnerships with financial
institutions As consumers pay more for healthcare
andhealth-oriented financial products, these two areas will
naturally converge. RoyalSundaram, for instance, has employed
partnerships with CitiFinancial, Citibank amongothers in India for
distribution of insurance. More such tie-ups are needed with
NBFCs,Banks, SHGs, NGOs and organizations like ITCs e-Choupal for
wider insurance inclusionWorksites. The worksite provides an
attractive channel as it garners a natural trustamong employees
that their employer has vetted the carrier. In addition, it
providesaccess to payroll deductions as well as opportunities to
implement wellness programs.Individual insurance carriers are, for
example, working to partner with small employers tooffer individual
products at the workplace, with or without financial contribution
from thebusiness.Choosing channelsDifferent consumer segments have
different preferences and attitudes, and payors mustunderstand
them. Some consumers, for example, want a trusted adviser who can
makedecisions 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
directchannels or channels that provide for human intervention.
Because a consumers riskprofile (that is, health status) is
correlated with demographics, the choice of channels canbe a
significant driver of profitability.Stronger, consumer-oriented
brandingWhether health insurers distribute directly to consumers or
through intermediaries theywill need to develop distinctive brands
and an overall brand communication strategy. At aminimum, health
insurers must gain the trust of consumers, which frequently does
notexist. If done well, a strong consumer brand can deliver
significant value in the way ofprice premiums, positive risk
selection, and lower distribution expenses. Develop multiple
sub-brands under an umbrella brand to provide more targetedsupport
to different products, channels, and/or customer segments15 16.
Continue experimentation with affinity marketing and co-branding,
both of which canbe effectiveMarketing effectivenessIn a retail
context, health insurers need to effectively manage their marketing
spendbecause their distribution approaches will become
exponentially more complex and thenominal amounts in play could be
significant. Build up ability to track and measure the performance
of each marketing spend, suchas the impact on the response rate of
changing the type of envelope used for a directmail piece Health
insurers will need segment-specific targeting and positioningAction
PlanSome of the key initiatives and the action steps for various
stakeholders include:16 17. Works CitedCII, K. (2008). Health
Insurance Inc: The Road Ahead. Health Insurance Summit2008, (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
InsuranceBrochure . 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. NewDelhi:
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.17 18. AppendixAppendix I (Specimen Grading
Account Sheet)Service Provider: Grading Account SheetGrading
Dimensions Methodology ScoreInfrastructureLocal Coverage No of
beds/Population of cityNo of Operating Theaters No of
beds/Population of cityCapacity of ICUNo of beds/Population of
cityTotalExpertiseNo of permanent DoctorsNo of Doctors/Avg Patient
InNo of MD Doctors MD Doctors/Total DoctorsNo of DM Doctors DM
Doctors/ Total DoctorsNo of MS Doctors MS Doctors/ Total
DoctorsTotalValue for Money IndexOPD ChargesExpressed as a
percentile scoreBed ChargesExpressed as a percentile scoreSurgery
ChargesExpressed as a percentile scoreHeart Surgery
ChargesExpressed as a percentile scoreTotalCustomer
SatisfactionIndexResponsiveness Expressed as a percentile
scoreEmpathyExpressed as a percentile scoreReliabilityExpressed as
a percentile scoreTotal Weighted average of the
dimensionComprehensive Scorescores18 19. Appendix II(Service
Provider Grading Matrix)Grade MatrixGrading IndexScore RangeGrade
AMore than 90Grade B+ 76-90Grade B66-75Grade C+ 50-65Grade CBelow
5019 20. Appendix III (Globally Successful Health Insurance
Models)Source: (KPMG & CII, 2008)20 21. Appendix IV ( Wellness
Products Offered in the US)21