Don’t Make Patients Pay for Insurance’s Failures

Hi I'm Monica Halen and this is my podcast Let's Talk Money. Every Friday a new episode will drop that gives you a snapshot analysis of one money related topic that has meaning in your life and then I answer your money questions. My hope is to put you on the path to financial stability and freedom. So let's talk money. Today I want to talk about a new proposal in health insurance that every policyholder should be paying deep attention to. The General Insurance Council, this is the industry body representing general insurers. GIC wants a mandate tree 10% co-payment on health insurance claims from the first of Jan next year. Basically what it means is that if you have a comprehensive health insurance policy and your hospital bill is 20 lakh you will be asked to pay to lack of that yourself other than all the premium that you have paid. This would not be an optional feature that you can choose and return for a lower premium. This will become mandate tree and the proposal is that all general insurers would impose the same condition on health policies. GIC says there will be a cap of five lakh rupees on the patient's contribution. Now industry seems to have a justification it says because they say insurers are saying that healthcare costs are rising because hospitals overcharge, prescribe unnecessary tests and procedures and sometimes keep patients in hospital longer than necessary. So legitimate problem isn't it but here is my question. Why am I being asked to pay for it? You sought it out. There is an editorial in the Times of India last week which made exactly this point. It argued that insurers have the expertise and the bargaining power to negotiate with hospitals. They can set tariffs, negotiate rates, refuse to empanel hospitals that overcharge and then take action against providers whose bills are unreasonable. The individual patient cannot do this. The patient is already dealing with the trauma of somebody being in hospital. Maybe there has been a death in the middle of all this you think the patient has the way with all to argue with the hospital on a test or surgery. Imagine that you are in hospital. You have a 20 lakh bill. Are you going to negotiate with the hospital? Whether a particular scan was necessary or you want to just do the scan because the hospital wants you to. You are not going to be asking three competing courts for a surgery. That's why we buy insurance. We are paying the insurer to take the financial risk and use its expertise to manage the health care system around us. We cannot do it. Yet the industry's answer to rising costs seem to be make the patient pay. This is where I think we need to step back and look at the larger picture because go payment proposal does not come in isolation. It's coming at a time where the insurance regulator itself has raised very serious questions about the economics of insurance distribution and consumer outcomes. IRDAI research is showing that the cost of doing business is as high as 48% in general insurance. In life it goes almost till 40. The cost of doing business in mutual funds is well under 5%. I'm not suggesting that insurance and mutual funds are identical businesses, they are not. But these numbers tell us something very important. Insurance has a very expensive distribution system. And the growth in what is being paid to distributors is particularly striking. Between financially at 23 and 25, general insurance premiums grew at 37%. The distributor payouts grew 173%. Life insurance premium through corporate agents grew at 28% and the distributor payments grew at 125%. So when we put this all together the industry is telling the consumer, look healthcare costs are too high because we paying the distributors too much. Therefore you need to bear 10% of your medical bill. And at the same time the regulator's data is also telling us that the industry's own distribution costs are very very high and some channels growing faster than the premiums. This is why I think that the 10% copay proposal is industry overreach. I think also it's a problem of intent of the industry. First we had the GIC's controversial clinical guidelines around hospital admission. This is a conflict of interest because insurers save money when the patient is not admitted. Now we have a proposal that makes the patient bear 10% of the cost. The industry has a date for imposing the copayment but there's no comparable date for fixing benchmark tariffs or eliminating arbitrary his hospital billing. There is nothing on claims ratios which should be mandatory for health insurance companies minus the fraud. Why cannot claims be 100% minus cases of fraud when you go to make a claim they need to pay up. The industry GIC is very quick to scratch away more money from the policyholder but is unwilling to put anything which puts any restraint on the insurance industry distributors, TPAs and the companies. It just tells us something is wrong. When there is a cost problem the easiest person to charge is often the person with the least bargaining power and that is you and me. And this is backwards. The insurance company is the sophisticated buyer in the healthcare market. The patient is not. So if hospitals are overcharging insurers have to use their collective bargaining power to bring these costs down. If certain procedures are being overprescribed insurers have to build systems to identify that. If a hospital is consistently billing above reasonable rates the insurers have to negotiate. How are you putting this on the patient? There is another reason why this matters. Co-payment sounds harmless when you say 10%. The 10% becomes very large when you are sick because also you have to understand that the average health insurance claim was only 42,000 rupees in 2023. 15% of the claims are above one lack and 2.2% for above 10. And health insurance exists precisely because you don't know when you are going to get the large claim. So the industry tends to pay off the smaller claims faster and it holds on to the larger claim doesn't pay all of it. The problem is that the insurance industry is asking consumers to carry more risk at precisely the time when the industry's own data shows that policyholder outcomes are already under strain. The claims ratios are terrible. Misscelling complaints against life insurance rose more than 14% in F525. Complaints against general and health insurers rose 45% and more than two-thirds of these were claimed related. The regulators also found that the industry's distribution architecture rewards premium collection rather than consumer value. So the whole industry is geared towards extracting premium from you but there are no metrics that define consumer outcomes. Insurance is actually supposed to work the other way round. You pay a premium so that when something goes wrong somebody else carries the financial shock that is the contract. But if I pay a premium for comprehensive health insurance and then discover that I still need to find 10% of a massive bill. What did I buy? And this is at a time when premiums have been going up exponentially year after year. So after the point you've paid more in terms of premium than what you can claim. This is not what insurance was supposed to be. The industry has to fix the system before you make the consumers pay for its failures. In fact, you cannot make the consumers pay for failures and I'm making a prediction. If they do this, I will expect a lot of people to stop renewing their policies because if they put it on the older policies, they'll stop renewing and if they put it on the newer policies, people will just stop buying. The match is not adding up for policyholders that you pay very high premiums and there is a copay. So the industry will actually go into full decline if they push more burden on the policyholder. This is going to be the last straw. To make a viable healthcare system, insurance included, you need to bring down distribution costs. You have to make hospital pricing transparent. You have to create standard treatment packages. You have to use claims data to identify unreasonable billing. You have to negotiate hard with hospitals. Reward insurers and intermediaries for good claims service. I mean, nobody is even talking about claims in the industry. And you have to make the product work for the person who's paying for it because regulator data is showing over and over again that the outcome is bad for policyholder and the industry's response is cynical. It's asking policyholders to carry more and more of the burden they've forgotten that it is my rupee which makes the entire industry your bonuses, your trips, your commissions possible. And if I stop paying, you don't have the money. So this is not reform. This copay is not reform. It's shifting the cost of a broken system out of the consumer. And IRDN needs to draw a line here. I think this is overreach because insurance exists to protect the patient. The patient cannot become the industry's shock absorber. it cannot be that. So this is still the story is still on and I will keep updating you but if they force the co-pay through then I think it will be time to stop buying health insurance because it just doesn't make sense. Now onto questions. Again Gupta says I rate your article in the Hindustan Times yesterday on insurance companies versus consumers. I'm impressed by your in-depth study and vast experience I would like to have your views on how you would view the following scenario. As per my understanding a medical policy is designed to give relief to its holder in case of a medical emergency. However in practice it is exactly the opposite. When premium increases year on year the real value to me as a policy holder goes into negative. Mr Gupta has given a table to show how his premium total is the value to him is now zero because the premiums are equal to or more than what the sum insured is. The risk factor he's writing to an insurance company is limited to the sum insured irrespective of his medical condition. All these factors are accounted for while calculating the premium. What I'm unable to understand is what financial liability changes for the insurer due to increase in my age or medical condition that prompts them to increase the premium by so much while the sum insured remains the same. I write to you with the hope that you'll be kind enough to look into it from the consumer's perspective and raise the issues in appropriate forums. Should you need any inputs please feel free. So Mr Gupta I get your frustration with the industry and I'm exactly in the same place. Instead of increasing the pool of people they are hiking premiums on the existing policy holders. This is an issue for the regulator to solve and we are hoping that the consultation paper that seeks to make these changes will actually begin the journey towards a fairer marketplace. But it is a long battle ahead and the outcome is uncertain. If we the consumers lose this it will be time to stop all medical policies and build our own safety net. The price increases and low claims will simply be not worth it. This will be the end of the medical insurance industry in any case because if we are not paying the premium how will the companies run? Unfortunately the industry is resisting a very mild set of regulations but what lies without them is total wipe out as we will all exit our policies finally. Shalesh writes in says I would like to sincerely thank you for the valuable guidance you have provided through let's talk money and let's talk mutual funds. Your books have helped me understand personal finance and mutual fund investing in a much more structured and practical manner. The clarity with which you have explained concepts such as asset allocation, diversification, risk costs, long term investing has been very helpful. Inspired by your approach I have recently reworked my SIP portfolio with a greater focus on simplicity diversification and long term wealth creation. Your books have given me the confidence to review my earlier investments and make much more informed decisions rather than simply chasing past returns. I also wanted to seek your advice on a practical aspect for investing in direct mutual funds SIPs which platform should I look at? He's named a couple of them in your view which of these would be suitable. I would appreciate your perspective on aspects such as ease of use, reliability, transaction experience, portfolio tracking. Thank you once again for making financial literacy accessible and understandable. So, Shalesh, I don't recommend either a product, a platform or an advisor but I would urge you to check a few things yourself. Check on the other consumer's experiences if you find lots of people with problems or with a platform that look genuine, walk away. See how easy is it to switch platforms? Somebody I know was complaining about one large platform who's not allowing them to exit, right? So, this is completely in violation of SEBI rules but this particular platform is asking for all sorts of paperwork and not allowing the person to move his money from that to another platform. This is not allowed under SEBI regulation. So, you have to check for that. Is there a transaction cost attached to the platform? Because most of them are free. What is the interface like? Is it intuitive? Do you have to search around? Does it give portfolio XIRR and a scheme level XIRR? This is important for a portfolio and scheme audit because some of them don't. Does it give benchmark returns as well next to the scheme that you have? So, this is due diligence that you will have to do. Unfortunately, I will not be able to recommend a platform. Radha Kanta Mani says, "I just caught you on YouTube on the insurance industry." You mentioned there is a forum now where we can voice general observations for collective code. Where can we do this? My father paid insurance for 40 years from the pink of health we went battling cancer for four years. Our biggest battle was with the insurance company. We lost him, but I do want to speak on behalf of senior citizens in particular, people whose kids are not living with them and have to battle insurance alone. Please let me know. And much thanks for speaking up for us. So, I'm really sorry to hear about your father. Radha, I lost mine last year so I can understand fully the grief and pain. Yours, unfortunately, is made worse by having to battle the insurance company while dealing with your loss. This is precisely the story that so many people have to negotiate. It is so unfortunate. While there's a process of complaints to the company, to the ombudsman and on Bema Barossa, there is a, you can also go to Bema Barossa, which is it's an integrated, grievance complaints management system. It's like a gateway to register complaints with insurance companies and then track the status. It uses a web interface to ensure that it is accessible. It also has a mechanism to capture complaints received in physical as well as email or voice calls. I'm giving links in the show notes. You could google it. It is www i g m s i r d a i online, which is i g m s i d a dot online. You can also respond to the consultation paper, which is out there. Section 17 page 73 is where you can put in your feedback. The link is in the show notes because you know what, unless the policyholders complain, the entire narrative is being driven by insurance companies, banks and the distribution community. Our voices are not even heard. Please respond to the regulator with your suggestions for making insurance work for the common people and not just for the industry and the distributors. And that's a wrap for today. I enjoy answering your money questions. Remember, I don't look at individual portfolios. I don't recommend products. Look upon the space as a place to ask strategy questions doubts and just basic things that you might not understand. Each time you have a good money outcome, I feel that I have won. To make sure that you don't miss an episode, press follow and help your friends get money smart by sharing a link with them. You can reach out to me at [email protected]. That's Monica with a kick. Tag my social media handles at the rate of Monica Hulland. And finally remember that you should have money and money should not have you. So let's talk money again soon. Bye.