Health insurance in India is caught in a tangle of contradictions. Premium collections have gone up dramatically, but insurers are worried that new customers are not signing up for health cover just as fast. Rising premiums means many customers find it unaffordable to buy, or continue with, health insurance. But greater health insurance penetration would bring down premium costs for all. What’s going on, then?
Premium collections jumped by 20% in 2023-24, but the number of people who bought personal policies during the same period rose by only 5%, and that was thanks mainly to workforce expansion. The first 10 months of the fiscal that ended on March 31 (2024-2035) saw premium collections cross Rs 1 lakh crore. That makes health insurance the fastest-growing segment, contributing more than one-third of non-life premiums.
The problem of high premiums and low uptake has both insurer and insured in a bind. Something’s gotta give. Especially when most insurance firms say that they are losing money. From the customer’s point of view, it’s not hard to understand what the issue might be.
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For Indians used to the predictability of equated monthly instalments or fixed annual payments of life policies, renewal premiums on health cover often come as a shock. There are many cases of policy holders receiving renewal notices with premium increases of 30%. These cases were so frequent that the regulator issued a circular saying that companies need to consult it before raising rates by over 10% for seniors.
But why raise premiums if that keeps new customers away? Insurers say that they don’t have much choice. The hike in premium, they will tell you, is merely in keeping with 14% medical inflation and an 11.35% rise in average claim size in 2024.
Also, as it turns out, claims are not the only factor driving up costs. Insurers have to ensure that they stay on the right side of the ‘combined ratio’. Any increase in this ratio — which is the cost of claims plus management expenses — results in insurers hiking premiums.
They also point that for every Rs 100 that they collect as health premium, Rs 18 is passed on to govt as GST while another Rs 15 has to be paid as agency commission.
Of course, the average health insurance buyer may not be too impressed by these calculations. For them, the only figure that they have to pay. In fact, companies are aware of the impact of reduced affordability on renewals. A study by Policybazaar showed that 5% of policyholders whose premiums rose by 30% let their policies lapse, while another 5% opted for covers which had more restrictions but cost less.
As with most things in life, timing is a factor with health insurance, too. Consider this: if policyholders had to factor in even 10% inflation, a Rs 10 lakh sum insured would need to rise to Rs 1.74 crore in 30 years. That’s manageable if the sum insured were to rise gradually. But policyholders are forced to buy higher covers early because, as they age and develop conditions like diabetes or blood pressure, the window for purchasing higher coverage closes. So what’s the way out?
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Industry executives say that getting more people to buy health insurance would definitely help bring down premium costs while healthier lifestyles would be an added advantage. “To enhance affordability, increasing the policyholder base with new/younger people along with an adequate sum insured can support the depletion of premium adequacy towards rising claim costs of existing customers. Also, wellness solutions need to be pushed harder to minimize disease incidence/their severity, leading to a better, healthier lifestyle.
It’s not hard to understand. Growing prevalence of disease leads to higher claim volumes. And then there is inflation. Advancements in healthcare technology can also push up costs. For instance, robotic surgeries, which are less invasive and reduce health risks but are a more expensive option. Adding that apart from risk factors “administrative expenses and margins of the healthcare industry also play a role.” Some of it is down to the model itself. For example, a closer look at the numbers shows that the adverse combined ratio — the one that fuels premium costs — is in group insurance, where companies include elective procedures such as maternity and cataract surgeries that are generally not covered for new buyers of individual policies.
Insurers are trying to address these issues through innovation. Niva Bupa has introduced a policy that promises to freeze premiums for those buying early. The newly established Narayana Health Insurance, promoted by Dr Devi Shetty, aims to take the approach of US insurer Kaiser Permanente where, for a low perium, the insurer covers all treatments, provided it is within the insurer’s captive network. Policybazaar, too, will invest Rs 696 crore in PB Health to acquire and build hospitals to treat captive customers who buys policies from them.
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Bajaj Allianz Health Insurance, has proposed that govt introduce a kind of universal health cover by mandating employers to provide health insurance to employees. He says it can incentivize this by allowing companies to use their CSR funds for health insurance while individuals can be provided tax breaks for covering their household help.
Another aspect of health insurance costs is leakage due to unethical practices by hospitals. Many hospitals charge higher rates for cashless treatment, where bills are settled by insurers. Recently, an association of hospitals in Ahmedabad said they would stop honoring insurance policies from three companies, the move coming in retaliation for the blacklisting of some of its members for unfair practices. This is a long-standing issue between insurers and hospitals, which is difficult to resolve as healthcare is regulated by states, making uniform rules impossible.
Although it is established that rising health insurance penetration is driving private investments in healthcare, there is also a debate on whether health insurance is the right model for delivering health services. In some cases, insurance actually increases healthcare costs. For instance, the push for complete cashless services could lead to the closure of small nursing that lack the infrastructure to network with insurers for instant authorization and settlement. Some states have also opted out of the health insurance model for group insurance, citing higher administration costs by insurers by insurers and choosing the trust model instead.
