Indian Cashless Health Insurance An Overview

Chanakya Round 2Team Unnati, Great Lakes Institute of Management

Nitin Pahuja: [email protected], 09884070606

Ujjawal Jain: [email protected], 09962082884

2

Objective and Scope as defined by the client

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

Executive Summary

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

Executive Summary contd…

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”

Indian Health Insurance: Need of the nation

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

Health Insurance: Structure & Potential in India

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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

Cashless Insurance: Stakeholders and Basic Process Flows

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 Hospitalization

Cashless request submitted to Insurance

co at the time of admission

Insurance TPA reviews the request and informs

the hospital with the authorization status

In case of approval the bills are settled by

Insurance Co

In case of rejection the customer needs to settle all the bills

He can file a claim request which if

approved shall be reimbursed by the

insurance co

Out of network Hospitalization

Customer needs to settle 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

Lessons to be learnt from the US market

• Improving health should be the ultimate

objective: The U.S. life insurance

experience has shown that a secular

improvement in life expectancy has kept the

market profitable.

• Customer Engagement: Deliver

segmented customer driven products that

leverage trust generated through

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.9

Competencies for a healthy health insurance industry

Pro

duct In

novation Build an

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

Channel D

istr

ibution Build expertise in

managing retail channels and bolster their approach to distribution by improving their branding and marketing.

Ris

k M

ana

gem

ent 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

Key issues and root cause analysis – Insurance Companies

Claims > Premium

Collection

(Rs 6,991vsRs 6,734

crore)

No incentive for the insured

to be vigilant on billing

High claim ratio

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 interaction amongst

insurance companies and hospitals

Lack of purchasing

power and

Health insurance

penetration in

tier2/3 cities

High discount demand

from insurance

companies

Lack of standardization and

accreditation norms for

healthcare providers

Key issues and root cause analysis – Healthcare providers

Multiple contracts with

differentinsurance

companiesIrregular and untimely

payments by insurance

companies

Lack of standardized

operating procedures

Limited funding support from

the insurance company

impacting the claims

disbursement time

Limited influence over healthcare

delivery network

Lack of standardization &

accreditation in most

healthcare facilities leading

to difficulty in judging the

authenticity and procedures

Delays and issues in

claims processing

leading to negative

perceptions by insurance

companies & consumers

about TPAs

Key issues and root cause analysis – TPA‟s

Key issues and root cause analysis – Macro Issues

14

Better Quality of

Health

Care/Coverage at

lower pricesMindset – cost considered

as a burden

Insufficient data on Indian

consumers & disease patterns

resulting in difficulty in product

development and pricing

Limited medical infrastructure

Poor check on pricing and

service quality

Negative perceptions – 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

17

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

Recommendations Potential Implications

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

Opportunity for Cognizant

Risk Management through Integrated Standard Procedures

INS

Co-1INS

Co-2

INS

Co-3

SP -1SP -2 SP -3

TPAIRDA

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.

Recommendations Potential Implications

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

Opportunity for Cognizant

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

Recommendations Potential Implications

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

Opportunity for Cognizant

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

20

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.

Recommendations Potential Implications

• 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.

Opportunity for Cognizant

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

21

Works Cited

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.

22

Appendix 1

23

Appendix 2 (Standardization- Action Plan)

24

Appendix 3 (Product Innovation- Action Plan)

25

Appendix 4 (Reaching out to Bharat- Action Plan)

26

Acknowledgement

27

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]@gmail.com

09884070606

09962082884