High Premium On Health

More than ten years after the first health insurance scheme was introduced in India, the health insurance business has still to take off. The market is minuscule. And the concept, which was introduced by General Insurance Corporation (GIC), is yet to attain mass appeal.

The annual health insurance premium market in the country today is just Rs 100 crore. Thats just about one per cent of the total premium income of GIC alone, which is around Rs 8,000 crore. Take a look at some more figures. Only about 16 lakh people in a country of over 900 million are covered by health insurance. And of these, an estimated 10 per cent are employees of GIC and the Life Insurance Corporation alone.

So whats preventing health insurance from becoming popular? To understand that, lets first take a look at the schemes available. GIC offers health insurance through its four subsidiaries, Oriental Insurance, National Insurance, United India Assurance and New India Assurance. But all four offer the same Mediclaim scheme with no variation. Mediclaim is a hospitalisation charges reimbursement scheme.

This year, the finance minister added another variant when he announced the Jan Arogya scheme for masses. This offers a cover of upto Rs 5,000 with a premium as low as Rs 70. But its other features are identical to the Mediclaim scheme. A third package available is Bhavishya Arogya. This is an old-age healthcare planning scheme.

The chunk of the Rs 100 crore health premium, however, is collected from Mediclaim. And that too from sales to companies that apply for group insurance for employees. The collection from the other schemes would be just a few lakhs, says a GIC officer.

A primary cause for the low penetration is GICs marketing effort. The policies are sold either to individuals or corporates as a group insurance scheme. Corporates generally approach the company directly. Policies to individuals are sold through GICs agents. But they are more keen on selling general policies where the cover runs into lakhs.

Says one GIC official candidly, We dont reach individuals. Where is the infrastructure to reach them? He then explains the arithmetics. Why would an agent want to sell a Jan Arogya scheme with a premium of Rs 70 or Mediclaim, when his commision is a mere fraction of that? The effort required is the same in selling a higher value general policy.

Apart from marketing, another stumbling block is in the policy itself. Thats because the scheme is a hospitalisation cost reimbursement facility. This means that if a hospital is registered under a GIC subsidiary, the patient has to bear the hospital charges himself and then submit the claims bill to GIC.

Says Rohit Bhasin, associate director of the accountancy and management consultancy firm, Price Waterhouse, A consumer should not have to pay hospital bills in the first place. It should be paid by the insurance company directly to the hospital as in the West.

Adds Duncan West, chief executive officer, India, of the UK-based Royal & Sunalliance, One may find out whether or not a hospital is valid only after the event. It is incredible that in a country where 90 per cent of health spend is private, there is no active health insurance market.

But it is this very opportunity that is attracting companies like Royal & Sunalliance into India. Estimates of the countrys potential insurance market vary from Rs 650 crore by Royal & Sunalliance to Rs 27,500 crore by Winterthur Life. So Royal & Sunalliance has tied up with DCM Shriram to enter the health insurance market as and when the government opens it up.

Also waiting in the wings are others like Cigna International, a Fortune 500 company, Liberty Mutual, Alliance Ag, Commercial Union, Aetna, Jardine Insurance and Eagle Star. Cigna has tied up with Ranbaxy and Alliance Ag with Cipla while Commercial Union and Aetna have set up representative offices. Even GIC is planning a purely health insurance subsidiary and is scouting for a joint-venture partner.

Most people in the healthcare sector believe that an active health insurance market will actually improve the countrys healthcare infrastructure. As Bhasin says, A middle-class customer probably cant afford to pay upfront for hospitalisation in a private hospital. But he may be able to afford the annual insurance premium. So if an insurance company is paying at the time of hospitalisation, he can afford much better facilties. Bhasins argument is that if more people can afford better healthcare, it will become profitable for more players to enter the business. So the facilties will expand.

Of course, its not as though GIC made no attempts to expand the market. In 1987, it did experiment by tying up with hospitals and paying them directly. But it burnt its fingers. Says one official from a GIC subsidiary, The moment they knew an insurance company was paying the bills, they inflated them.

But that is where an insurance companys expertise comes in. One has to have controlling systems. You should be able to audit the hospitals books, counters Aloke Gupta, chief representative, India, of the $19 billion Cigna International of USA.

Gupta, however, admits that it may be difficult to get many Indian hospitals to agree to such audits. He says, At the moment, they get cash in advance. It is doubtful if they will wait for 15 days to get their payments from an insurance company. They are also likely to disagree to increase their paperwork.

Hospitals in India can dictate terms to insurance firms because the demand for beds exceeds supply. But Gupta believes the situation will change as the market matures. For instance, in USA, Cigna has a credit card system whereby each hospital registered with Cigna has a card detection terminal so payments are authorised automatically.

Besides, there is more to healthcare insurance in the West than hospitalisation reimbursement. In fact, that has been one problem with Mediclaim -- that is pays only for hospitalisation and doesnt cover visits to general physicians (GP), medical tests or specialists charges. All you have is one product when it can be tailored in many ways, says Gupta. For instance, it could be structured to include GP visits by the employees of a company. We would charge the premium accordingly, says Gupta.

Till recently, the maximum cover on Mediclaim was Rs 96,000 with the premium being uniform for all age groups. But since 1996, the company has increased the cover and the premium is now based on the age.

West says he could tailor a product with a lower premium than Mediclaim whereby a patient could get a certain amount of cash per day of hospitalisation. Or the premium could be based on the accommodation a patient wants in hospital. Or there could be an insurance cover for just critical diseases.

So the permutations are limitless. Besides, the packages in the West are backed by value-added services like consultation visits and free check-ups.

Once private health insurers come into India, they will be able to provide all this. They will also make a difference to the quality of healthcare, believes Gupta. Most Indians go to doctors or nursing homes by word of mouth. Some clinics dont even have proper facilites. And the Indian Medical Association and other councils have little control over doctors or facilities, he says.

Cigna plans to credential doctors and have a network of GPs and specialists. Policy bearers could then go to any of the empanelled doctors. Such steps will improve quality.

The private health insurers are certainly brimming with ideas. But given the size of the country and its population, penetration will not be easy. Health insurers will first have to build a huge operational infrastructure for themselves, which could take anything from five to ten years. Nevertheless, if the sector opens up, it will go a long way in improving the countrys healthcare standards.