Mumbai, Nov. 4: Health insurers want hospitals and nursing homes to be graded in an effort to reduce the high claims ratio on the risk covers they sell.
The initiative for a grading system for hospitals has two objectives: First, it will help policyholders get some idea about the healthcare they can expect; second, it will bring down the premia rates on health insurance policies if the claims ratio goes down.
Claims ratio is a metric of performance calculated as a ratio of overall claims to the total premium collected for a specified period.
The health insurance industry has been suffering from huge losses every year as the average claims ratio stands at 110 to 120 per cent. According to an industry estimate, the total premium collected under health insurance policies during 2006-07 was about Rs 4,000 crore against overall claims of over Rs 4,300 crore.
The Life Insurance Corporation (LIC), which plans to enter the health insurance business, has sent a notice requesting the parliamentary committee of the health ministry to consider a proposal to grade hospitals in the country to reduce claims through effective pricing of healthcare services.
Health insurers are peeved by the way some hospitals overcharge patients with medical insurance covers. The suspicion is that they subject such patients to a battery of tests and medical investigations that are not relevant to the ailment, secure in the knowledge that the insurer will pick up the tab.
“Once the grading system comes in, the insurer will be in a better position to judge the actual prices of various treatments in the given set of hospitals. This will also help the insurer in specifying the maximum limit of claims that could be made by a hospital for a given ailment,” said G.N. Agarwal, LIC’s executive director (actuarial).
“Grading of hospitals is highly essential to moderate the claims ratio in the health insurance industry. Hospitals charge very high rates, irrespective of the standard of treatment given to the patients who are insured,” said M. Ramadoss, chairman and managing director of The Oriental Insurance Company Ltd.
“The government should create a central body to implement a standard certification system for hospitals in the country,” Ramadoss added.
Both Agarwal and Ramadoss reckon that health insurance premium will go down once a hospital grading system is in place.
“It will allow health insurers to design policies with lower premium rates, depending on the category of hospitals selected by the policyholder in his health cover,” said Agarwal.
“The hospitals’ practice of overcharging not only consumes the insured’s maximum limit faster but also raises the insurers’ overall claims amount. A grading system will reduce losses in the health insurance industry by 20 to 25 per cent,” Agarwal added.
In the year ended March 2006, health insurance covered only 1 per cent of the country’s population and accounted for 1.2 per cent of the total healthcare expenditure.
Cygnus Business Consulting & Research, a firm specialising in business analysis and forecasting, estimates that health insurance premia will touch $856.83 million in 2007-08, up from $659.1 million in 2006-07.
The Insurance Regulatory and Development Authority believes that eliminating tariffs in non-life insurance will encourage scientific rating and the adoption of better risk management practices, eventually leading to independent pricing for each line of business. As a consequence, premia will be based on actual risks and costs.
“Grading hospitals would help the customers be aware of the quality of treatment that they would receive during diagnosis,” said. Kartik Jain, head (marketing & e-channels) at ICICI Lombard.