Published in Mint on JUL 20 2016, Written by Kapil Mehta
Information breathes life into our decisions. It improves industry conduct and, in insurance it reduces grossly wrong choices. At its best: information is simplified, data clutter is removed and the focus is on essential facts. Unfortunately, the insurance ecosystem—and I include hospitals in that—is still operating at a basic level where fundamental questions remain unanswered.
Cost of treatment
If I fall ill, how much will it cost to get treated? It is not a simple question because price discovery in hospitals is opaque. Patients walk into a hospital based on word-of-mouth, meet doctors, undergo tests and are then presented with the cost of treatment. By this time most patients don’t want to switch doctors or hospitals in search of cheaper care. They may want to switch because price variations can be large: cardiac procedures can be between Rs.1 lakh and Rs.10 lakh, and joint replacements between Rs.75,000 and Rs.3 lakh.
These price differences, however, are clearly known to insurers, third-party administrators and hospitals. In their books each procedure is categorised under the International Classification of Disease (ICD) code and its treatment rates are specified. These rates are the basis of insurance payments. Shouldn’t this information be publicly available to help patients make better choices? I do understand that hospitals may not want to share the specific terms that it has with each insurer, but even indicative rates will help the public a lot.
What insurers don’t tell
A sophisticated extension of this information is to publish success rates of doctors and hospitals. This data needs to be shared intelligently because there can be considerable variations in success rates depending upon the level of patient complications. However, some information could be shared immediately. For example, the rates of endophthalmitis, or eye infection, have a direct link to the sterilisation standards of a hospital. There are several examples overseas of such information being shared, and we can build on those.
How many claims get paid under the health insurance product that I want to buy? The number of product features available in health insurance are rapidly increasing. These include removal of room rent caps, reduced exclusion of pre-existing diseases, international cover, out-patient cover, alternate therapy costs and restore benefits. A practical way to understand which features matter is to see the ratio of claims paid to claims made. This ratio has two further sub-components that should be known: the proportion of claims that were rejected outright and where only a part payment was approved. This information is required to evaluate a health insurance product’s performance. Unfortunately, this data is not published.
Instead, what is published are claims for all lines of businesses combined: group, individual, Rashtriya Swasthya Bima Yojana and government insurance schemes. Such averages hide the true picture. Any discussion on averages takes me back to a mechanical engineering class years ago where I under-designed a bridge’s load-bearing column by 30% and over-designed the other column by 30%. My plea to the professor that, on average, the strength was okay didn’t work because, as the professor wisely told me, “failure of any one column destroys the bridge”.
Rejection rates of group insurance are less than 5%, but for individual insurance claims, they can be as high as 50%. If most of an insurer’s business is group insurance, then the average claim rejection will look low. Yet, individual insurance buyers could still have a high rejection rate. This product-wise information is routinely used by insurers, and should also be made public too.
Rejection criteria
Will the insurer issue health insurance to me? There are several excellent insurance products available but what use do they have if the insurer will not issue them on standard terms? A common problem in the placement of insurance is that at the final stage, after payments have been made and medical tests completed, the insurer builds in permanent or temporary exclusions or turns down the insurance. This is the insurer’s prerogative because health insurance products are renewable lifelong, and insurers have to be comfortable with the risks they take on. However, in this risk reduction process many healthy individuals find themselves with unwarranted restrictions.
Someone I know told an underwriter that he had occasional pain in his fingers. His insurance now has a permanent exclusion for any joint-related issue. At this stage the person does not want to go to another insurance company and restart the long process. Also, the exclusion is a permanent black mark that he must declare in future health insurance applications.
Why have health insurance claims been rejected? The reasons for claim rejection are an important input to decision making. Yet, you can’t get this information today.
The examples here relate to health insurance but the information gap extends to other categories as well. For example, if you want to know the claims payment of insurers in important categories such as liability insurance, the data is not uniformly available. If you want to know how many grievances were closed to the satisfaction of the complainant, that too is not available.
Access to high-quality information empowers the buyers. It allows intermediaries to build knowledge and make fact-based recommendations. The best insurers share more information. In that sense, these measures are no less important than advertising or distribution. Given the likely divergent perspectives on information sharing, this is an area where regulators and industry councils must play an active part.
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