Published in Mint on Jun 25 2015
Having a health insurance policy, means you may be eligible for a hospital bill discount if you get hospitalized.
“Insurers and third-party administrators (TPAs) can get a discount of up to 20% on hospital bills,” said Kapil Mehta, executive director, SecureNow Insurance Broker Pvt. Ltd.
TPAs are a link between you and the insurer and help in the process of claims settlement. While some insurers choose to settle the claims in-house, others outsource to TPAs, who then coordinate with you and hospitals to settle insurance claims.
To clarify, the insurer receives the discount, not you. However, it does reflect in a lower claim amount that you file.
“Insurers have several transactions with hospitals and are, therefore, able to negotiate a better rate for medical procedures. As a result, it reduces the claim amount you file, benefiting you as the policyholder,” explained Sanjay Datta, chief-underwriting and claims at ICICI Lombard General Insurance Co. Ltd.
The insurance company that settles the hospital bill receives this discount, keeping you out of the loop.
Currently, some providers negotiate and decide the costing with the insurer in advance, mentioning only the final price without disclosing the discount. Datta added, “In such cases, it’s not very transparent with the customers.” However, that is changing now. Datta added, “In such cases, transparency with customers is not very high.” However, that has changed now.
The Insurance Regulatory and Development Authority of India (Irdai) issued a circular on 23 June, mandating hospitals to reflect these discounts in the final hospitalization bill. This ensures that policyholders are aware of these discounts. It stated: “During the course of settlement of claims under health insurance policies, either the insurers or the TPAs (third-party administrators) may be obtaining discounts from various network providers or also from other hospitals outside the network….
The circular mandates the passing on of any discounts obtained from hospitals to the policyholders or claimants of the underlying health insurance policy.
How will it benefit you?
The rationale of the circular is to make sure that you are aware of the discount that you get from the hospital. Even as the insurer pays the bill, it’s still a benefit for you. Here is an example. The cost of angioplasty in one of the premium hospitals in Delhi is around Rs.2.3 lakh. But the negotiated rate with some insurance companies is about Rs.1.8 lakh. For a policyholder, this means that instead of deducting Rs.2.3 lakh from the sum insured, the insurer deducts only Rs.1.8 lakh. However, the basis for fixing this rate is the doctor’s fee and the type of stent used.
The Irdai circular provides further clarification that the applicable discounts will cover the entire cost, not just the sum insured. According to the circular, if the admissible claim amount exceeds the sum insured, the agreed discount will be applied to the gross bill amount before the policyholder or claimant bears any costs beyond the eligible claim amounts. ” This means that if the sum insured is Rs.5 lakh but the cost of hospitalization is Rs.6 lakh, and the hospital gives a discount of 10%, the total bill will come to Rs.5.4 lakh (10% discount on Rs.6 lakh). The insurer will pay Rs. 5 lakh, and you will pay the remaining Rs. 40,000.
“The insurer receives the discount, but if the actual hospital bill exceeds the sum insured, the insurer must pay the entire sum insured regardless of the discount.” In this case, providers do not pass on to the discount to customer,” said Datta. This means that the policyholder ends up paying the full amount of Rs.1 lakh that’s over and above the sum insured limit.
“What also happens is that if the sum insured is, say, Rs.100 and the claim amount is Rs.130, then a 30% discount would mean that the total bill comes to Rs.91. So, the entire amount is payable by the insurer. But what insurers sometimes do is to have the policyholder pay the additional Rs.30 and claim the entire discount of 30% themselves,” said Mehta. Policyholders do not come to know what the insurer is paying the hospital. “After a few weeks, the payment is made in cashless settlements. Also, the discount can sometimes be in bulk and not linked to individual bills,” added Mehta.
The new circular mandates that discounts must now be reflected in individual bills as well.
Better visible features
The circular stated, “If the policy includes a co-payment or deductible, the insurer or TPA must calculate it based on the discounted amount after netting hospital discounts, if any, provided that the underlying health insurance policies have such conditions.”
Also known as “excess”, deductible is the uninsured part of the claim amount. The policyholder must pay this part before the insurer takes over and covers costs according to the insurance policy. On the other hand, a co-payment clause means that you will always have to share the claim burden. Here the claim amount is divided according to the predetermined percentage. Say, your policy has a co-payment clause of 10%, the hospital bill is of Rs.1 lakh and the hospital gives your insurer a discount of 20%. In this case, the actual bill would come to Rs.80,000. So, the co-payment feature of 10% would apply on Rs.80,000 and not on Rs.1 lakh.
“There is a significant inconsistency in how these discounts are calculated. The guidelines aim to standardise the rule around discounts so that the policyholders can also benefit from it,” added Datta.
These processes are applicable with immediate effect and for both cashless services and reimbursements. A cashless policy, which is now the norm in health insurance, is a policy where the insurer settles the claim directly by making the payment on behalf of the insured. In a reimbursement policy, you must first pay for all expenses yourself and then seek reimbursement from the insurer later.
Operational challenges
The circular and the changes that it attempts to effect may be good news for you, but it must be noted that hospitals are not regulated by Irdai. Given that hospitals will also need to incorporate these changes, it may not be an easy task. “Hospitals give us a discount because we have negotiated rates, but where the claim amount exceeds the sum insured, it’s going to be difficult for us to convince the hospital to pass on the discount on the gross amount,” said Datta.
The process may be more complicated in the case of reimbursement policies. “The policyholder pays the bill before claiming it with the insurer. In such cases, it may be challenging to negotiate discounts with the hospitals,” added Datta.
Even for hospitals, this will be tough work. “Hospitals settle bills in bulk with the insurer and not on individual basis. They have different negotiated rates with various insurers and TPAs. To reflect the discounts in individual bills, they will have to build the discounts into their systems, which is a huge operational challenge,” said Mehta.
These changes certainly benefit policyholders but there could be roadblocks in terms of operational challenges, and the full effect will be visible only after all parties concerned have aligned themselves to the new rules.
