This is the perfect time to set right the ecosystem in which healthcare and insurance interact instead of piling on more health policies and compounding the confusion.
It may come as no surprise that covid-19 has accelerated awareness on health insurance as more and more people are buying the cover. For a product that’s crucial to a household’s financial health, it’s a much ignored, almost non-existent entity in many households.
Whether it’s sheer lethargy or misplaced optimism that trips to hospital will only be as visitors, there are many reasons for ignoring health insurance. But with covid-19 spiraling out of control and nightmarish stories of hospital experience and inflated bills slapped all over social media, panic has goaded many to consider health insurance seriously. That’s a positive outcome and should be channeled to get more people to buy health insurance, but the insurance regulator wants to tap this new-found interest, by coming out with specific covid-19 health insurance products.
The Insurance Regulatory and Development Authority of India (Irdai) wants non-life companies to mandatorily offer standard covid-19 health insurance policies—an indemnity plan that pays the actual cost of treatment and a defined benefit plan that pays a lump sum regardless of actual costs. Additionally, it has also allowed both non-life and life insurance companies to offer covid-19-specific short-term health plans. You can read the circular here.
The rationale of the regulator seems to ensure more people are insured for covid-19-related medical expenses at an affordable rate, but this line of thinking has one serious flaw. It induces short-term behavior for a long-term problem that is health. Health insurance is a long-term product that needs to be renewed year after year, and for a host of health problems or accidents lurking in the future.
A short-term covid-19 product provides answers to the visible and relatively short-term threat of the pandemic, but it does little to encourage the onboarding of people to health insurance.
The insurers too don’t seem to be enthused about covid-19 only products for two reasons: the first being pricing and the second being short-term policyholders. While the average claim size for covid-19 is higher, claims have seen a drop since planned hospitalization reduced considerably. This as per insurers may improve loss ratios temporarily but this trend could reverse badly when people having bought the standalone covid-19 health policy vanish next year and with them the premium bucket and footfalls in hospital resume normalcy.
Pricing too will be a challenge. A health insurance expert I spoke to on pricing had this to say: it’s like the forest is on fire and I have to insure a house where the fire has not reached yet. He estimates the pricing of the standard covid-19 indemnity plan to be somewhere around Arogya Sanjeevani, the standard basic health insurance policy that is mandated to be sold by all insurers.
Given that nearly 80% of the patients are asymptomatic and increasingly many are recuperating at home, the rationale for covid-19 health indemnity plans seem a bit misplaced, defined benefit plans though help, as they act as income supplements. The covid-19-only health indemnity products could have made sense if the underwriting criteria were different and insurers were mandated to insure persons with co-morbidities, which doesn’t appear to be the case. Given this, a policy that covers you for all unexpected exigencies as against a policy that covers only one, the comprehensive plan is a clear winner.
But one question still stands. How should one think about improving health insurance coverage in a pandemic? Getting the house in order by addressing gaps in health insurance coverage is a good start. Health insurance is important, but many have bitter experiences to narrate even in the absence of a pandemic. Often the bitterness is a result of faulty structures through which insurance companies and healthcare providers interact. Issues of inflated bills, complex policy structures, delays in claims settlement has plagued health insurance policyholders even in the past but has got amplified in a pandemic. So instead of a new covid-19 policy, existing health policies should be made more customer-friendly so that insured patients don’t end up paying huge hospital bills out of pocket.
The good news is that the industry already seems to be working on a billing pattern for covid-19 treatment where costs are standardized as per location and bed capacities and inclusions—PPE kits are included—clearly spelt out. The challenge, of course, would be to get the hospitals to adhere to these rates but this is precisely why the might of the industry is far more effective than individuals pushing for clarity and standardization of costs.
But if there is a product that needs to be offered, then it shouldn’t come at the cost of a regular health plan. It needs to be an add-on. Think of how motor insurance operates for clues. It’s a standard policy that excludes certain claims and benefits. These can be included as add-on cover by paying extra premium. The same structure could be applied to health insurance, where customized benefits targeting the covid-19 infection are available as add-on to the regular health insurance policies.
Covid-19 has taken a huge toll on governments across the globe, India is no exception and it’s understandable if the state looks up to the insurance industry for healthcare financing. This is the perfect time to set right the ecosystem in which healthcare and insurance interact instead of piling on more health policies and compounding the confusion.
Deepti Bhaskaran is editor, personal finance
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