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Systemic Issues and Reforms in the Health Insurance Sector: A Case of Public Frustration and Regulatory Gaps
Context:
Brian Thompson, CEO of UnitedHealthcare, was murdered on December 4, 2024, amidst public anger over unfair insurance claim practices.
More in News:
UnitedHealthcare’s Role in the Industry
- Largest Insurance Firm: UnitedHealthcare is the largest health insurance provider in the U.S., generating $360 billion in 2023 revenues.
- Claim Denial Record: The company has the highest claim denial rate in the industry, rejecting 32% of claims, compared to the best-performing firm’s 7%.
Health Insurance Trends in India: A Comparative Analysis
In India, similar issues have emerged concerning health insurance claims.
Data from IBAI 2023 Report
The Insurance Brokers Association of India (IBAI) report for 2023 sheds light on troubling trends in the health insurance sector, including differences in claim settlement behaviours between public and private insurers.
Public vs. Private Sector Insurers:
- Public Sector Insurers:
- All four firms exhibited consumer-friendly practices, paying more than 70% of claimed amounts.
- Best Performers:
- New India Assurance paid 98.74%.
- Oriental Insurance paid 97.35%.
- Private Sector Insurers:
- Four firms paid more than 80%, with SBI General topping the list at 88.30%.
- Eleven private firms performed poorly, paying less than 70% of claims.
- Star Health Insurance had the lowest payout at just 54.61%.
Manipulative Practices in Reporting
- Some firms manipulate data metrics to appear more favourable.
- Example: Star Health Insurance:
- Paid 75.10% of claims by policy count but only 54.61% by total claim amount.
- Indicates a focus on low-value claim settlements while delaying or rejecting higher-value claims.
- Example: Star Health Insurance:
Fine Print Issues
- Sub-limits on policy terms, such as room rent caps, often reduce payouts significantly, leading to consumer dissatisfaction.
Issues & Challenges in India’s Health Insurance Sector
The Tri-Party Problem
- Health insurance involves three stakeholders:
- Policyholders: Bear the financial burden of healthcare.
- Insurance Companies: Deny or delay claims to maintain profitability.
- Hospitals: Overcharge or perform unnecessary procedures, exploiting the system.
Unregulated Hospital Costs
- Hospitals often charge excessively for services, exacerbating the financial strain on patients.
- Example: During the COVID-19 pandemic, hospitals billed multiple patients for the same hazmat suits worn by healthcare workers.
Impact on Policyholders
- Patients face significant financial stress due to denied claims and high medical expenses.
- This often leads to reduced consumption, savings depletion, or increased debt, negatively impacting the economy.
Regulatory Shortcomings
- The Insurance Regulatory and Development Authority of India (IRDAI) lacks robust mechanisms to ensure fair practices.
- India does not mandate refunds for low claim ratios, unlike the U.S., which requires refunds for ratios below 60%.
Fraud Justifications
- Insurers often cite fraud as a reason for denying claims.
- Best-performing firms demonstrate that fraud can be managed effectively without denying valid claims.
Systemic Loopholes
- Insurers continue to raise premiums annually despite poor claim settlement records.
- Policyholders face challenges due to unclear terms and conditions.
Proposed Reforms for the Insurance Sector
Enhance Regulatory Oversight
- Disclosure Requirements: Mandate that insurers disclose their claims ratios based on amounts paid rather than just policy numbers at the point of sale.
- Policy Portability: Allow customers to transfer their policies to companies with better claims experiences.
Strengthen Consumer Protections
- Regulatory Enforcement: The IRDAI should assert its authority against threats from insurers regarding insolvency to prioritise consumer protection.
- Consumer Education: Increase awareness among policyholders about their rights and available options when dealing with claim denials.
The Way Forward:
Government Interventions
- Task Force Formation:
- A task force should address systemic issues holistically, involving the health and finance ministries.
- Cost Regulation:
- Implement caps on hospital charges to prevent exploitation of patients.
Policyholder Protections
- Introduce measures to ensure fair claim settlements and greater accountability among insurers.
Consumer Awareness
- Educate policyholders on understanding terms and conditions to make informed choices.
