Health Insurance: Rising Premiums and Unsatisfied Claims: The Problem of Buying Health Insurance in India

Prior confirmation with the insurance company, delivery of around ten documents, medical sanction and invoice much lower than the amount of the coverage. Despite all these assurances, Rahul Pinaki, a 26-year-old fintech employee, got reimbursed for a total of zero rupees after undergoing a complex and expensive medical procedure.

All because the material inserted during the test was different from that covered by the policy, which Pinaki was not informed of initially.

“I had spoken to the insurance company before undergoing the procedure and they informed me that it would be covered by the plan,” says Pinaki, who after several weeks of haggling and following up with the insurance company , had to give up his dreams of getting money back.

“It’s a classic case of bad insurance sales. It’s just not worth the mental agony,” he says.

But not everyone is lucky enough to prioritize mental well-being over financial compensation.

“I had to beg and scream at the insurance company to pay me what was owed. Each time a different person took the call and I had to explain the situation each time, to no avail,” says Vidhisha Sharma, 57, who had a hysterectomy.

Sharma initially wanted a cashless claim, but the procedure had to be rushed and the insurance company assured her that she would be reimbursed after the operation.

However, the doctor informed her that halfway through surgery it was discovered that an additional device would need to be used as there were more cysts in her uterus than initially diagnosed. She was charged Rs 85,000 for this device and the insurance company quickly refused to pay more than Rs 23,000 as her policy, with a cover of Rs 15 lakh, did not cover this device.

None of us are strangers to stories of policyholders having bad experiences with insurance companies.

A working paper titled Fair Play in Indian Health Insurance shows that health insurance claims in India are not being paid as much as they should be and that India has the highest complaint rate compared to other countries such as Canada, Australia and the United Kingdom.

Another factor that plagues policyholders in India is the fact that most policies only cover hospitalization costs. Other mature economies cover hospitalization as well as clinic visits and medications.

Lately some policies have started offering OPD. However, this is still not part of the basic coverage and puts consumers at a disadvantage, since many medical tests that can reach more than 5 digits are carried out without hospitalization and the insured can only invoke the claim if they are hospitalized.

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Graphics by Sanjita Kalra

The Glamor of the Settlement Ratio

A settlement rate tells you how insurers settle claims. If the claims payout ratio is 90%, it means that the insurer has made payments for 90 claims out of 100 claims and has not paid the remaining 10 claims during the specified period.

“Resolved is a very vague term. Companies mark cases as resolved when they are processed on their end, even if they are rejected. So even if the companies have a settlement rate of 95%, it just means that 95% of the cases have been processed and not necessarily fully paid,” explains Chirag Nihalani, Managing Director, Insurance Samadhan, a platform that helps policyholders to resolve their grievances.

Citing too many technical details, few insurance companies have also rejected claims or settled claims on the lower side.

“Most of the time, customers don’t know what’s covered and what’s not. In such cases, insurance companies settle claims on the lower side,” Chirag explains.

In many cases, insurance companies flatly reject claims for technical reasons that consumers are rarely aware of.

Claim rejections

There are several reasons why policyholder claims are rejected. Among the most important are companies looking for redundant documents that clients simply cannot produce within the given time frame. Sometimes claims are rejected on the grounds that clients did not disclose illness when the policy was purchased.

There have been cases of clients who were unaware of the disease in their body.

For example, a person purchased a policy in 2021. She was diagnosed with a brain tumor in January 2022 but informed the doctor that she had had headaches for a few years. The claims were dismissed on the grounds of non-disclosure in such scenarios.

“Today, the most common grievances we encounter are rejected claims for ‘misrepresentation and fraudulent claims’. Many companies vaguely cite terms and conditions on the basis of which they simply dismiss claims,” says Chirag.

The influence of Covid

Consumer perception of health insurance has undergone rapid change following the pandemic. A large portion of Indians are known to purchase insurance primarily for tax purposes. And about 80% of income tax filers own a retail health policy, according to HDFC Securities.

Data shows that Indians have refrained from buying health insurance in anticipation of no major health expenditures in the near future, resulting in one of the highest health expenditures (OOPE) in 55%.

This is mainly because people do not have a health insurance policy and/or they have an insurance policy but with a lower sum insured, HDFC Securities said.

“While insurance continues to be an incentive product, the pull factor has increased significantly. The health insurance premium has been the main lever of the non-life insurance industry since the start of the Covid-19 pandemic,” says Saurabh Bhalerao, Associate Director, CareEdge.

During the different waves of the Covid-19 pandemic, hospitalization rates have increased significantly. Insurance claims during this period skyrocketed, as did reports of companies rejecting them “unfairly”.

A PIL alleging unfair denial of claims and causing undue loss to policyholders has been filed by Manav Seva Dham against various insurance companies in the Bombay High Court, Mint reported. IRDAI agreed to look into the matter.

“A lot of cases have been dismissed by companies just saying the patient was asymptomatic,” Chirag says.

Increase in premiums

The healthcare segment grew by 21.9% year-to-date FY23, which is lower than the 33.4% growth seen for the same period of FY22. Health insurance policies saw some price revision given high medical inflation, unfavorable claims ratio in previous periods and improved coverage.

Medical inflation in India is around 14%, which means that any medical procedure that costs Rs 3 lakh today, could cost around Rs 6 lakh 5 years later.

“Health insurance premiums increase from time to time due to soaring medical inflation. The increase in the number of hospitalization cases during the Covid-19 pandemic, for example, has led to a large number of claims, which has led many insurers to undertake price increases,” says Vivek Chaturvedi, CMO and Direct Sales Manager, Go Digit General Insurance.

Due to the pandemic, industry health insurance premiums may have increased in the range of 10-15% over the past two years,” Chaturvedi adds.

Bad insurance coverage

The penetration of health insurance compared to other countries also remains low. Data shows it stands at 0.4% in India, compared to 0.7% in China and 4.1% in the United States.

Lower per capita income, followed by lack of insurance awareness and education, and financial stability are some of the reasons for this figure.

Since health insurance remains a vanity for a large portion of the Indian population, the government over the years has come up with a variety of insurance schemes mainly for low income groups.

Some of these schemes include Ayushman Bharat Yojana, Central Government Health Scheme, State Employment Insurance Scheme, Pradhan Mantri Suraksha Bima Yojana and Aam Aadmi Bima Yojana among others. Data shows that low government plan premiums have resulted in deeper penetration into the country.

“Since a large portion of the country’s population is in the low to middle income group, we find that most people are underinsured for large and critical claims as they end up taking less than Rs. 5 lakh,” Chaturvedi says.

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Graphics by Sanjita Kalra

However, health is still a neglected area. After rising steadily from 2004-05 to 2017-18, public spending on health as a percentage of GDP fell for the first time during this period to just under 1.3% in 2018-19, according to data. national health accounts data. Total health expenditure, which includes what families and insurers spend, fell over this 15-year period, from 4.2% to 3.2% of GDP.

Public spending at 3% of GDP for health care is a widely accepted norm.

The premium for Rs 5 lakh cover ranges from Rs.3,000 to Rs. 6,000 depending on the nature and features of the policy. In view of medical inflation, insurance premiums have also seen a marked increase in recent years.

Insurance premiums can vary from person to person depending on various factors such as smoking habits, genetic conditions and pre-existing health conditions. Personal finance experts advise buying health insurance policies at an earlier age as they offer lower premiums.

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