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Will mediclaim lapse into a ‘premium caste’ system?

Insurers will start measures such as differential pricing of insurance products on the basis of hospital categories, sooner than later

Public sector insurers are toying with the idea of launching a separate cashless 'Platinum' policy for high-end hospitals in order to retain affluent customers by continuing for them cashless policies at hospitals outside the Preferred Provider Network (PPN).

This plan is fraught with difficulty because the premium is bound to be significantly higher. Industry sources say that the premium for such a 'Platinum' policy can be 50% higher than existing premium. According to M Ramadoss, CMD of The New India Assurance Co Ltd, "Lack of quality hospital supply does make it difficult to negotiate with corporate hospitals.

They need to give us discounts on volume of business. If we are unable to convince high-end corporate hospitals to join PPN, PSU insurers will be forced to come up with a separate plan for cashless facilities at high-end hospitals. The premium for this 'Platinum' policy will be higher, but we have not finalised it. It is at the drawing board stage. We have solidarity from private insurers too. They are also suffering due to erratic charges from some hospitals."

According to Sudhir Sarnobat, co-founder and director (operations) of www.medimanage.com, "This is an improper way to deal with this issue. By creating a product for treatment at these hospitals at extra premium, the insurers are contradicting their earlier stand that the hospitals are overcharging. It looks like the insurers were under-pricing. Also, if insurers have stopped cashless facilities by making statements like the hospitals are inflating bills, is this not a way to legitimise the so-called wrong practices of big hospitals? The question remains about the current policyholders. If any member has a complex disease which can be treated at one of these top hospitals only, how can he get the cashless facility for the same? Any efficient network of hospitals will need all kinds of hospitals i.e. primary, secondary and tertiary care hospitals. By removing a particular type of hospital, the insurers are denying the cashless facility to a particular class of patients which is nothing but discrimination."

Insurers will start measures such as differential pricing of insurance products on the basis of hospital categories. The insurers and the healthcare industry also agreed for gradation of hospitals for the purpose of mediclaim facilities. According to an industry source who attended the CII meeting, "The hospitals would be graded in three categories - A, B and C - on the basis of infrastructure facilities and specialities.''

It is a fact that all PSU insurers are suffering losses in mediclaim policies. New India Assurance is running losses of 20% excluding administrative costs for health insurance. The losses are over 40% when administrative and other costs are included. For the same set of hospitals, the private sector insurers have managed to keep their head above the water till now. Private insurers have also become wiser after they failed to rein in losses to the tune of crores of rupees allegedly due to fraudulent methods adopted by some hospitals and TPAs. The PSU insurers are restricting cashless facilities to hospitals in the PPN. Please see our article on PPN (http://www.moneylife.in/article/8/7387.html) and related article (http://www.moneylife.in/article//7411.html).

At the same time, private insurers are calling potential customers and boasting continuation of cashless facility. It is possible that they too will move to PPN because the underlying causes remain similar for all insurers.

Mr Ramadoss said, "We are trying to get as many hospitals on PPN. We are open to talks with all hospitals and share how we arrived at costing of procedures for different grades of hospitals. Contrary to belief that hospitals are trying to get out of PPN, more hospitals are coming on board. Some of them are prevented from talking with us by different associations, but have indicated willingness to talk in the near future. It's an uphill task, but we are determined to make PPN successful." According to Mr Sarnobat, "Private insurers like Bajaj Allianz have their own network. ICICI Lombard has 470 hospitals in India where they drive business even though they allow cashless facilities in more than 3,500 locations till now.

They are able to get good discounts at 470 hospitals as well as have a better control on the claims process. The trend is for creating centres of excellence and to drive business to specific hospitals based on the type of procedure to be done and proximity to policyholder. In the future, they may increase premium if the policyholder wants flexibility of cashless facilities in 3,500 locations and keep the same premium if the policyholder accepts only 470 hospitals for cashless facility. The PSU and private insurers will be at parity in the future."

Healthcare insurance cost has turned into a massive black hole in the US. It has prompted president Obama to come up with an ambitious healthcare reform plan. India is still considered a hot spot for medical tourism. The costs are sky-rocketing and high-end hospitals may soon be unaffordable for Indians. Mr Sarnobat added, "Healthcare insurance cost in the next three years is going to go up. There is a definite upward trend. Insurers are looking for break-even, but they also need to make profits. The costs for land, medical equipment and manpower of high calibre are only increasing. Land is expensive in big cities, there is a need for latest imported equipment that is expensive and medical manpower costs are also fairly expensive. The cost for a coronary artery bypass in India is $6000 while in the US it is $45,000. The gap is reducing and in the future there may be only 60% gap. Unfortunately, there is scope for further increase of procedure costs in India."

Insurance products with respect to different hospital categories will come in sooner than later.

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