Companies will make it very tough for policyholders to be admitted into the health insurance framework
A working group set up by the Insurance Regulatory and Development Authority of India (IRDAI) to review health insurance policy exclusions could lead to a large number of people getting rejected by insurance companies.
The panel, which submitted its report earlier this month, was set up to minimise the number of exclusions in health policies. There is a wide market perception that insurance companies have a long list of exclusions designed to deny claims and delay payments.
Now, the panel has made a few suggestions to simplify the process for policyholders. It has suggested a standardised list of 17 diseases including cerebral stroke, chronic liver and kidney diseases, Alzheimer’s, Parkinson’s, etc that can be permanently excluded at the time of contracting an insurance cover. Insurance companies will get the right to list a disease (initially from the standardised list of 17 diseases) as permanently excluded at the time of underwriting the cover.
However, if an insured person contracts any of these diseases after signing a policy, insurance companies will have to honour their claims. Insurance companies, however, have been allowed to impose a waiting period of up to four years for any specific diseases or conditions.
In cases, where major pre-existing ailments are detected after years of renewal (say it is discovered that a person has diabetes or hypertension), then insurance companies have fresh options instead of cancelling the contract. If the diseases are from the permanent exclusion list, then the insurer and the insured can discuss and continue with the policy with the exception of that condition. If this is not from the permanently excluded list, then insurance firms can incorporate an additional waiting period up to four years from the date the non-disclosed condition was detected.
At first blush, these set of proposals look very attractive to policyholders. Once an insurance cover is obtained, it is going to be a tough task for insurance firms to deny claims. On the flip side, insurance companies will make it very tough for policyholders to be admitted into the health insurance framework.
People with the family history of a certain disease may be denied cover. Currently, insurance companies do evaluate family medical history, but higher risk people only end up paying higher premiums and insurance companies get away by denying claims. Now, with a clear list of exclusions and clearly written policies, it is likely that a greater number of claims will have to be accepted.
That will surely put pressure on the insurance company profitability. As it is health insurance companies are making losses. On an average they are paying out Rs 102 in claims for every Rs 100 received as premium. In such a scenario, once these proposals are accepted, they would rather opt to deny people cover rather than increase losses. Alternatively, their premiums will increase so much that it will be out of reach for most Indians.
These proposals come at a time when out-of-pocket health expenses have been on the rise. Health costs inflation is estimated to be in the range of 18 percent. Insurance is the only saving grace here.
More importantly, the proportion of the population aged 65 and above is expected to grow significantly. From 4.3 percent in 2000, the share of population over 65 is expected to rise to 6.7 percent in 2021, according to Oxford Economics. Along with the rising aspirations of a growing middle class, this increasing share of an aged population will raise additional demands for healthcare services.
In a situation where even a simple hospitalisation can set one back by Rs 5-8 lakh, health insurance is no longer a luxury. IRDAI wants to make the process simpler and wants to make sure that the customer understands the terms and conditions properly before signing on the dotted line.However, in a bid to simplify the process, the regulator has opened a Pandora’s Box which will lead to unfair selection of customers and arbitrary rejection of risks. Insurers don’t want to compromise on their bottom-line and are comfortable with excluding certain groups of people from the ambit of health insurance altogether. Unfortunately, they are the ones who need it the most.