This note was first published as part of Session 2 of the four-part webinar series hosted by Dvara Research and IndiaSpend on “Reform Pathways for Healthcare financing in India”. Our earlier post on “Status of Health Systems in India at National and Subnational Levels” argued that while India looks at increasing the total health expenditure to improve health outcomes, it could benefit from an increase in the share of pooling and improving the performance of existing pools such as those managed by the state-level departments of health, State Health Authorities, the Employees’ State Insurance Corporation, and commercial health insurance. In this note, we focus on the commercial health insurance pool in India and review its status and outline the challenges that are preventing it from scaling up and delivering efficient and desirable outcomes to its participants.
With the opening of the insurance sector to private entities, the number of insurance companies in India has increased from 4 general insurance companies and 1 life insurance company (all publicly owned) to 24 life insurance, 27 general insurance and 7 standalone health insurance companies. Between 2015-16 and 2018-19, health insurance industry saw premiums grow in the range of 21-25% year on year, with standalone health insurers registering the highest annual growth rates in the range of 36-41% in the same period. Despite such growth, commercial health insurance in India is seen as largely unregulated or ineffectively regulated with undesirable outcomes for customers. In order to examine this issue further, we reviewed the evidence available at present, which looked at the immediate outcomes derived by customers from the purchase of health insurance products.
In 2018-19, commercial voluntary health insurance (excluding through government business) covered 115 million lives or approximately 8.4% of the population of India. Data on coverage, trends in claims recorded, and tier-wise distribution of offices of health insurance companies suggest an inclination of health insurers to serve high-income segments of the population. In terms of quality of the products available, the Indian health insurance market is currently dominated by hospitalization-based indemnity policies which provide shallow coverage. These have also been found to exclude expenses such as those on pharmaceuticals which have been found to constitute a significant portion of the total out of pocket expenditure on health incurred by households in India. On the efficiency front, which provides an indication of the cost at which insurers offer these products, claims ratio data suggests that standalone health insurers might be charging high prices from customers raising customer protection concerns.
As a next step, we looked at the possible reasons and identified areas where regulatory actions might lead to better outcomes for customers on the issues outlined above. In order to expand the coverage of commercial voluntary health insurance, we suggest increased competition as one way to achieve this. Insurance Regulatory and Development Authority of India (IRDAI) can consider substantially lowering the capital requirements, allowing more insurers to participate in the market. This would, in turn, possibly aid in expanding coverage up to 15.7% of the total population of the country. On the issue of benefits package (coverage) offered by health insurance products, introduction of a basic mandatory health benefit has been proposed as one way to address the current concerns on shallow coverage. Such a package would cover essential and insurable events, and possibly costs related to out-patient care, drugs and wellness (preventive care). While these regulatory actions might prevent insurers from cherry-picking in the market, market failures which are intrinsic to the indemnity-based insurance model are likely to still exist, and high-risk individuals or individuals who cannot afford the premiums might be left uncovered. Public subsidies might be needed to help fill these gaps. While claim payouts form a portion of the expenses incurred by insurers, reining in costs such commission expenses and Third Party Administration (TPA) fees has been seen as another way of bringing down health insurance premiums. Finally, tightening regulations to ensure customer protection has been seen as one area where the regulator can take definitive steps to improve the customer experience.
From an overall health systems design perspective, increased participation of private health insurers is generally seen to have a negative impact on the aggregate cost of healthcare, quality of healthcare, and create inequity in distribution of healthcare spending. Given the presence of commercial health insurers and the potential role they can play in providing coverage to a significant section of the population, we propose that the adoption of a Managed Care model in India to help mitigate/ manage these negative effects, be taken up for further research.
The issues in commercial health insurance pool in India and the possible responses to them as outlined above form only one component of the healthcare sector, i.e., health financing. However, controlling outcomes of healthcare providers, who also determine pricing and quality of care provided to customers, is also essential. Here, IRDAI, through its regulatory authority over health insurance sector, can play an active role by sharing claims data to enable better underwriting and pricing of products by insurers. Additionally, it can push insurers to work with providers to set standards in healthcare procedures.
The full note is available here.