The price of surgical procedures cannot be left to be determined only by the forces of demand and supply in a low-middle income country like India.
Non-life insurers and third-party administrators (TPA) have joined hands to press for rationalised rack rates of common surgical procedures. They are confident of getting prominent hospitals on board and make them agree to more reasonable tariffs. At the moment, cost of surgical procedures vary widely and in many cases, depends on a patient’s quantum of insurance cover. The result is that a cataract operation can cost Rs 25,000-Rs 3,50,000 and kidney transplantation Rs 5 lakh-Rs 12.5 lakh.
Spike in costs
Hospitals charging on the higher side claim that they offer many value added services to merit high costs. On top of it, the hospitals are also increasing the cost of medical treatment by 10-15% annually.
Insurers are now allowed to increase premium by up to 15% without obtaining permission from the regulator. But, that can only increase the cost of insurance cover and ultimately adequate cover can prove to be too costly to afford.
Why is it so important to revise the tariffs of surgical procedures? Too much of claims related expenses are eating into the profitability of insurers every year. While profitability also depends on a host of other factors including quality of risk selection, inflated health insurance claims dent profitability of insurers. If insurers continue to pay whatever the hospitals are demanding, the health insurance business will be in poor health in the long run. Already, the industry is experiencing a high number of claims.
Incurred Claims Ratio measures the percentage of premium spent on servicing health insurance claims in a year. The industry is spending 94% of premiums received in paying the claims. Then, there are many other expenses—commissions payable to intermediaries, administrative expenses, promotional expenses, etc. For non-life insurers, more than 40% of business comes from health portfolio. So, if there is underwriting loss in health insurance, the impact is felt across the non-life insurance industry.
The government-backed scheme of Ayushman Bharat can give protection to 40-50 crore people. But, what about those not belonging to the “very poor” category? Their number is 70-80 crore and most of them are still people of modest means. So, existing trend of medical inflation can make many of them impoverished, requiring them to cough up money much beyond the sum assured limit under health insurance plans.
The government cannot provide insurance to all. It can provide subsidised insurance to the very poor. For others, commercial insurance has to be the only way out. So, insurance companies have to run profitably to deliver the goods. They have to maintain solvency margin of at least 150%.
Good news for the customers is that the Indian Medical Association-Hospitals Board of India (IMA-HBI) is ready to play a constructive role in determining more rational rack rates for all the important surgical procedures that concern the insurers and their customers. IMA will give valuable inputs to the regulator’s Costing Committee in arriving at more justified rack rates. The price of surgical procedures cannot be left to be determined only by the forces of demand and supply in a low-middle income country like India. There should be some regulation to deliver healthcare at affordable cost.
The writer is assistant secretary.
(Internal Audit), LIC of India. All views expressed here are personal