Published in Livemint.
The moment of truth for a health insurance product is when a policyholder raises a claim. So in rating insurance policies for customers, claims data becomes an important parameter by which to assess an insurer.
Mint SecureNow Mediclaim Ratings (MSMR), too, looks at claims data available in the public domain when rating health insurance plans. MSMR rates insurers on the basis of their performance on claims settlement, time taken to settle claims and complaints related to claims. While this helps in ascertaining the performance of an insurance company on a macro level, it may not give a clear picture to the end consumers for two reasons: the numbers are adulterated with group claims and claims settlement rate does not give customers an idea about the out-of-pocket expenses they may have to bear despite having insurance.
Claims data needs to be cleaner and sharper. Now that the pandemic has popularized health insurance, customers, advisers and even policymakers need to look at claims more carefully. Public disclosure documents, therefore, need to dedicate more space to claims and distil the usual entries of claims reported, settled, rejected and outstanding for the retail bucket and also capture the leakages (or the out-of-pocket expenses) from the claims filed.
Here are three important public disclosures on claims that can help give a more accurate picture.
Segregation of claims
At the very basic level, claims data that sits in public disclosure documents reported by insurance companies needs to be segregated into retail and group claims. Right now this is a consolidated set.
In the case of group policies, the number of claims rejected is fewer given their structure, which comes with minimum exclusions. For example, group policies may not have exclusions such as the waiting period on pre-existing and other specified ailments. So a company with a sizeable group insurance portfolio—think corporate covers or government insurance schemes—may come across with a better claims settlement record on a consolidated basis.
But the picture may be very different on a segregated portfolio. It’s important for a retail customer to look at the claims experience of the retail portfolio. A segregation of claims for group and retail portfolios, therefore, makes for more relevant public disclosure.
The Insurance Regulatory Development Authority of India (Irdai), in its notification dated 10 June, mandated additional disclosures from insurers pertaining to turnaround time (TAT) on claims across all the empanelled third-party administrators (TPAs) and in-house claims team in a segregated format for retail and group products. Insurers have to upload this data by 30 September to help customers see the TAT of various TPAs on claims. An added layer of claims settlement number for the retail bucket would help.
Indemnity vs benefit
Slicing the data for retail is only one step and may still not reflect the true picture, if the retail bucket comprises defined benefit health plans, which pay the entire sum assured. The other type of health plan is indemnity policy that pays for hospitalization up to the sum insured.
Critical illness plans come under the defined benefit category as they pay the sum assured if the policyholder contracts a defined illness. But such policies define the severity of an illness which can lead to claims rejection if the customer does not understand the nuances which is often the case. For instance, critical illness plans that cover cancer specify the severity of the ailment and usually exclude early-stage cancer.
Although defined benefit plans may not form a huge proportion of an insurer’s health portfolio, segregating this bucket from indemnity will make the data sharper. Higher rejection rate in the pure retail indemnity bucket, for instance, sheds light on the sales practices of the company, among other things. Also, within the retail bucket, it would help if claims are further segregated for the insurer’s own plans and Irdai’s mandated standard offering Arogya Sanjeevani.
Leakages from claims
The retail claims settlement numbers talk about the percentage of claims being settled by the insurers, but a high claim settlement rate may still leave the policyholder embittered if she ends up paying a huge chunk of the hospital bill out of pocket.
“Insurer’s liability is limited to the sum insured but even within that there are certain exclusions. The insurer will also not pay for unnecessary treatments or for any overcharge by the hospitals and such expenses become out-of-pocket for the customers,” said Sanjay Datta, chief, underwriting and claims, ICICI Lombard General Insurance Co. Ltd.
A health insurance plan doesn’t pay for certain items that are listed as non-payable by the insurance policy. These items constitute things like toiletries, cosmetics, telephone costs, laundry charges and internet costs. Even medical items like the cost of spectacles, contact lenses and hearing aids may not be paid for.
Other than these, insurance contracts may have certain clauses like sub-limits or cap on room rent. Given the fact that other medical costs are linked to the room rent, a sub-limit on room rent means proportionate deduction on other cost heads as well and hence a much higher out-of-pocket expense for the customers. “Hospitals link costs such as doctors’ fee, surgeon’s charges, diagnostic tests, to the category of room chosen, which tends to increase the bill disproportionately in higher room categories. In this scenario of “higher the room category, higher the charges”, sub-limits on room rent along with proportionate deductions can lead to very high out-of-pocket expenses for insured patients,” said Rajagopal Rudraraju, senior vice-president and product head, health and health claims, Tata AIG General Insurance Co. Ltd.
While these may be contractual disallowances, capturing the leakages in the amount of claim filed is important. “At the most basic level the insurer can disclose claims filed and the claims paid (by amount). Now there would be genuine reasons for the leakages and that is true for all the companies. A huge variance, however, would indicate policies that come with restrictive clauses like sub-limits that customers should watch out for,” said Kapil Mehta, co-founder, SecureNow Insurance Broker Pvt. Ltd. “In fact when we look at claims typically disallowance constitutes 20%, which is out of pocket for the insured customer. However, we have also seen instances where disallowance have gone over 50% and this is largely due to the presence of restrictive clauses like sub-limits or the claim itself being for an item not covered,” he added.
While leakages is a good line of enquiry into the product, insurers feel this may not yield the desired comparison. “Products with sub-limits only reflect a higher level of contractual disallowance. It’s, therefore, important to compare disallowance in similar products. Arogya Sanjeevani, for instance, is a good example to capture leakages. A higher leakage would be a red flag on the claims settling ability of the insurance company,” said Datta.
As India reels under the impact of the covid-19 pandemic and households struggle with medical expenses, health insurance will become important. It’s, therefore, important to start thinking about the next level of data refinement for public analysis.