This is the season of portability. After mobile number portability comes the latest missive about health insurance portability from the insurance regulator, the Insurance Regulatory and Development Authority (Irda).
Earlier, mobile subscribers did not switch service providers despite poor services because of the fear of losing their mobile numbers. Mobile number portability has changed the scenario. The actual number of consumers who opted for portability is minuscule at around 1.7 million (out of an active consumer base of 50 million consumers), but it already has had a salutary effect on the service levels for all existing customers.
The effect of portability on health insurance is unlikely to be similar even assuming it is properly implemented. The fundamental difference between the two is that longer the customer stays with an insurance company, the more likely he is to turn unprofitable for the insurance company—chances for recurring claims rise as the consumer gets older. So purely from a profitability point of view, the insurance company would like to insure healthy individuals below 45 years (for as long as they are below 45 years) after which they may not mind losing these consumers to competition (most insurance companies complain that even the increase in premiums for older people does not fully compensate for the increase in claims). Thus unlike mobile companies, insurance companies may not be averse to losing their long-standing consumers.
However, here are few issues that need clarification:
•Mr A has an insurance policy with company XYZ since the year 2000 when he was in perfect health. In 2010, he was detected with diabetes for the first time. For his existing health insurance policy this is fully covered since it is not a pre-existing disease. It is not clear how it will be treated when he shifts to a new company in 2011, which covers pre-existing diseases only after three years.
• Mr B took an insurance policy from company XYZ in 2009 when he was suffering from high blood pressure. He shifts to a new company DEF in 2010 and gets credit for one year spent with XYZ. In 2011, he shifts to another company PQR. Does he get credit for two years (one year with XYZ and one year with DEF or just the one year with DEF)?
• What happens when the consumer has changed the amount of coverage in the last few years? Does he get credit for the coverage amount he had just prior to the shift or the lower amounts covered in the past years or some kind of average amounts?
So, what will be after-portability era like for consumers who propose to shift and its impact on existing insurers and new insurers:
• Healthy and young below 45 years may like to shift because existing policy has very high premium or has adverse terms such as sub-limits or co-payments or the maximum age of renewability is low. Existing insurer would not like to loose them, in fact the insurance company’s terms will become even more adverse if all such good consumers shift to new insurers. However, new insurer would welcome them and assume that the customer knows the impact of terms such as sub-limits and co-payments and age up to which the policy is renewable.
•Healthy and young below 45 may consider shifting from group policy to an individual policy but it may not be possible, though the press release issued by Irda makes a passing reference to consumers needing to switch because of “employees shifting from one organization to another”, the actual notification does not contain any details regarding such shifts.
• Young with pre-existing diseases such as diabetes or high blood pressure or even more serious disease would like to shift and existing insurers would be happy to lose such consumers since they are likely to have a high claim ratio in the future but the new insurer reserves the right to refuse them especially if the disease is serious or chronic.
Today the premium and other terms for such consumers (having pre-existing diseases) are being cross-subsidized by the population of new and young consumers coming into the network. With portability available to such young consumers, the terms for them will need to reflect the low risks that they pose for the insurance companies and consequently the premiums and terms for older consumers or consumers with diseases are likely to become even more adverse. So consumers who are older than 45 years will need to be prepared for meeting as much as 10-50% of the hospitalization expenses themselves (co-payment in insurance speak) or be prepared to be allowed expenditure based only on twin-sharing rooms even though the consumer’s overall spend on a single room may be below the coverage amount or some such other restrictive conditions while youngsters get a no sub-limit, no co-payment low premium policy.
But don’t get me wrong. Health insurance portability is a positive step as any move that provides options for consumers is good. It is likely to force insurance companies to sharply focus on the various consumer segments and provide very differentiated products for various age groups including the older age group, which most needs this product.
Hoping to see the smooth transition from pre-portability to post-portability era.
Harsh Roongta is chief executive officer, Apnapaisa.com.
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