TPAs enable health insurance to take off

Industry players say it has to transform itself to succeed and keep growing

Health insurance in India is set to take off but needs to transform itself, like the caterpillar, even as it is coming out of its shell. The good news is that both private insurers and third party administrators (TPA) are in place.

Critically, "TPAs are removing the stress over (claims) payment," said Girish Rao, managing director of Bangalore-based TTK Healthcare Services, a TPA.

But the massive task ahead, in view of the nascent nature of the industry, is highlighted by Nayan Shah, managing director of Paramount Health Services, another TPA, who flatly says that the main health insurance product available in the market, Mediclaim offered by the nationalised general insurance companies, is "dead".

As it is only a hospital claims reimbursement product (health insurance means more than that), the regulator, Insurance Regulation and Development Authority (IRDA) and the industry are actively discussing products for the future.

With photo identity cards being issued to individual policy holders and insurance companies finalising their list of approved hospitals and TPAs, cashless settlement of claims is already taking place, making privately funded health insurance a system that is seen to work.

TPAs intermediate between insurance companies, hospitals and policy holders by, on one hand, taking care of insurers' healthcare bills and on the other, making sure hospitals don't take insurance companies for a ride.

Adds Rao, "The new private health insurance players have initiated a process revolution and TPAs are doing their bit in this regard by aggregating purchases (buying in bulk), negotiating discounts (from hospitals), initiating rate contracts and packages. TPAs are also working on standardisation of procedures and defining of protocols."

What this means is that standard packages and procedures, with bulk discounts built in, for well defined treatments are emerging, making it difficult for hospitals to bill excessively. Once protocols for doctors are laid down, it will be difficult for a doctor to administer unnecessary tests.

That is of course some distance away as Indian health insurance is mostly a hospital reimbursement product and outpatient expenses (that is when a clinician can ask for any number of diagnostic tests) are mostly individually borne.

New products are needed because right now, only 8 million of India's billion plus population are covered by private health insurance.

Private healthcare spending last year amounted to Rs 27,000 crore whereas only around Rs 940 crore was paid out as health insurance claims. While this is the immediate opportunity, its size more than doubles to Rs 64,000 crore if we include the healthcare expenditure of the public sector.

There is a significantly higher proportion of the 40 plus among the insured than among the entire population. Only 1.7 per cent of the population gets hospitalised, whereas 6-8 per cent of the insured do so. Rao emphasises that an important way to bring down insurance costs is to enlarge the pool, bring more people under it. This reduces risks and helps lower premiums.

Chandra Sekhar, vice president of Family Health Plan, another TPA, is also clear that health insurance coverage has to be immensely wider and has the following suggestions on how that can be achieved.

"For certain segments, the government should buy and or subsidise health insurance, for example the below poverty line people. It should be mandatory for all employers to buy health insurance for their employees and also for certain income brackets to possess health insurance."

The TPA industry topline (it is made up of 5.5 per cent of premium earned by insurers) grew by 27 per cent last year (2003-04) and is likely to keep growing at 25-30 per cent for a few years now.

Gross direct health insurance premium for the industry reached Rs 1274 crore in 2003-04. The IRDA has licensed 23 TPAs. Each nationalised insurance company has 'approved' 6-10 TPAs and private insurance companies 2-3.

Despite the overall optimism, there is though a dark cloud in one corner of the horizon "" the decision (now under legal challenge) by a nationalised general insurance company refusing to continue a policy on the plea that it has the prerogative not to renew what is essentially an annual contract.

Industry sources however say that regulatory guidance over this is likely which should remove any doubts in the minds of genuine policy holders over the continuity of their cover.

The other not so bright aspect is total costs to incomes of the industry. Last year claims accounted for 90 per cent of the total health insurance premium earned. If to that you add selling commission of 15 per cent earned by insurance agents and TPAs' earnings of 5.5 per cent, as per IRDA norms, the industry is not making any money right now.

To make health insurance viable and reach it to larger numbers "" the two are related "" TPAs have a wish list for the government and the insurance regulator. Rao feels they should be able to sell policies.

The health sector in general and hospitals in particular must be better regulated (today only a shops and establishments licence is good enough to start a hospital). Hospitals need to be rated. (This process has already started.)

So the future lies in growth, building volumes, and there is plenty of it going on. Family Health Plan last year earned a total revenue of Rs 9.5 crore and a profit before tax of Rs 1 crore. TTK Healthcare Services is targeting a turnover of Rs 12 crore in the current year (2004-05), up nearly 80 per cent on the previous year.

The company, which has an accumulated loss of only Rs 50 lakh, is likely to break even in the current year and wipe out the loss in the next year (2005-06).

Paramount Health Services, another prominent industry player, declined to reveal figures but claimed that it is "profitable and broke even long ago." Considering that IRDA regulations for TPAs were issued only less than three years ago (March 2002), this is not bad going at all for the industry.

Today, an individual seeking health cover can first choose who to insure with (there are both public and private sector insurance companies offering health insurance) and also which hospital to go to (a large number of hospitals across the country are approved by all insurance companies). But only corporates can choose their TPA.

NGOs familiar with these issues say it is necessary for the individual also to have this choice so as to protect himself from a nexus between some of the players. The individual already suffers from an asymmetry of information and negotiating power. His only weapon is to be able to shop around at every step.