Exclusion from Ayushman Bharat could deal body blow to general insurers

States are keeping insurance companies at bay in a bid to keep the scheme simple, cheap and serviceable; but their non-inclusion could also end up making it a non-starter

Insurance companies clearly aren’t the winners in the Ayushman Bharat scheme, the Modi government’s omnibus health care plan for an estimated 108 million poor families. States don't want the companies as of now, and some of that uncertainty has made the expected launch of Ayushman Bharat–National Health Protection Mission (AB-NHPM) on Independence Day a non-starter.

For the 31 general insurers, the year 2018 has been their most disruptive, impacting two of their largest portfolios, motor and health. The two make up 39 per cent and 27 per cent of total premium for the non-life segment, respectively, according to Irdai data for the year 2016-17. However, a more serious challenge comes from the possible non-inclusion of these companies from the AB-NHPM, as they find that their products are effectively out of the reckoning in the largest health insurance plan in the world.

Of the 28 state governments that have “agreed” to join AB-NHPM (remember this is different from formally signing a memorandum of understanding with the Central government), most have decided to keep insurance companies out of the loop. Their reasons are simple. The states want to keep it simple and cheap to service the mammoth scheme. The Centre has already provided for Rs 27.93 billion in the first supplementary demands for grants in the Lok Sabha, in July. In FY19, the bill for the Centre could be twice that amount. The states need to find their share of money to pay the remaining bill. This is why Dr Indu Bhushan, CEO of AB-NHPM speaking at recent CII summit, said, “No definite date has been decided for the launch of the scheme. It would be staggered launch based on their preparedness”.

The insurance companies however, hope the states will change track within a year. G Srinivasan, former chairman of New India Assurance, India’s largest non-life insurer, said “Insurance brings in efficiency, which the state governments do not factor in now. I suppose they will become wiser after a year.” Only small states such as Nagaland have bid out for insurance companies to run the scheme. In other states, the insurers can top up the medical care for each family, by charging premium for their health schemes. But it will be voluntary. Srinivasan said the health insurance market would grow faster now, riding on the experience of AB-NHPM. “I expect the initial hesitation to take out an insurance cover to disappear among the low income groups.”

States were given two options by the Central government to make Ayushman Bharat work. They could either implement the scheme through one or more companies bidding out the rights, or operate directly using a trust model. They could also choose a hybrid model. Only three states have explicitly opted for the second option.

How does the trust model work? Once a state decides to roll out AB-NHPM, it will set up a State Health Agency. This agency can either ask insurance companies to bid for the rights to run the hospital reimbursement business or it can itself administer it as a trust, society or non-profit company. All families in the state below a threshold level of poverty will be covered for cost of medical treatment up to Rs 500,000 each year. Any time they fall ill, they can walk into a hospital and at pre-fixed package rates, get their treatment subject to the annual ceiling. The cost to the hospital will be made good by the state. The final bill for the year will be shared between the states and the Centre, based on actual expenditure.

The states argue since there is no need to select beneficiaries, and no need to enquire how much cost the family is incurring since they are paid as per pre-determined package rates set by the national AB-NHPM, there is no value add that an insurance company would provide. So the commission payable to an insurance company is a deadweight loss.

But as R Chandrasekaran, secretary general of General Insurance Council, the apex level body of the insurance companies noted, “Insurance is itself a trust. The capacities these companies have created for servicing the insured, honed over 11 years of experience in the field of health, are formidable.”

This is the point of view of the insurance regulator as well. In the committees set up by the ministry of health and family welfare, the Insurance Regulatory and Development Authority of India had made this point. As one of them said, “We were overruled by the state secretaries of health, who argued that with a robust information technology structure, the management of the claims processing will be largely machine-driven.” The health ministry has signed an MoU with the ministry of electronics and information technology to rope in thousands of citizen service centres to offer IT support at remote places. Measures like this could smoothen the inexperience of the state administration in handling claims by the thousands every month. Under the AB-NHPM model, in order to ensure that the funds reach the state trusts\agencies on time, the transfer of funds from the Centre “would be done through an escrow account directly. The state has to contribute its matching share of grants within defined time frame,” notes a cabinet release issued by the government in March this year.

The states do have a reason to be cautious. Health insurance schemes have been a bugbear for most of them. The more people the states brought in as insured under earlier schemes like the Rashtriya Swasthya Bima Yojana, which has been subsumed by AB-NHPM, the higher was the bill for subsidising their premiums. This made the states run into arrears, which by April 2017 had stretched to over Rs 50 billion in the Rs 200-billion estimated market for the older scheme. So long as the money was not credited to the insurance firms, they refused to honour the claims of the insured, and this caused a political fallout.

At the other end are the hospitals, many of which have unsavoury records about the inflated costs of the treatments they offer. While the package rates put in place by AB-NHPM has done away with the problem, lingering worries remain. Union health secretary Preeti Sudan, speaking at the same CII event, pushed the hospital administrators to build credibility in secondary and tertiary healthcare by “creating transparent systems”. One of her suggestion was that the hospitals create a portal within their precincts on a voluntary basis to showcase their performance.

Caught between what they perceive as the devil of the hospital care and the deep sea of the insurance market, the states have opted for a model where their control would be the widest. In a representation made to the finance ministry earlier this year, the GI Council has claimed the trust model might be misused down the road. It had suggested setting up a government-funded finance company as a buffer between themselves and the states to keep the AB-NHPM running smoothly. It has not found favour with the government. The insurance companies have to wait out for now.

Health insurance market: The math and the mismanagement

• Dominated by hospitalisation indemnity products and package policies
• Number of claims and average claim amounts paid to males are more than those paid to females across most age-bands
• Only 45% of all claims have valid diagnosis codes, indicating that treatment centres are misreporting the rest
• 99% of total claims are for amounts below Rs 300,000. Most claims are in the Rs 10,000-25,000 range

Source: Health Insurance Data Analysis Report, Insurance Information Bureau of India (latest report 2016-17)

States’ arguments for keeping out insurance companies

• Keep the scheme simple, cheap and serviceable
• No value-add coming from general insurers, so commissions are a deadweight loss
• Have burnt fingers with insurers and hospitals in administering similar schemes in the past

The insurers’ response

• Smaller States don’t have the technical bandwidth to run such a massive scheme
• Trust model adopted by some states could be misused down the road
• Want a govt-funded finance company as a buffer between themselves and the states to keep AB-NHPM running smoothly
• The insurance model will have an edge over the trust model because government funds are safer in a licensed insurance company with strict regulatory oversight, especially investments of short-term surplus money