Health Insurance Business in India

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					Employee health
benefits in India –
the changing paradigm
Rajagopalan Krishnamurthy               growing evidence of corporate            public sector organisations including
and Anuradha Sriram                     rethink on health benefits. This         the Indian Railways (which is the
                                        article briefly surveys the domestic     largest employer in the country) and
discuss the important trends
                                        scene, assesses the factors that have    the private health insurance schemes.
in the employee health
                                        impacted employee healthcare
benefits business in India,                                                      In 2007, an estimated 15 per cent
                                        benefits and identifies the potential
which is emerging as the                                                         of the population was covered
                                        trends in this segment in the context
                                                                                 under some prepaid scheme, while
promising market for health             of the widening interest of life,
                                                                                 the share of private health insurance
insurance business.                     general and health insurance
                                                                                 has been less than 2 per cent.
                                        companies in India who seek a
As business enterprises worldwide       share of the growing healthcare pie.     The size of health insurance
struggle to cope in these turbulent
                                                                                 premiums in India for the year ending
times, there is a lurking possibility   Healthcare coverage                      March 2009 was Rs.65 billion (about
that company medical insurance          in the organised sector                  US$ 1.4 billion) of which employee
schemes could soon be under             Healthcare expenditure in India is       group health plans had contributed
threat in the same way as final         about 5 per cent of GDP compared         35 per cent. Several estimates place
salary pension plans due to the         to Japan (close to 8 per cent),
                                                                                 bet on a rapid growth of the market
rising cost of payouts.                 the UK (8.4 per cent) and Brazil
                                                                                 in the next four years to grow more
                                        (7.5 per cent). As per the findings
Researchers in the UK have                                                       than threefold and reach a size of
                                        of the National Sample Survey,
assessed that the average cost                                                   Rs. 200 billion.
                                        households spend about 6 per cent
of maintaining health cover for
                                        of their total expenditure and           The four state-owned general
employees has risen by close to
                                        11 per cent of non-food consumption      insurance companies command
70 per cent per head during the
                                        expenditure on healthcare. The           the bulk of the market share in the
past nine years, while medical
                                        annual rate of increase of household     health segment (which accounted
inflation is running at 10 per cent
                                        spending on health has been a            for 18 per cent of their gross
on year to year.
                                        staggering 14 per cent since 1996        underwritten premium last year).
A Watson Wyatt survey report in         according to the survey.                 The balance is shared by the 12
the US, published as part of the                                                 private licensed non-life insurers and
                                        There is no reliable database of
11th Annual National Business                                                    the two stand-alone private health
                                        organised labour covered under
Group on health, had concluded                                                   insurers that were established two
                                        health insurance benefits in India.
that healthcare costs continue                                                   years ago. Private insurers have
                                        This is due to a multiplicity of
to stake a disproportionate claim                                                chalked out aggressive retail
                                        schemes run by government and
on corporate resources forcing                                                   plans in the health sector.
                                        parastatal organisations. According to
employers to embrace new
                                        a recent report sponsored by the
initiatives that seek to increase                                                Key trends
                                        trade body – Confederation of Indian
employee accountability, promote the                                             Some key facts and major trends in
                                        Industry – several types of insurance
appropriate use of health resources                                              the group healthcare benefits sector
                                        cover are currently available to
and improve employee health.                                                     in India are outlined below.
                                        organised sector employees –
In India, while employee healthcare     Government schemes such as the           In the old economy, dominated
impacts only a small portion of the     Employee State Insurance scheme          by state owned enterprises,
aggregate workforce due to a            and Central Government Health            corporate healthcare
relatively low share of organised       Scheme, plus healthcare benefits         was an integral part of
employment in the economy, there is     provided by the large number of          employee benefits.


                                                                                                       watsonwyatt.com | 29
                                           Up until the dawn of the economic       management considerations, but
                                           reforms in the mid-1990s – when         as a gateway to corporate
                                           the state owned entities dominated      commercial business.
                                           almost all economic sectors –
                                                                                   Prior to 2007 when general
                                           employee healthcare was regarded
                                                                                   insurance companies had enjoyed
                                           almost as an obligation by business
                                                                                   the benefit of high premium rates set
                                           owners. Besides corporate-run
                                                                                   by the government for fire and
                                           medical and healthcare
                                                                                   engineering risks, insurers had a
                                           establishments for the serving
                                                                                   tendency to bid for corporate group
                                           employees, such enterprises had
                                                                                   health business at loss-leading rates
                                           offered guaranteed access to high
                                                                                   to keep the client within the fold.
                                           quality healthcare for retired
                                                                                   Following the abolition of tariff
                                           employees at every level. Some
                                                                                   rates and the free market pricing
                                           of these practices still continue,
                                                                                   (which witnessed some premium
                                           although many such enterprises
                                                                                   rates for fire risk cover plummeting
                                           have become market-listed entities
                                                                                   by 60 per cent or more), insurers
                                           over the years. There is now a
                                                                                   now have less incentive to indulge
                                           growing awareness in state
                                                                                   in such cross subsidy practices.
                                           enterprises that are stock listed
                                           entities to reconsider the rationale    The cashless settlement system
                                           for continuing with in-house or         ushered in by private general
                                           self-insured arrangements and to        insurance companies plays a
                                           look at alternatives such as private    dominant role in expanding the
                                           health insurance to fund the needs      employee health insurance
                                           of their employees.                     plans. The private general insurance
                                                                                   companies had introduced the
                                           The dominance of public sector
                                                                                   system of network private hospitals
                                           insurers in group health
                                                                                   and offering hospitalisation benefits,
                                           insurance plans has been
                                                                                   domiciliary care benefits and other
                                           challenged by the private players
                                                                                   benefits on a cashless or direct
                                           since the insurance sector
                                                                                   settlement basis, with the help of
                                           reforms began in the year 2000.
                                                                                   third party administrators (TPAs). This
                                           The four state-owned general
                                                                                   has helped to expand the market size
                                           insurance companies have been
                                                                                   for group health plans substantially in
                                           at the forefront of offering group
                                                                                   the last few years.
                                           employee health insurance plans.
                                           These plans are modelled after the      On the demand side,
                                           hugely successful medical indemnity     aggressive hiring of new
                                           schemes (Mediclaim) offered by the      employees by the expanding
                                           companies to retail buyers. Employer    private sector with healthcare
                                           group insurance plans were mostly       benefits as a key component
                                           run by public sector insurers without   of pay package has helped to
                                           serious attention to high standards     expand the group health plans
                                           of underwriting or portfolio risk       in the last few years.



30 | insurance matters 2009
                       asia-pacific 2009
In the heady days of economic                              Figure 1 | Comparison of % change in post retirement medical benefits actuarial liability
growth (until last year) companies
had included attractive healthcare                                             3,000
packages to hire and retain                                3,000                                                                                Benefit contribution
employees. Companies in the                                                    2,500
                                                                                                                                                  escalation rate
                                                                                                                                         Benefit contribution 8%
                                                                                                                                          escalation rate 8%
business process outsourcing, IT,                          2,500                                                                                      INR 2,029
telecom, and financial service sectors                                         2,000                                                          INR 2,029
in particular have been prominent in                       2,000                                Benefit contribution
                                                             INR in millions




                                                                                                  escalation rate
                                                                                         Benefit contribution 4%
                                         INR in millions




this respect.                                                                  1,500      escalation rate 4%
                                                           1,500                                      INR 1,057
The common approach of such                                                                   INR 1,057
                                                                               1,000
employers is to arrange a group                            1,000
health insurance plan and offer a
                                                                                500
basic cover ranging from Rs.100,000                          500
(about US$ 2,100) to Rs.500,000 to
                                                                                  0
employees in different grades, with                                   0                              Scenario 1                                     Scenario 2
benefits extended to the employee’s                                                           Scenario 1                                     Scenario 2
                                                                ■ Change in liability = 92% actuarial accrued liability
spouse and children and to the                             ■ Change in liability = 92% actuarial accrued liability
dependent parents of the employee.
A few large firms in the IT sector                         the treatment of dependent parents                          that the liabilities computed from
such as Infosys Technologies spend                         of employees covered under ‘family                          an actuarial perspective are now
huge sums on employee medical                              floaters’. According to an insurer,                         sharply rising and there is substantial
care. Infosys, for example, reportedly                     there has also been an ‘alarming’                           under-funding of these liabilities.
spends Rs 200 million a year                               increase of claims by female
(about US$ 4.3 million) for its                                                                                        As revealed by a model prepared
                                                           employees for childbirth under
85,000 employees in India, and                                                                                         by Watson Wyatt, post retirement
                                                           caesarian procedures, which entail
another Rs. 1 billion for its 15,000                                                                                   medical benefit liability estimates are
                                                           costs more than twice those for
staff overseas.                                                                                                        sensitive to assumptions regarding the
                                                           normal delivery.
                                                                                                                       assumed rate of future increases in
However, with the economic                                 Insurance companies as a result have                        costs. The liability estimates can
slowdown, most companies are                               run a total loss of Rs.10 billion on                        almost double based on a change in
now closely reviewing health                               group health policies during the fiscal                     the assumed annual benefit cost.
insurance plans and the benefit                            year 2008, with the combined ratio                          Companies are now required to
package. In a recently reported
                                                           running up to 150 per cent for many                         capture the liabilities under the revised
incident, a beleaguered leading
                                                           of them. They have sought to pass on                        accounting standard in force in India.
company in the IT sector,
                                                           a portion through higher premiums.
Satyam Computers, had reportedly                                                                                       To illustrate this, the Figure 1
                                                           Group health premiums have risen by
defaulted on renewing the group                                                                                        chart shows the liability rise for an
                                                           20 per cent last year; and yet the
health cover which entailed a                                                                                          employer with 35,000 staff on its
                                                           insurers remain vulnerable to
premium of Rs.300 million, leading to                                                                                  payroll. Where the cost escalation of
                                                           further losses.
employees losing their health cover.                                                                                   healthcare payouts post retirement is
Employers as well as insurance                             Rising healthcare liability in                              assumed to increase from 4 per cent
companies have realised that the                           corporate balance sheets                                    to 8 per cent annually, for example,
benefits under the plans are skewed                        Companies offering post retirement                          the actuarially computed medical
with a bulk of the claims arising from                     medical benefits are discovering                            benefit liability rises by 92 per cent.


                                                                                                                                                                       watsonwyatt.com | 31
                            Potential trends                          countries such as Hong Kong,              body authorised by the insurance
                            Despite the challenges in managing        Singapore and South Africa. Health        regulator to be a storehouse of data
                            employee healthcare plans,                saving accounts are accepted as a         for general insurance companies and
                            companies realise the need to             viable form of financing long-term        to analyse the trends in health and
                            provide decent healthcare facility to     healthcare expenses. These are            motor portfolios) has recently
                            ensure the productivity and loyalty of    mostly tax-exempt saving accounts,        released a useful analysis of the
                            their employees. We would expect the      similar to individual pension accounts    patterns of disease, claims, gender
                            corporate health insurance plans to       but where the savings are earmarked       and so on, based on data filed by
                            gain further momentum in the period       for medical expenses. A few life          the 27 licensed Third Party
                            ahead due to increasing competition       insurers, such as ICICI Prudential Life   Administrators of health policies.
                            and changing corporate attitudes.         Insurance, have launched such a           These can be gainfully utilised to
                                                                      product for individual subscription,      construct group plans for different
                            A key driver is likely to be the rising   and this could be adapted as a group      regions where employers operate.
                            level of interest on the part of life     healthcare plan fairly easily.
                            insurance companies to enter the                                                    We also envisage that a major
                            health insurance segment. India is        We also envisage more stand-alone         component of healthcare initiatives
                            probably a unique case where health       health insurance companies to be          in India is likely to be in the form of
                            insurance is dominated by general         licensed in India in the next few years   preventive and wellness-based
                            insurance companies, while in the         buoyed by the favourable regulations,     health programmes. As suggested
                            rest of the world life companies and      and those specialising in employee        by a research report published in
                            stand-alone health insurers largely       health plans in other countries could     September 2007 by a leading
                            cater to this need. This is now           develop this as a pioneering business     think tank, the Indian Council for
                            changing in India too, with most          model in India.                           Research on International Economic
                            private life insurers announcing plans                                              Relations, a well-designed employee
                                                                      India is also likely to move more
                            to enter the health sector.                                                         wellness programme can lead to
                                                                      actively into co-pay schemes in
                                                                                                                a 25 per cent reduction in health plan
                            Life insurers compete aggressively        group health insurance plans.
                                                                                                                costs, sick leave, disability pay and
                            for contracts to manage the               Insurance companies that have
                                                                                                                workers’ compensation. The report
                            retirement benefit schemes of             launched ‘cashless’ hospitalisation
                                                                                                                has quoted that 98 per cent of
                            companies, with several innovative        plans have reported that co-pay
                                                                                                                employees who have undergone
                            schemes bundling life cover with          schemes lead to insured customers
                                                                                                                preventive health check ups have felt
                            retirement benefits currently being       exercising better control on the
                                                                                                                that these were beneficial in terms
                            available in the market. With the         medical procedures and reducing the
                                                                                                                of better productivity at work
                            database so acquired, life companies      total period of hospitalisation.
                                                                                                                and better quality of life. A few
                            could then offer several variants of
                                                                      There is also scope to design             insurance companies have launched
                            health benefit plans for employees.
                                                                      various types of group health             mass market plans incorporating
                            In this context, employers in India are   insurance plans suited to different       preventive based features, and these
                            likely to become attracted to health      geographical regions in India and         are said to have been received well in
                            saving plans which are offered with       the industry/employer segments.           the market.
                            varying degrees of success in several     The Tariff Advisory Committee (the


32 | insurance matters 2009
                       asia-pacific 2009
Joint sharing of healthcare              Contact points
expenditure by employers and             Rajagopalan Krishnamurthy is the managing director
employees is known to have brought       of Insurance and Financial Services of Watson Wyatt
substantial improvement in the           in India. He is the former CEO of SBI Life Insurance
coverage and quality in many             Company. Anuradha Sriram is an actuary and
countries, notably China. In 1998, the   specialises in employee benefits practice.
Chinese government introduced the
Urban Employee Basic Medical
Insurance which requires employers
and employees to jointly fund the
medical expenses (employers
6 per cent of wage bill and
employees 2 per cent). By the end
of 2006, the scheme had covered
160 million workers and retirees and
is expected to cover all urban                           Rajagopalan Krishnamurthy
residents by 2010.                                                            + 91 98 2034 9075
                                                      rajagopalan.krishnamurthy@watsonwyatt.com
There is similar opportunity for the
Indian corporate sector to launch
innovative approaches to maintain
control on the healthcare costs, and
at the same time, to provide valuable
health care benefits to its large
workforce in organised employment.




                                                                        Anuradha Sriram
                                                                             + 91 98 3308 0791
                                                               anuradha.sriram@watsonwyatt.com




                                                                                                  watsonwyatt.com | 33

				
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