On July 16 last year, a private hospital at Patran in Patiala, Punjab, sought authorisation from a large health insurance company for cashless treatment of a patient admitted for dengue fever with thrombocytopenia, a condition that occurs when the platelet count in one’s blood is too low. The amount involved was Rs 1.28 lakh.
The third-party administrator (TPA) – an intermediary that helps insurance companies manage claims and policies on behalf of policyholders – confirmed the admission. The discharge was still pending due to the patient’s illness.
A follow-up verification by the insurance company the next day let the cat out of the bag – the patient had never been admitted to the hospital! Investigation exposedthat the patient registration form was “signed” by his “deceased” father.
The doctor treating him was not available for any consultation or verification; the hospital’s resident medical officer (RMO) was unaware of the patient’s admission; and the treating nurse never showed up for verification.
In another case, a 50-bed hospital in Hyderabad claimed Rs 45,130 for treating a 34-year-old woman patient suffering from viral hyperpyrexia — severe fever with vomiting, cough and cold.
A tele-verification process revealed that the insured had actually undergone maternity-related treatment, which was not covered by her policy. The hospital fabricated medical documents to file the insurance claim.
In another instance, the hospital itself had ceased to exist before the claim was made! A cashless claim intimation was received from a hospital in Gorakhpur, Uttar Pradesh, under the “anywhere cashless” scheme for an insured patient.
The hospital submitted pre-authorisation documents and other papers to support the claim. An independent verification by the health insurer found that the hospital was no longer functional. The insured person had not undergone any treatment. The healthy gentleman was playing with his children at home at the time of the alleged hospitalisation. He didn’t know how the claim was filed on his behalf.
In all these cases, the claims were rejected, the hospitals were blacklisted, police complaints were filed, and legal actions initiated. Welcome to the world of health insurance in India.
The claims rejection narrative dominates media coverage, but insiders say at least 10 per cent of all health insurance claims involve some element of fraud, leading to Rs 12,000 crore losses for the industry every year. In an ideal no-fraud scenario, they say,the cost of premium for an honest policyholder would drop by around 20 per cent.
This is the biggest challenge before the industry, which has extremely low penetration. There are other challenges as well. The lack of regulatory oversight on hospitals is one of them. Healthcare in India is a state subject. However, that cannot be an excuse for not creating a regulator. Pricing isn’t standardised for particular procedures across hospitals. This creates problems both for insurers and policyholders and, despite pricing agreements, some hospitals often charge excessively.
Overbilling by hospitals is rampant. There are many ways of doing that: Billing for unnecessary services, upcoding or billing for more expensive services than provided, unbundling or billing separately for services that should be under a single procedure, phantom billing (for non-existent patients), and creating fake prescriptions — all to take advantage of insurance cover. An unpredictable hospital cost plays a major role in the pricing of health insurance.
The stand-alone health insurance industry operated on around a 3.5 per cent profit margin in 2023-24 (FY24). For the overall general insurance industry, it’s slightly higher. The private general insurers enjoy a much higher margin; the public sector players much lower. The average margin for hospitals could be at least 30 per cent.
Finance Minister Nirmala Sitharaman has recently said that India is set to become the sixth-largest insurance market by 2032, with expected growth at 7.1 per cent compound annual growth rate (CAGR) from 2024–2028, making it one of the fastest-growing insurance markets among G20 countries.
What needs to be done to achieve the insurance-for-all plan by 2047 when it comes to health insurance?
Before we look for the answer, here are some vital statistics on the current state of affairs. Health and general insurance companies covered 572 million lives in FY24. The industry settled claims worth Rs 83,500 crore in FY24, up 17.7 per cent from FY23. It processed 26.8 million claims that year, up from 23.5 million the previous year, and 21.8 million in FY22. The stand-alone health insurance companies improved their claim ratio to 89 per cent in FY24, from 84 per cent in FY23.
The industry had an agent network of 1.9 million and assets under management of Rs 4.75 trillion in FY24. There were 25 general insurance companies in FY24, including four public sector undertakings. The number of stand-alone health insurance companies was five.
Overall, the non-life insurance penetration in India, which includes health insurance, is just 1 per cent of GDP. This includes health coverage by different government schemes. Globally, the US has the maximum non-life insurance penetration (9.3 per cent), followed by the Netherlands (7.2 per cent), Canada (4.7 per cent), Germany (3.4 per cent), and Australia (3.3 per cent). Insurance penetration is measured as the percentage of insurance premium to gross domestic product (GDP).
We need a multifaceted approach, involving all stakeholders — the government, insurers, healthcare providers, and the public — to improve health insurance penetration.
Let’s look at some of the successful global models.
The US uses a mixed system of public programmes (Medicare and Medicaid) and private insurance. Here, employer-sponsored insurance is the prime coverage mechanism.
In the United Kingdom (UK), Spain, and New Zealand, the Beveridge model involves government-funded healthcare through taxation, ensuring universal coverage and no out-of-pocket expenses.
Germany and Japan use the Bismarck model, where both employers and employees contribute to fund health insurance, leading to comprehensive coverage and minimal out-of-pocket payments.
Canada and a few other nations follow the national insurance model, where the government acts as the single payer for health services, funded through taxation. Singapore’s hybrid model combines public and private healthcare — offering high-quality services at an affordable cost.
Every citizen needs to have savings accounts to take care of medical expenses, and there are government subsidies at public hospitals and safety nets for catastrophic illnesses and low-income citizens.
There are many challenges on the health insurance turf in India, where medical inflation was 14 per cent in FY24, the highest in Asia. No wonder everyone complains about the rising premium for health insurance coverage.
General Insurance Council data shows that the growth rate in health insurance dropped in FY25 to 8.98 per cent from 20.25 per cent in the previous year, with the gross premium income of insurers at Rs 1.18 trillion against Rs 1.08 trillion in FY24. The sharp hike in premiums and rise in claim rejections seem to be behind customers’ decision to refrain from buying health policies.
What’s the way forward? How to make it healthy? It needs loads of protein and carbohydrates for energy and support to its various functions.
The root of the problem is that hospitals are governed by a mix of state and central laws with wide variations across states. Also, the lack of unified oversight over diagnostic centres raises concerns over the quality of services as well as the pricing standards.
Since health is a state subject, we cannot have centralised regulations like the UK has in the form of the National Health Service, ensuring uniform standards and reducing incidents of fraud. But there are ways to tackle it. A healthcare regulator on the lines of the Real Estate Regulatory Authority (Rera) could standardise hospital pricing and treatment protocols, and reduce frauds.
If healthcare insurance frauds are tackled the same way as financial crimes, both patients and insurers will benefit. Indeed, the ombudsman offices and consumer courts provide some oversight, but a dedicated regulator with specialised healthcare knowledge could tackle the fraudulent practices by hospitals, customers, and third-party claims management companies deftly.
Coming back to the vision of “Insurance for All” by 2047. Let’s take a close look at that next week.
The author, a Consulting Editor of Business Standard, is a Senior Advisor, Jana Small Finance Bank.
This column first appeared in Business Standard
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