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Published in Mint on Jun 25 2015

If you have a health insurance policy, you will be happy to know that if you get hospitalized your health insurance policy may get you a discount on your hospital bill.
“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 be sure, the discount is not given to you but to the insurer. This, however, gets reflected 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. The discount is not given to the policyholders but to the insurers, which, in turn, benefits the policyholders,” said Sanjay Datta, chief-underwriting and claims, ICICI Lombard General Insurance Co. Ltd.
Since this discount is meant for the insurance company that settles the hospital bill, you are kept out of the loop. “The policyholder needs to sign off on the hospital bills before it reaches the insurer for final settlement. Currently, some providers mention only the final price and not the discount since the costing is already negotiated and decided with the insurer in advance. In such cases it’s not very transparent with the customers,” Datta added. But not any more.
According to a circular issued on 23 June by the Insurance Regulatory and Development Authority of India (Irdai), it is now required that hospitals reflect these discounts in the final hospitalization bill so that the policyholders are aware of these. 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…. It shall be ensured that the discounts obtained from the hospitals, if any, are passed on to the policyholders or the 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, this rate is fixed on the basis of the doctor’s fee and type of stent used.
The Irdai circular has further clarified that such discounts will be applicable on the entire cost and not the sum insured alone. “Where the admissible claim amount is more than the sum insured, the agreed discount shall be effected on the gross amount raised in the bill, before letting the policyholder or the claimant bear the costs over and above the eligible claim amounts,” it stated. 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). Of this amount, Rs.5 lakh will be paid by the insurer and remaining Rs.40,000 by you.
“The discount is given to the insurer but in cases where the actual hospital bill is more than the sum insured, the insurer has to 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. “In cashless settlements, the payment is made after a few weeks. Also, the discount can sometimes be in bulk and not linked to individual bills,” added Mehta.
With the new circular, discounts will now have to be reflected in individual bills too.
Better visible features
If there is a co-payment or a deductible in a policy, it will have to be calculated on the discounted amount. “Where the underlying health insurance policies have co-payment or the deductible conditions, the insurer or the TPA shall ensure that said co-payment or deductible is effected only after netting of the discounts offered by the hospital, if any,” said the circular.
Also known as “excess”, deductible is the uninsured part of the claim amount. This part has to be paid by the policyholder before the insurer takes over and covers costs as per 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 lot of inconsistency in the way these discounts are worked out. 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. A reimbursement policy, on the other hand, requires you to first pay for all the expenses yourself and later get it reimbursed from the insurer.
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.