Under-reporting policy claims may be behind rising health inflation

IIB has analysed how prices of health insurance claims have risen over a seven-year period, since 2010

There could be an explanation for the massive spike in the health inflation rate in the Consumer Price Index (CPI) that has surprised analysts. The reason could be under-reporting of the insurance claims data, suggests an insurance industry statistical report. 

The monthly figures released by the Central Statistics Office (CSO) for the CPI health in December 2018 had shown a 9.02 per cent rise on year-on-year (YoY) basis. However, there has not been a sharp rise in price of medicines or that of insurance rates. This had emasculated the dip in the overall CPI to 2.19 per cent in December, an 18-month low.

“The average price (rise) across all sub categories (of medicines) in December is around 4 per cent, clearly inadequate to explain the double-digit growth in health inflation rate in December 2018,” S K Ghosh, group chief economic advisor of SBI, noted.

The latest issue of the health insurance claim report released by the Insurance Information Bureau of India (IIB) sheds light on this anomaly. The bureau is the statistical arm of the regulator, Insurance Regulatory Development Authority of India (Irdai), set up as a single platform in 2009 to provide data services to the industry.

The IIB report has analysed how prices of health insurance claims has risen over a seven-year period, since 2010. The Bureau has obtained the data from the insurance companies and compared it with the CSO’s rural health CPI data. 

The IIB said that it has used the rural health CPI as it has more weight compared to the urban areas. The evaluation pointed out that the difference between the two has been widening for some year ie the price index of health insurance claims compiled independently by the IIB has been outshooting the CSO’s health index.

This is especially true for group health insurance policies which is about half of the ones issued by the industry. The rest are individual and government mandated policies. 

The IIB index was in sync with the health CPI during 2014-15. But it “took a quantum jump in 2015-16 and then slightly increased in 2016-17 to stand a little below 200, which is substantially higher than the health CPI (of CSO) at less than 130”, said the report. This difference has continued to expand in the current financial year. 

In March 2017, the inflation rate in the CPI health stood at 3.99 per cent, down 111 basis points from a year before. It has begun to climb from June 2017, when it reached its lowest at 3.55 per cent.

In six months since July 2018, the sectoral price index has climbed 315 basis points.

“The rise shows there has been a correction happening in the numbers, though the December rise has been the steepest”, said Professor N R Bhanumurthy, of National Institute of Public Finance and Policy.

It is possible that the CSO has begun correction of a long series of under-reportage of health insurance claims. 

The difference is also visible for Individual health polices, where the IIB index stood at 140 compared to the CSO’s 130 as on March 2017. The report does not explain what could've been the reason for this difference, but it could be because the insurance firms do not submit their data on time to the CSO. The IIB data itself struggles with late filing. For instance, the report notes that the “total amount claimed matches with the sum of the aforesaid components in about 10 per cent of total records only” (sic).