Insuring their margins
TPAs must learn to live with competition
Third party administrators (TPAs) for health insurance companies perform a valuable service for the insured. They enable “cashless” settlements of insurance claims. Without TPAs, the claimants have to first pay the hospital bills and then get reimbursed from insurance companies. Prior to TPAs, this created a host of problems, not the least among them being the fact that people had to keep cash around the house to cover unexpected hospitalisation expenditures. For this service, the TPAs collect 5 per cent of the insurance premium paid by those who buy insurance. TPAs are now protesting on two counts. First, they do not like the idea of four public sector insurance companies setting up their own TPAs. Second, they want to be paid 10 per cent of the premium and not 5 per cent. They have threatened to boycott the public sector insurance companies and stop cashless and other services for the general public if their demands are not met. What is more interesting is that they have also talked about going and complaining to the Competition Commission of India (CCI).
This is ironic. For, even if they do not go to the CCI, the Competition Act, as it stands, should encourage the CCI to go to them. This is not to sympathise with them but to book them for anti-competitive practices! The Act clearly states that any group of entities selling similar products or services and otherwise in competition with each other, is not allowed to take any concerted action that increases price, or restricts supply. Carrying out the threat of withdrawing services will, clearly, fall under this category since they are all providing the same services. The question that remains is whether they are otherwise competing. It is true that they do not compete with each other in prices, after all they all receive 5 per cent of the premium. However, they do compete in the quality of the service provided. If one TPA provides better service than another, the insurance company dealing with the better TPA will have more satisfied customers than the insurance company dealing with the worse TPA. This will encourage insurance companies to move to the better TPA. After all, that is what competition is.
In other words, Indian businesses need to get out of their pre-nineties mind-set and stop crying over lost profits. Instead, they should be able to make an economic argument to their regulator that explains (a) why insurance companies setting up their own TPAs will not benefit the insured and (b) why the increase in service charge will improve the quality and reach of the insurance market. Stating that insurance companies having their own TPAs will lead to a “monopoly” is simply not acceptable. This is like saying that car producers cannot own their own service centres. After all, both provide after-sales services. It may not be efficient business practice, but in a competitive environment they will soon find that out. Current TPAs need not worry about that.