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Health Insurance and Third Party
Administrators: Issues and Challenges
Ramesh Bhat
Sumesh K Babu
W.P.No. 2003-05-02
May 2003
The main objective of the working paper series of the IIMA is to help faculty members
to test out their research findings at the pre-publication stage.
Sen18 titan
XX3ME
AHMEDABAD
INDIAN INSTITUTE OF MANAGEMENT
AHMEDABAD-380 015
INDIA
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First draft for comments
Health insurance and third party administrators:
Issues and challenges*
Ramesh Bhat, Professor, UM Ahmedabad
Sumesh K Babu, Research Associate, IIM Ahmedabad
AHMEDABAD
Indian Institute of Management
Ahmedabad
April 2003
This paper is part of research”'project of Health Policy Development Network (HELPONET), India coordinated by the
.Indian Institute of Management, Ahmedabad. The authors would like to thank Dawn Services Pvt Ltd., Family
Health Plan Limited, and New Age ‘Medicare and Health Management Services Pvt Ltd. for agreeing to participate in
questionnaire study and we thank for their valuable inputs. The views presented in this paper are those of the
authors.
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2
Health insurance and third party administrators:
Issues and challenges
Abstract
With the growth ofprivate voluntary insurance in the unregulated healthcare market, costs of
healthcare are likely to go up. Managed care organisations in many developed countries
play important role in containing costs. The Insurance Regulatory and Development
Authority (IRDA) has paved the way for insurance intermediaries such as third part
administrators (TPAs) which are going to play pivotal role in setting up managed care
systems. TPAs have been set -up with the objective ofensuring better services to
policyholders and mitigate some ofthe negative consequences ofprivate health insurance.
However, given the demand and supply side complexities ofprivate health insurance and
health care markets, insurance intermediaries face challenging tasks to achieve these
objectives. Right in the early stages ofits development IRDA has defined the role of TPAs to
manage claims and reimbursements. Their role in controlling costs ofhealth care and
ensuring appropriate quality ofcare remains less defined.
1
Introduction and objectives
The ability of health care systems in meeting health care needs of people is
determined by the way financing of health care is organised and structured. The
financing mechanisms influence the efficiency and effectiveness of health care
delivery. The health financing system in India has been dependent on government
budgetary allocations. However, public financing through the tax system has not kept
pace with the increasing demands. The public health infrastructure characterised by a
wide network of health facilities at village and district levels is experiencing financial
pressures in meeting the growing needs.
The role of private financing has increased significantly in recent years. It is
estimated that people spend about 4.5 per cent of GDP on meeting their healthcare
needs and this is about three-fourths of the health care expenditure (World Bank,
1998). Most of this expenditure is out-of-pocket. Private expenditure has grown at
the rate of 12.5 per cent and for each one per cent increase in per capita income
private expenditure on health has increased by about 1.44 per cent (Bhat 1999). It is
argued that significant dependence on private financing has many negative
consequences. In the absence of effective regulation of private provision of health
services, high dependence on private sectors leads to increasing health care costs and
people belonging to lower income classes suffer most. In recent times healthcare has
become unaffordable and has given rise to serious equity issues. Thus, it has become
imperative to find alternative health financing mechanisms. Health insurance is one
such alternative.
Health insurance is a financial mechanism with which people are protected against
catastrophic financial burden arising from unexpected illness or injury. Having a well
functioning insurance system ensures pooling of resources to cover risks. The health
insurance sector in India is in a nascent stage and contributes only a small proportion
of health expenditure. The government through its state-run schemes such as the
Employee State Insurance Scheme (ESIS), Central Government Health Scheme
(CGHS), and the Mediclaim scheme offered by govemment-run insurance companies
has played a significant role in developing the health insurance sector in India. NGOs
3
and community based organisations such as SEWA also offer a number of schemes to
protect the poor and vulnerable groups of population from the high cost of health care.
Recently the government has allowed private insurance companies to offer health
insurance products.
The existing private medical insurance scheme is indemnity based. Under this system
policyholders at the time of needing health care services first pay for expenses and
later they are reimbursed these amounts depending on the sum insured and coverage.
Indemnity based schemes have a number of limitations and are considered to be
inefficient, besides having cost escalating characteristics. There are various reasons
for these inefficiencies. Insurance companies have to deal with unregulated
healthcare providers who work in an environment having no standards, quality
benchmarks, treatment protocols, highly variable billing systems, significant price
variation across providers etc. This is reflected by the adverse claim ratios. It has
also been observed that hospitals tend to charge more from patients having insurance
cover. In the absence of monitoring and control mechanisms it becomes difficult to
handle fraudulent claims. To address these issues the role of insurance intermediaries
such as third party administrators (TPAs) is considered important. TPAs are a
separate entity that coordinates with insurance companies, customers and healthcare
providers. TPAs arrange cashless hospitalisation and closely monitor the use of
resources and services. Health insurance companies generally tie up with TPAs for
the back office function of managing claims and reimbursements. These
intermediaries will become part of the institutional set up of managed healthcare
system and have implications for its future growth and development. IRDA has also
come up with regulatory guidelines for TPAs. These guidelines envisage TPAs to
fulfil certain requirements and observe a code of conduct.
The objective of this paper is to discuss the role and importance of TPAs in the
emerging health insurance market in India. Specifically the paper aims at:
•
Understanding the functioning of TPAs in the health insurance
Analysing the existing TPA system
Examining issues and challenges TPAs face in unregulated health sector
Analysing IRDA regulations on TPA and their implications
The paper is divided into six sections. The second section gives the salient features of
healthcare system and health financing in India. The third section explains the health
insurance system and the current scenario of health insurance in India. The next
section discusses the concept of managed care. The fifth section describes TPA and
its functioning. The last section discusses IRDA regulations and impacts, regulatory
issues, and the prospect of intermediaries in the insurance sector in India.
2
Indian health care system
India has made considerable progress in improving the health status of its population.
The crude death rate has reduced from about 40 per 1000 at the time of independence
to 9 per 1000 in 1998. A significant proportion of this decline is attributed to
reduction in mortality of the under 5 age group. The infant mortality rate is estimated
to have declined from around 161 to 71 per 1000 live births over the same period.
Consequently, lite expectancy has increased from about 31 years to 63 years. Despite
4
this impressive progress, many challenges remain. Life expectancy is still 4 years
below the world average. So is under 5 mortality (12 per 1000 per year) higher than
the world average. India is one of the major countries, along with Nigeria, where
polio has not yet been eradicated. HIV incidence has been increasing. Tuberculosis
and malaria also take a high toll.
While communicable diseases are still not under control, the extent of chronic noncommunicable diseases such as heart disease, diabetes, and cancer has been rising.
Thus the health sector faces dual challenges: starting to address non-communicable
diseases while attempting to control communicable diseases (e.g. incidence of
diabetes and heart disease in India is double that of China). The primary health care
system is not yet geared to diagnose and treat chronic degenerative diseases. India
faces the daunting challenge of meeting healthcare needs of its population and
ensuring accessibility, efficiency, equity, and quality of health care.
The government through its budgetary allocations has set up remarkably impressive
health infrastructure. The system envisages availability and accessibility of publicly
funded healthcare to all, regardless of their ability to pay. However, it is facing
serious challenges in meeting its objectives.
The present healthcare system is characterised by mixed ownership pattern and
different types of providers who practice different systems of medicine. The
interdependent and overlapping nature of these components makes it difficult to
define the exact role of each component. In India, both public and private facilities
provide health services. The bulk of the curative services is skewed towards the
urban areas and dominated by the private sector.
Public health sector: The Shore committee set up in 1946 set the foundation for
current public health care system. The committee recommended a free health care
funded by the state, with general and local taxation generating funds to provide for it.
The government provides medical care through government run hospitals,
dispensaries, primary health centres, sub centres, and other health facilities. Primary
care consists of health centres and dispensaries where basic medical treatment for
common ailments is provided. Immunisation and health promotional activities are
also carried out by primary care centres. Secondary medical care is provided by
specialists at district, sub-divisional, and community health centre level. Tertiary
medical care is provided by super specialists at multi-speciality and super-speciality
hospitals and medical colleges. Research, training, and education are also carried out
at tertiary levels. State governments own the bulk of the health delivery system and
have to bear the costs of operation. Government hospitals accounts for 30 per cent of
hospitals and 60 per cent of beds whereas local bodies own 2 per cent of hospitals and
3 per cent of beds. State owned enterprises like Coal India, railways, police have
developed their own health care facilities.
Private health sector: The private sector plays a very important role in India's health
delivery system. There is a wide network of facilities that cater to health
requirements of both urban and rural population. The presence of the private health
sector has profound implications for the existing character of the Indian health care
system since it affects both cost and quality of services available (Bhat, 1996).
5
The private sector consists of organised private and voluntary institutions, accounting
for 68 per cent of hospitals and owning 37 per cent of hospital beds. Variations in
hospitals and beds are quite significant across states. The organised private sector is
primarily profit oriented. This includes all levels of private hospitals, dispensaries,
nursing homes, general practitioners, pharmacies, etc. The voluntary sector not-forprofit institutions are run by charitable trusts. About 10 per cent of hospitals and 13
per cent of hospital beds are in the voluntary sector. The informal private sector
consists of practitioners with no formal qualifications and various types of lessqualified providers.
Utilisation surveys show that majority of the people seek care from private providers.
Concern about the quality of public services is the main reason for this.
2.1
Health care financing
Current health expenditure in India is estimated to be around Rs. 1030 billion. India
spends 6 per cent of GDP on health. The share of government is less than 2 per cent
(Tulasidhar 1992). The World Health Organisation has recommended that
governments must spend at least 5 per cent of GDP on the health sector. Bulk of
health care spending is direct out-of-pocket household expenditure (see Table 1).
Table 1
Primary care
National health spending: sources and uses (per cent)
Central
State and local
Corporate
Households
government
government
third party
out-of-pocket
4.3
5.6
0.8
48
Total
58.7
Secondary and tertiary
inpatient care
0.9
8.4
2.5
27
38.8
Non-service provision
0.9
1.6
na
na
2.5
Total
6.1
15.6
3.3
75
100
Source: World Bank (1995b)
Though the demand for health care is increasing owing to population pressure, the
government is finding it very difficult to maintain its health facilities. Government
allocations are also showing declining trend over the years (see Table 2).
Table 2: Health Expenditure as Percentage of GSDP of the States
______________1
2
3
4
5
6
7
States________
1990-91 1991-921992-93 1993-94 1994-95 1995-96 1996-97
Andhra Pradesh
0.90
0.94
0.90
0.95
0.96
0.90
0.84
0.96
0.90
0.95
Assam
1.20
1.04
1.20
1.05
1.17
1.17
1.16
1.23
1.16
1.20
Bihar
0.99
1.03
0.99
1.12
0.99
1.00
1.21
0.99
LOO
1.04
Gujarat
0.93
0.90
0.93
0.78
0.80
0.71
0.77
0.80
0.71
0.72
Haryana
0.58
0.60
0.58
0.62
0.60
0.58
0.58
0.60
0.58
0.55
Karnataka
0.98
1.04
0.98
1.09
1.03
1.03
0.98
1.03
1.03
0.93
Kerala
1.27
1 51
1.27
1.15
1.26
1.27
1.32
1.26
1.27
1.30
Madhya Pradesh
0.94
0.90
0.94
0.92
0.91
0.91
0.91
0.84
0.91
0.87
Maharashtra
0.72
0.74
0.72
0.68
0.65
0.65
0.61
0.60
0.61
0.59
Orissa
1.12
1 24
1.12
1.13
1.08
1.06
1.06
1.08
1.06
1.07
Punjab
0.79
0.88
0.79
0.75
0.72
0.64
0.64
0.72
0.64
0.68
Rajasthan
1.21
1.21
1.21
1.23
1.35
1.32
1.33
1.35
1.32
1.24
Tamil Nadu
1.15
1.21
1.15
1.14
1.06
1.00
1.03
1.06
1.00
0.99
L'nar Pradesh
0.97
1.12
0.97
1.04
1.16
1.00
1.00
1.16
1.00
0.99
West Bengal
0.96
124
0.96
0.99
1.02
0.88
0.90
1.02
0.88
0.90
Source: Seivaraju (2000)
Avg
(7)-(l)
0.92
1.15
1.05
0.80
0.59
1.01
1.30
0.90
0.66
1.11
0.73
1.27
1.08
1.04
0.98
0.01
0.16
0.01
-0.18
-0.05
-0.12
-0.21
-0.04
-0.15
-0.17
-0.20
003
-0.22
-0.13
-0.34
6
Government allocations in the health sector have declined from 1.3 per cent of GDP
in 1990 to 0.9 per cent in 1999 (National Health Policy, 2001).
The central government plays an important role in supporting national health
programmes such as malaria, TB, HIV/AIDS, etc. Funds for these programmes are
channelled through state governments. These schemes give priority to primary health
care whereas state governments bear the major responsibility of recurrent costs,
especially the cost of operating the hospitals.
The significance of alternative sources of financing has increased significantly. There
are four major alternatives for mobilising resources other than government funds.
Community financing: Individuals, families, or community groups make voluntary
contributions towards meeting healthcare costs. The cost is shared among members
regardless of individual use. This works out well for small groups.
User fees: This is fee for services or out-of-pocket expenses from users. This helps in
improving revenue and rationalises the utilisation in government systems. However,
fee-for service in the unregulated health sector has many perverse incentives.
Employer based: The corporate sector or employers provide healthcare facilities to
employees or reimburse healthcare expenses.
Health Insurance: Health insurance is a mechanism of pooling resources and sharing
risks or uncertain events between many people. It ensures some form of equity. The
focus is on contributory arrangements.
The private out of pocket expenses by the households make up most of the health
expenditure, which is more than 75 per cent of total expenditure on health. Only 3 to
4 per cent of health care provision is presently funded through prepayment schemes
and third parties such as corporations.
Most of the budgetary allocation of the government is for preventive, promotive and
primary care and curative services whereas private expenditure is largely on curative
services. Over the period private health care expenditure has grown at a rate of 12.84
per cent annually and for each one per cent increase in per capita income private
health care expenditure has increased by 1.47 per cent (Bhat 1996).
3
Health Insurance
Health insurance in a broad sense is an arrangement through which consumers can
avoid, reduce or delay full payment on health expenditure at the time of use of
services. Individuals or groups buy health insurance in advance by paying a
premium. Insurance is a contract in which the insured person pays a premium for the
right to receive a compensation in the case of contingency. The level of premium is
generally based on actively determined likelihood of illness of the insured. Insurance
provides protection against risks or uncertain events and is based on the principle that
what is highly unpredictable to an individual is predictable to a group of individuals.
Health insurance protects against the cost of illness, mobilises funds for health
services, increases the efficiency of mobilisation of funds and provision of health
services, and achieves certain equity objectives (Mills 2000).
7
Various forms of health insurance can be broadly categorised (based on ownership of
scheme) as follows: state-based systems, market-based systems, member organisation
(NGO or cooperative)-based systems, and private household-based systems (Jutting
Social health insurance: Health insurance organised by the state or a public body is
usually termed as social insurance. Funding consists of payroll taxes levied on
workers and employers, often supplemented by user fees, and government
contributions from tax revenues. A wide range of benefits is offered but access is
based on healthcare need. Social insurance schemes are managed by autonomous
bodies under government regulations and the providers of care have to meet certain
standards in terms capacity, staff, equipment, etc.
Private actuarial insurance: This is voluntary. Both individuals and groups can avail
the coverage. This could be not-for-profit or for-profit. Contributions are based on
risk and coverage. Benefits are specifically defined in this type of insurance.
Community based insurance: Expenditure on healthcare of members is shared among
the community. Usually community organisations or NGOs handle the business.
Contributions can be mandatory or voluntary, usually a flat rate per individual or
household.
Health insurance is complex compared to other segments of insurance. There are
serious market failure problems. In any market driven system, market mechanisms
are expected to allocate the resources optimally and provide the best to consumers. In
others words what should be produced, how should it be produced and for whom it
should be produced are determined by market forces. Competitive environment in
market takes care that resources are used efficiently (at lowest cost) and effectively
(with optimum outcomes). However, because of various demand and supply side
imperfections, there are inherent problems in health insurance markets. Important
constraints on insurance contracts are (Burgess and Stem, 1991):
•
•
•
•
moral hazard
adverse selection
covariate risks and
information problems
Moral hazard: In insurance markets moral hazard is serious problem. This arises
because policyholders would like to take decisions and actions which maximise their
own benefit. In many situations, and particularly in insurance setting, this behaviour
is detriment since the beneficiary does not bear the full cost of his/her actions and
decisions. The seminal works of Arrow (1963) and Pauly (1968, 1974) who proposed
the moral hazard problem in medical care suggest that the policyholder will not
consider the insurer’s costs. Unregulated healthcare markets and private insurance
provide adequate ground for this behaviour to perpetuate. This happens because
insurance lowers or avoids the cost of treatment at the point of treatment, so
consumers tend to demand more (consumer moral hazard). The providers have an
incentive to provide more or unnecessary care than might be medically appropriate
(provider induced moral hazard). Most insurance companies would be confronted
with this problem and use mechanisms and conditionality which create a burden on
8
policyholders with the part of cost (Sonderstrom, 1997). Increasing the burden on
policyholders would encourage them to avoid these costs where possible. Some of
the mechanisms insurance companies have adopted are co-payments or co-insurance,
deductibles, or a reduced premium bonus for the future. Another possibility of coping
with moral hazard is to arrange special contracts (Jutting 1999).
Adverse selection: The works of Akerlof (1970), Spence (1973), Stiglitz (1975), and
Rothschild and Stiglitz (1976) have pioneered the concept of adverse selection
problem. Adverse selection arises when persons belonging to high risk groups seek
coverage and the insurer can not identify the risk. All policyholders are required to
pay the same premium whereas those belonging to higher-risk groups are likely to
consume higher than average quantity of services. High risk individuals will find the
insurance policy more attractive and those with good health will find insurance
premium too high. Less and less good cases will enrol in insurance scheme and, as a
result, the insurer finds having a pool of more risk cases. As Newberry and Stiglitz
(1981) and Newberry (1989) have shown, insurance pools work best with easily
identifiable risks.
Covariate risks: The basic objective of any insurance mechanism is to protect
individuals from risk. In most situations, the insurer helps in protecting policyholders
from unique health risks and it is expected that these risks are not related to others in
the insurance pool. However, this may not be the case. Covariate or collective risk
means that a possible risk would cause damage to many or even to all members of the
pool at the same time (Jutting, 1999). In relation to such risks, there is nothing to be
gained by cooperation (Sonderstrom, 1997). The stronger the degree of positive
covariance, the higher will be the cost, whereas negatively correlated risks will have
the effect of reducing the total cost of risk-bearing (Platteau, 1991). High incidence
and prevalence of communicable diseases in a community can give rise to high
covariate risks. In a study of claims and reimbursements, about 22 per cent cases
arose from communicable diseases (Bhat and Reuben 2002). In India 50 per cent
deaths takes place because of communicable diseases. If all policyholders face
similar risks, risks cannot be reduced much through having insurance (Jutting, 1999).
Information problem: Availability of information would have significant bearing on
the development of insurance contracts. In insurance setting, the severity of moral
hazard problem and adverse selection problems will depend on differences in
availability of information between insurer and policyholders. In order to address this
problem insurance companies need significant investments in infrastructure and
development of systems.
How do these different forms of insurance address these risks? Each insurance setting
has strengths and weaknesses (Jutting, 1999) as summarised below.
9
Insurance settings
Risks and concerns
Moral hazard
Adverse selection
Covariate risks
Cost efficiency
Quality
Equity of access
Govt
+++
+++
Market
Member
+/+/+/-
+++ strong comparative advantage / (—) strong disadvantage
Govt: universal insurance run by government
Market: private voluntary insurance
Member: insurance systems run by member-based organisations
Source: Jutting, 1999
3.1
Features of health insurance
Reimbursement system: This system refers to the manner in which providers are paid.
The characteristics of health insurance programme can be described as follows
(Kutzin and Barnum, 1992):
in the traditional indemnity system, customers first incur expenditure on services
and later submit claim to insurance company for reimbursement (e.g. Mediclaim
insurance scheme).
managed indemnity in which a third party administrator (TP A) takes care of the
claim settlement of enrolees and directly reimburses service provider.
insurer pays service provider a fixed amount out of which provider will serve
health needs of enrolees for a specific period.
reimbursement can be fee-for-service, which would involve charging for each
individual service, such as in-patient bed-days, drugs, investigations etc.
•
case specific reimbursement based on category of patient admitted. Under this
system admissions are grouped into categories, called diagnostic related groups
(DRGs), based on their clinical characteristics.
Services covered by insurance: Coverage of services varies with each insurance
programme. Some cover only curative services whereas others cover primary OPD
care too. Coverage varies according to the extent of hospitalisation also.
Role of the insurer: An important feature of insurance is whether the insuring
institution plays an active or a passive role in provision of healthcare services.
Sometimes insurer is merely a funding entity and does not get directly involved in
provision of healthcare services. In these situations controlling costs becomes
difficult. Insurers develop mechanisms of cost sharing to mitigate the negative
impacts of insurance. Health insurance beneficiaries are asked to pay an amount each
time they use services such as deductibles and co-payment. Under deductibles, the
insured pays a specific amount before receiving insurance benefits whereas under co
payment a fixed percentage of cost of service is paid by the beneficiary to the
insurance company. On the other hand, the insurance company can directly get
10
involved in organising and providing healthcare services and are called managed care
organisations. These insurers can enforce cost discipline more rigorously.
3.2
Health insurance in India
The first major step in introducing health insurance in India came with the
promulgation of the Employee State Insurance (ESI) Act in 1948. This legislation
paved the way for introducing the mandatory social insurance scheme with managed
care concepts for employees in the formal sector. The Employee State Insurance
Scheme (ESIS), introduced in 1952, is managed by the Employees State Insurance
Corporation (ESIC), a wholly government opened enterprise. It provides cash
benefits, medical benefits, preventive and promotive care, and health education. This
is conceived as a compulsory social security benefit for workers having income less
than Rs. 6500 a month in the formal sector covering employees and their dependents
and is mainly financed by contributions from employers, employees and government.
Employers and employees contribute 4.75 per cent and 1.75 per cent of wages
respectively. The state governments’ share is 12.5 per cent of total expenditure. In
2000 about 33.4 million beneficiaries were covered by the scheme. ESIC has set up
136 hospitals with 43 annexes having 23720 beds. There are 1443 ESI dispensaries,
6542 medical officers, and 2988 medical practitioners.
The second initiative was the Central Government Health Scheme (CGHS) in 1954
for employees of central government, members of parliamentjudges, freedom
fighters, and their families. This is a contributory health scheme and provides
comprehensive medical care. Contribution varies from Rs. 15 to Rs. 150 per person
based on salary of employee. The scheme is mainly financed by the central
government. There were about 4.4 million beneficiaries in 1996. Separate
dispensaries are maintained for this scheme. In-patient facilities are available in
government hospitals and approved private hospitals on referral.
For persons not covered by the above schemes, government-run insurance companies
have introduced market-based schemes. The most popular among these is Mediclaim
scheme of General Insurance Corporation, introduced in 1986. It has undergone
several changes after that. In 1991 internal limits for doctor’s fee, medicines,
diagnostics, and room charges were removed making it a single benefit policy. This
is an indemnity based health cover. It covers only in-patient treatment. The premium
is based on age and sum insured. Clients can avail medical services from any public
or registered private hospital. The policy, however, has failed to attract a large number
of people because of various restrictions. Insurance companies also encounter
problems such as lack of cooperation from hospitals.
There are health benefit packages which are directly managed by employers:
employer setting-up healthcare facilities and providing healthcare to its employees
and reimbursement of medical expenses or Mediclaim insurance premium amount.
Many public and private sector employers cover their employees with one of these
two schemes. Large public sector and private sector companies have their own health
infrastructure. Other employers cover their employees through reimbursement. Many
organisations cover their employees through a group Mediclaim scheme.
11
There are a large number of charitable and voluntary organisations that have designed
social security schemes for specific groups of population. Efforts have been made by
various NGO's to provide some kind of social security to poor and people working in
unorganised sector. The most prominent among them is the Self Employed Women's
Association (SEWA). Other important organisations which have taken initiatives in
this area are Child in Need Institute, Streehitkarini, Tribhuvandas Foundation, and
Accord. NGOs provide valuable health services in many parts of the country,
especially rural areas.
The government has now allowed private companies to enter into health insurance
and has established the Insurance Regulatory and Development Authority (IRDA) to
regulate this sector. It is estimated that the present health insurance market is in the
region of Rs. 2500 to Rs. 3000 million and it has a potential to grow to Rs. 50 billion
in next five to seven years time. The potential insurable lives in the country are
estimated around 300 million. It is estimated that only 10 percent of health insurance
market has been tapped till today and there is a scope to increase this in near future.
4
Managed care
During the 1960s and 1970s researchers in the United States identified that health
insurance motivates people to seek unnecessary health benefits (customer moral
hazard) and that providers have financial incentive to recommend costliest of
treatments (provider induced moral hazard or demand inducement), that have little or
no impact on health outcomes (Dranove, 2000). These behaviours ultimately drive up
costs without commensurate increase in the quality of care. Managed care
organisations came into existence in US to contain the cost of healthcare under the
insurance system and address the issue of dysfunctional fragmented services
(Fairfield, 1997).
Under managed care, health insurance companies establish linkages with healthcare
providers. Service providers assume responsibility and accountability for the
resources they use in providing healthcare services. For this purpose mechanisms are
developed which ensure that services providers share part of financial risk inherent in
assuming the responsibility. The goal of managed care is also to provide quality of
care to policyholders. Managed care places special emphasis on coordinated and
comprehensive services, appropriate use of both ambulatory and inpatient settings,
evidence-based decision making, cost-effective diagnosis and treatment, population
based planning, and health promotion and disease prevention. Utilisation review, case
management, coordinated care, home healthcare, pharmacy benefit management,
information technology systems, physician contracting, and network development are
some of the features of managed care (Fairfield, 1997).
Cost control is achieved by fixing fees for services, monitoring the need for
procedures such as tests and operations, and stressing preventive care. There are three
dimensions of managed care: rules and policies, systems management which includes
how policies and rules are administered, and disease management focusing on how
diseases presenting to the system are dealt with (Fairfield, 1997).
Managed care concept began in US in the early part of twentieth century. However, it
did not gain much success during its early phases. The trigger for its growth came as
12
insurance gained popularity. The launch of the Kaiser Health Plan during World War
II resulted in the first clinic-based system of managed care. After World War II,
American employers began offering workers health plans with a variety benefits and
having 100 per cent coverage of healthcare costs. During the 1960s healthcare
became more technology intensive and highly specialised. With the introduction
Medicare and Medicaid in US, costs of medical services skyrocketed. The Health
Maintenance Organisation (HMO) Act of 1973 paved the way for managed care
organisations to become publicly funded companies, providing capital and
accelerating their growth. The decade from 1985 to 1995 saw the proliferation of
HMOs and PPOs in an effort to contain escalating costs. Today more than 90 per cent
of the health care industry and three out of four American workers go through
managed care organisations (MCOs).
Managed care organisations use utilisation management strategies to control the use
of services. The basic idea is to review and supervise expensive decisions, ensuring
that they are in accord with prescribed guidelines and treatment protocols. Utilisation
management is done through ensuring pre-certification of inpatient admissions for use
of expensive technologies, concurrent review of length of inpatient stay or other
expensive courses of treatment, management of high cost cases, and having a system
of second opinion. Before admitting non-emergency patients to hospital or
undertaking other specified expensive treatments, doctors in managed care
organisations are required to call the insurer’s utilisation management company and
have the decision approved. After admission, utilisation managers monitor inpatient
stay to ensure earliest possible discharge. In complex or difficult cases a case manager
may work with the doctor to develop a treatment plan that substitutes less expensive
care whenever possible. Utilisation management seeks to reduce healthcare costs
primarily by avoiding unnecessary hospital admissions and reducing length of stay.
Managed care companies are able to reduce costs by negotiating aggressively with
hospitals and provider groups on rates and use of inexpensive resources in inpatient
care.
4.1
Forms of managed care
There are different types of managed care structures. Most managed care is carried
out in one of two basic types of organisational settings: health maintenance
organisation (HMO) or preferred provider organisation (PPO).
Health maintenance organisation (HMO): HMOs insure and provide comprehensive
medical services to voluntarily enrolled members on a prepaid basis. They own health
facilities and employ health professionals to run these facilities. Members are
required to choose a primary care physician (PCP) whom they must consult for all
their health care needs. PCP typically authorises most referrals to specialists and
other services. Customers pay a fixed fee for services, instead of separate charge for
each visit or service. The monthly fee remains same regardless of services availed.
HMOs are typically the cheapest option
HMOs can be grouped under four categories based on how physicians are organised:
staff model, group model, independent practice association (IPA), and net work
model. Staff model HMO employs its own physicians. Group model HMOs are
13
insurance companies that contract with large physicians groups to organise services.
Physicians in staff and group models often work exclusively for a HMO. IPAs and
network model HMOs develop linkages with existing providers and agree to use their
infrastructure. There are models that combine the features of IPAs and networks.
Preferred provider organisation (PRO): Under PPO, health insurance companies
contract with independent service providers, hospitals, and other healthcare
professionals who become the preferred or participating providers. Providers typically
accept reduced, discounted fee-for-service rates of reimbursement from the health
plan in exchange for access to PPO’s enrolees. PPOs have fewer restrictions than
HMOs. For example, patients are not required to select a primary care physician or
seek prior authorisation for services. Patients may choose to receive care from
providers who do not participate in PPO, with higher co-payments and deductibles
attached to services provided by non-participating providers.
There are various variations of these arrangements. For example, point-of-service
health plan (POS) combines the features of an HMO with indemnity insurance option.
The member uses the plan like an HMO and receives HMO coverage; but the member
may exercise freedom of choice and seek care outside the HMO system with
additional charges (higher co-payments and deductibles, and submission of claims
forms). Members choose how and from whom to receive services at the time they
need them. Another variation is independent practice association (IPA) in which
health care professionals maintain their own separate practices, while forming an
MCO to contract with purchasers to provide care at established rates. A third is
physician hospital organisation (PHO) which is a legal entity formed and owned by
one or more hospitals and physician groups in order to obtain payer contracts and to
further mutual interests.
4.2
International experiences
Managed care has had its origin in US and majority of its people are enrolled in some
kind of managed care plan. Managed care organisations such as HMOs and PPOs
constitute 87 per cent of the American health insurance sector. It is estimated that
managed care is saving patients over $300 billion annually and the quality is
comparable to traditional indemnity insurance. More than 70 per cent of the
physicians in US are working for MCOs. Managed care has been successful in
containing costs. Clinicians are subject to prospective utilisation reviews and pre
authorisation requirements, concurrent reviews as treatment proceeds, retrospective
reviews once treatment has been completed, and sometimes even mandatory second
opinions. They have to follow clinical guidelines and their performance is
continuously monitored and compared with that of their peers. At the same time there
is a widespread dissent among patients towards managed care. Patients do not trust
managed care because they think that aggressive intervention by MCOs might limit
the ability of their doctors to control and coordinate the resources necessary to deliver
quality care. Health care professionals also hold negative views towards managed care
(Simon, 2001). Physicians feel that managed care restricts their freedom of patient
management.
Managed care is new in Europe. European organisations prefer to use integrated care
or coordinated care instead of managed care because of its negative connotation in
14
US. However, they see managed care as an absolute necessity for delivering quality.
Britain’s largest private health insurer, BUPA, is adopting principles of Americanstyle managed care, but this has brought widespread resistance from the physicians.
They fear that managed care will limit their freedom and management. In France, the
first PPO was formed in 1995; in Poland, the first managed-care organisation was
launched in 1997; and in Germany, health reforms in 1997 permitted pilot projects to
use some aspects of managed care such as physician contracting. Germany’s
healthcare system provides health care through statutory medical insurance to 90 per
cent of the population. Since costs are rising Germany has called for new alternative
forms of controlled and organised healthcare based on the philosophy of managed
care. Switzerland was the first European country to adopt managed care style on a
broad scale and has achieved considerable cost advantages from reduction in hospital
stay.
European consumers have a different outlook on managed care plans from Americans.
While in US consumer argue that managed care limits choice, in Europe consumers
experience that private insurance increase their choices and decrease the waiting time
typical of government-sponsored care. Providers in managed-care projects coordinate
care so patients can obtain care at any hour of the day by a network physician
(Katzman, 1998).
In Asia, China opened up its insurance sector to foreign players in 1992. China
concentrates on home care, which is different from managed care. The reason for
home care is the rising cost of hospital care. Thailand introduced the concept of
managed care in 1996. Philippines allowed entry of foreign insurance companies in
1991 and presently HMO is a well accepted mechanism in the healthcare system. The
concept of managed care is picking up in Singapore, Indonesia and Malaysia too. It is
too early to asses the impact of managed care in these countries.
5
Third party administrators (TPAs)
Third party administrators (TPAs) are not technically managed care organisation but
play an important role in health insurance markets. TP As are neither insurance
companies nor care providers. They are independent organisations that provide
specialised services to support the administration and management of health insurance
products offered by insurance company. These services include: cashless service at
hospitals, call centre support to policyholders, medical cost management, and
management of claims and reimbursements. They also provide services to the
corporate sector in designing and managing health benefit packages for their
employees. Given the demand and supply side complexities in health insurance and
healthcare markets, TPAs provide an important link between insurance companies,
healthcare providers, and policy holders (see Figure 1).
Intermediation by TPAs ensures that policyholders get hassle free services, insurance
companies pay for efficient and cost effective services, and healthcare
providers/policyholders get their reimbursements on time. TPAs are intermediaries
in a chain of integrated health delivery system that brings all components of
healthcare such as physicians, hospitals, clinics, long-term facilities, and pharmacies
together.
15
The core product or service of a TPA is ensuring cashless hospitalisation to
policyholders. Policyholders do not have to worry about arranging money for
hospital deposits or medical bills for treatment which are covered by the policy.
Besides this, TPA may provide a range of services depending on the requirements of
insurance companies or corporate sector. TPAs require skills to integrate, manage
finance, and delivery of appropriate healthcare services to its clients.
J
Regulator
Macro
economic
factors
Insurance
company
Fee for service
K
Premiuny
. Reimbursements
"V-..
▼
Healthcare
Providers
Policyholder
Health services
Figure 1: TPAs in Health Insurance
5.1
Functioning of TPA
Insurance companies face difficulties in developing cash-less hospitalisation services
for policyholders in a setting where healthcare providers are geographically dispersed,
small in size, and unregulated. TPAs organise healthcare providers by establishing
networks and through this networks offer services. TPAs have to ensure that
providers are part of the network. TPA’s main function is to develop this network of
hospitals, general practitioners, diagnostic centres, pharmacies, dental clinics,
physiotherapy clinics, etc. TPAs sign a memorandum of understanding with
insurance companies according to which they inform policyholders about the network
of healthcare delivery facilities and various systems and processes for settling claims.
With the introduction of TPAs, policyholders are enrolled and registered with TPAs
to avail these services. In the case of hospitalisation, health facilities are expected to
inform TPA. The medical referee of TPA examines the admissibility of the case and
informs the healthcare facility.
16
The agreement between TPAs and healthcare facilities provides for monitoring and
collection of documents and bills pertaining to the treatment. Documents are audited
and after processing are sent to the insurance company for reimbursement. TPAs
have the responsibility of managing claims and getting reimbursements from
insurance company and paying the healthcare provider. Sometimes TPAs pay the
healthcare provider without getting reimbursement from the insurance company. For
this purpose, the insurance company keeps a corpus amount with TPAs.
With the introduction of the TPAs the reimbursement system has undergone a change.
Earlier clients were handling all claims and reimbursements themselves. In the
process they were assuming the risk of delay in reimbursements, non-payment of
some expenses incurred, and delay in reimbursements. Under the new system all
claims and reimbursements would be routed through TPAs. TPAs become a nodal
agency to handle all claims and reimbursements. With the introduction of TPAs risks
in claim settlement have shifted from clients to providers. Providers now face the risk
of not getting reimbursements from TPA, delay in reimbursements, and admissibility
of various expenses. In addition to these, providers also face other risks which were
not there in the previous system. Once the patient is admitted and if treatment costs
exceed the sum insured, the provider faces the risk of non-reimbursement of the
difference in treatment cost and sum-insured.
As part of the agreement between healthcare providers and TPAs, some providers
insist on getting a part of the expected costs as advance.
TPAs generally have in-house expertise of medical doctors, hospital managers,
insurance consultants, legal experts, information technology professionals, and
management consultants. The backbone of a TPA is the information management
system. Proper networking and timely documentation is the core of their operations.
Information technology has an important role. Special software are used for
documentation and managing the network of providers. Web enabled management
information system helps in prompt networking. Analysis of data regarding hospital
admissions across the network, analysis of treatment, tracking documents pertained to
each case, and tracking shortfalls in claims are essentials of claim management.
Analysis of data also helps in identifying and tracking health needs of population and
effective treatment protocols. The information and learning generated would
contribute significantly towards managing claim settlement process effectively.
Various functions of TPAs are summarised in Figure 2.
Clientele
The client groups of TPAs can be divided into two broad groups: corporates and
individuals. TPAs provide a wide range of services to various organisations. In many
situations the entire administration of medical facility and benefits for employees of
corporates are handled and managed by TPAs. TPAs work with companies to design
and customise a policy to suit the needs according to the nature of health risks
employees’ face. Organisations that have many complex claims would benefit from
outsourcing as would organisations which have geographically dispersed operations.
17
Operational
Procedures
Enrolment
Claims
Management
Information
Systems
( Product
Medical
Management
Data Analysis
Customer
Service
Network
Management
Figure 2: Range of services offered by managed care organisations. Source: Shah (2000)
Most of the TPAs operating in India have been focussing on corporate clients.
Organisations which spend significant amounts on meeting health costs of employees
would find the services of TP A cost effective. TPAs having expertise in organising
healthcare services would be in a better position to design tailor-made packages of
healthcare services to corporate clients and helping them minimise the costs. TPAs
interface between client and hospital, offering medical consultation and advice to
employees during office hours would help in avoiding delays in medical consultation.
TPAs also manage group policies or customise suitable packages of managed care for
organisations.
Revenue generation
The major source of revenue for TPAs is fees charged for providing various services.
In case TPAs handle insurance policies (group or individual) of organisations, they
get fees directly from insurance companies according to the volume and scope of
services provided by them. This is usually a fixed percentage of the premium
collected from the enrolees. However, TPAs may provide many other services to
organisations for which the fee is paid by the organisation directly. These services
may include the following:
1. Benefit management: TPAs help in designing appropriate health plans for the
corporate sector and insurance companies.
2. Medical management: This is basically disease management and involves the
medical follow-up of the case. TPAs track the line of treatment and ensure
genuine treatment.
18
3. Provider network management: This is the key task. TPAs need to negotiate with
service providers regarding quality of care, credit facility, discounts, package
pricing, priority appointments and admissions, etc. Periodic review and evaluation
of the performance of service providers are also vital.
4. Claims administration: This involves the claim adjudication process. The tasks
include documentation, checking eligibility and coverage, claim submission and
arranging payment for the service provider.
5. Information and data management: TPAs can generate a lot of reports and
database. This can be used as management tools for analysis and controlling cost
and besides helping design new products.
Apart from these, TPAs can offer a lot of value added services whose importance is
likely to grow in future.
Health insurance markets suffer from several shortcomings. TPAs provide support
function in assuring that the client has received most appropriate and cost-effective
medical treatment while in hospital. They ensure that clients do not experience delay
in getting treatment to keep check on costs. However, delay in seeking treatment
from client side is not ruled out. Owing to this, costs may go up. The justification for
introducing TPAs’ services is that they help in minimising moral hazard. For this
purpose, TPAs follow each case in an individualised way. TPAs do comprehensive
review of records and keep constant communication with healthcare providers and
families. They also evaluate the outcome of treatment and have adequate data to
compare it across different service providers. The knowledge base helps them to be
more effective in handling future cases.
Value added services provided by TPAs are arrangement of ambulance services,
medicines, and supplies. For this purpose TPAs may have tie-ups with selected
pharmacies and suppliers. TPA may provide this service to healthcare providers or
their clients for a fee. TPAs guide members for specialised consultation, provide
information about health facilities, hospitals, bed availability, etc. They may organise
life-style management and well-being programmes for their members, and provide a
24 hours helpline.
TPAs and health insurance
TPAs are in nascent stages in India. However, they are well known in countries such
as US. Managed care assumes critical significance in India as the private practice and
hospitals are not regulated and face a number of challenges. Considering the current
trends most of the government-owned insurance companies offering Mediclaim
insurance have started hiring TPAs. New entrants in health insurance will also find
the services of TP A inevitable.
The role of TPAs will not remain limited to managing indemnity insurance policies.
For example, the Mediclaim insurance scheme is currently the sole health insurance
product and TPAs will have a role in managing it. There are several employer
managed medical schemes - in-house or sourced-out schemes - where TPAs will play
an increasingly important role. Employers will source-out the management of most of
these schemes.
19
ompanies which have plans to offer health insurance products have tied up with
various TPAs for their service. With more private insurance companies starting
operations in India, the role of the TPAs as insurance intermediaries will increase
significantly.
IRDA has made it mandatory for TPAs to acquire licence to operate in India. So far
IRDA has granted licence to 23 TPAs (see Annexure 1, 2 and 3 for a list of companies
and major players). TPAs have formed an association called Indian Association of
TPAs to orgamse themselves and protect their interests.
The corporate sector is likely to remain the main clientele of most TPAs. Public
sector insurers (subsidiaries of GIC) are developing partnerships with TPAs for
managing their health insurance products, particularly claim management and
providing cash-less facility. The insurance company is able to attract TPAs in a
geographical location only if they have sizable presence and the insurance company
has large health policy coverage. Once associated with the insurance company TPAs
are given details of all policy holders and TPA issues photo identity cards to
Mediclaim policy holders, monitors, and process claims, and conducts investigations
if required into claims.
6
Regulatory issues, potential impacts, and challenges
The effectiveness of TPAs in managing claims and reimbursements depends on their
bargaining power vis-a-vis healthcare service providers. Their position would also
determine the amount of savings and cost containment TPAs will succeed in
producing. It is envisaged that TPAs can get better negotiated agreements with
hospitals and medical practitioners and will introduce better monitoring system
leading to lower claim ratios. However, in practice there are many challenges which
TPAs face in achieving these goals. The management of claims and reimbursements
in a highly fragmented, and unregulated markets, and dealing with large number of
small-sized services providers is expensive. Revenue generation of TPAs would be
under serious pressure. For doing their job effectively, TPAs will be required to
employ medical management experts and managers who can negotiate deals with a
large number of service providers. Given that healthcare providers are not regulated
and there is no information on various operational aspects of healthcare facilities such
as occupancy rates, length of stay etc., negotiating rates and levels of quality of care
will be a tough task. The role of TPAs will remain in managing indemnity. Many
concepts and mechanisms of managed care which help in containing costs are difficult
to implement in current circumstances. For example, there no system of capitation
payment and therefore there is less scope to negotiate deals and get discounts in
hospital charges.
TPAs face several challenges. These are emanating from regulatory structure, lack of
training facilities for TPAs, consumer concerns, demand and supply side
imperfections in the health sector having implications for organisation of service
provision, and inherent risks in health insurance. We discuss these in following
sections.
20
6.1
Regulation of TPAs
The Insurance Regulatory and Development Authority (IRDA) has approved services
of TPAs as insurance intermediaries and would be regulating their practices. IRDA
has formulated regulations in 2001 for companies staring TPA ventures with the
objective of developing health insurance. IRDA defines TPA as "an insurance
intermediary licensed by the Authority who, either directly or indirectly, solicits or
effects coverage of, underwrite, collect, charge premium from an insured, or adjust or
settle claims in connection with health insurance, except as an agent or broker or an
insurer.” The final draft of these regulations has strictly barred TPAs from marketing
health insurance products and charging the insured.
IRDA in consultation with the Insurance Advisory Committee has formulated the
Insurance Regulatory and Development Authority (Third Party Administrators Health Services) Regulations, 2001 to regulate TPA services. The salient features are
as follows.
/
•
Only an organisation registered under the Companies Act 1956 with a share
capital of at least Rs 10 million in equity shares can set up TPA in health
services.
TPA will be required to start with a minimum working capital of Rs. 10 million
at any point of functioning.
The primary object of the company should be to carry on business in India as a
TPA in health services. It should not engage itself in any other business.
At least one of the directors shall be a qualified medical doctor registered with
the Medical Council of India. The CEO or CAO of TPA should have
successfully undergone a course in hospital management from an institution
recognised by IRDA and have passed the licentiate examination conducted by the
Insurance Institute of India, Mumbai. Apart this he should have undergone
practical training of at least three months in the field of health management.
TPAs should have access to competent medical professionals to advise insurance
companies and clients on various matters.
Foreign equity in TPAs is limited to 26 per cent. In case of any share transfer
exceeding 5 per cent of paid up capital, IRDA has to be informed within 15 days
of such transfer.
■
TPAs should obtain licence from IRDA to function. The application fee is Rs.
20,000 and, once the application is approved, another Rs. 30,000 has to be paid as
licensing fee. The licence will be renewed every third year by IRDA. If the
application is rejected, TPA is not entitled to apply within two years. TPA
should furnish all documents including the agreement with the insurance
company while applying for licence. This agreement should contain the details
of the remuneration that may be payable to TPA by the insurance company.
TPA will be allowed to enter into agreement with more than one insurer and
similarly insurance companies can engage more than one TPA.
TPA has to spell out the scope of services that it will deliver, while entering in an
agreement with a insurance company
TPAs shall not charge any kind of fee from the clients.
21
TPA^ ^U^e^nes d° not PermR marketing of health insurance policies by the
TPAs would also have to maintain and report to IRDA on transaction carried out
on behalf of the insurer. The authority envisages TPAs to maintain all records
properly and maintain professional confidentiality between the parties. The
authority holds the power to monitor and check the performance ofTPAs from
time to time. TPAs are expected to furnish to the insurance company and the
authority an annual report and any other return as may be required by the
Authority.
•
IRDA has drawn up a code of conduct for the TPAs refraining them from trading
in information, submitting wrong information to insurers, and making
advertisements without prior approval of the insurer among other things. Licence
will be revoked in such instances.
IRDA regulations put stringent conditions for licensing TPAs. The current regulation
requires TPAs to meet a minimum equity capital of Rs. 10 million. The capital
requirements for entering in this sector are not stringent. As a result of this sector
may see proliferation of players many of them not having serious interest. By having
a large number of players, there will be pressure on margins. Besides this TPAs need
to set up infrastructure which would involve large investments, the payback period of
which is likely to be long. TPAs face high operating risk of obtaining economies of
scale necessary to break-even. Volumes are critical because the revenue generation of
TPAs is linked to the number of policies they undertake to administer. According to
current regulations, TPAs will get 6 per cent of premium collected as their share of
revenue.
It is expected that with the introduction of TPA services, claim settlement process
would be simplified. IRDA has suggested that all claims should get settled in seven
days. In a case study done in Ahmedabad, it was observed that the insurance
company takes on an average 121 days to settle a claim (Bhat and Reuben, 2002).
Outsourcing claim processing services may help in reducing the claim period. But
settling claims in seven days is still a very ambitious target in current scenario. TPAs
will face major challenge in bringing down the settlement period to 7 days. It has been
observed that lack of proper documents related to treatment often results in deferred
or non-payment of claims. Of course, examination of exclusion clauses in the policy
is imperative before authorising admissibility and further treatment. TPAs will have
to sort these issues right at a time policyholder is seeking healthcare services.
Winning the confidence of policyholders and maintaining the client base will be
challenging. Competitive marketing strategies and use of innovative mechanisms will
be important. All attempts by insurance companies to tie up with private hospitals
through the system ofTPAs in the past have yielded little success, as there is
generally a mutual feeling of distrust. This will pose a major challenge.
6.2
Consumer concerns
Increased costs for consumer: Introduction of TP A services result in higher costs.
Who bears this cost? So far, government-run insurance companies were following the
policy of referring claims cases to a panel of doctors. In 46 per cent cases medical
referral was sought (Bhat and Reuben, 2002). Insurance companies spent less than
Rs. 150 per case. Introduction ofTPAs will have significant implications for costs.
I
22
i
The policyholder has to bear the cost of payment to TPA and as a result this increase
cost of TPA payment will result in increase in premium rate. Premium of Mediclaim
insurance policies have already gone up by 6 per cent.
Choice of service provider: The advantage of having a TPA is assuring cashless
hospitalisation facility which did not exist in previous system. This will certainly
increase accessibility to health care. Currently all indoor admissions in hospitals
require some cash deposit or guarantees. This often makes it difficult for people to
seek healthcare even if the patient has insurance. In most situations TPA provide a
list of healthcare facilities policyholders can use. This arrangement may have
implications for restricting the choice of facilities. Though patients are free to choose
any hospital, for cash-less facility they may be required to go to a facility chosen by
TPA.
TPA would face serious pressure from insurance companies to keep the claim ratio
down. TPAs would have less influencing role in containing costs. They may get in
serious conflict with healthcare service providers. The delicate balance between
insurance company, providers and customers is difficult to maintain. For example,
introduction of similar services in Hong Kong resulted in all local physicians deciding
not to participate in the network mechanism and this seriously affected the availability
of healthcare services to policyholders who were in need of getting treatment (Parekh,
2003).
According to IRDA guidelines TPAs are not allowed to market health insurance
policies. Selling insurance products directly by TPAs is seen creating conflict of
interest between insurance company and TPA on one hand and between TPA and
policyholder on the other. In case TPAs are allowed to market insurance products,
there would be tendency to be biased towards policyholders keeping the customers
interest in mind. There might be a conflict of interest if the same entity is allowed to
collect premium and also settle claims. The system may create perverse incentives
which give opportunities to healthcare providers, policyholders, and TPAs to collude
and TPAs may favour healthcare providers and policyholders in settling claims in
order to attract more business. However, TPAs feel that by not allowing them to
market insurance products, the health insurance sector will experience less
participation of TPAs in areas such as consumer education and making them aware of
differences in various policy options. This will also discourage competition in the
insurance sector and as a result the objectives of insurance reform will not be
achieved. As an intermediary, TPAs are in position to help customers get best deal.
TPAs argue that if they are allowed to market and sell health policies, they can
develop appropriate infrastructure and systems to reduce many unintended
consequences of health insurance.
6.3
Training of TPAs
TPA is a complex organisation and, therefore, must have adequately trained
managerial staff to address various complexities. TPAs have to ensure that they have
range of management competencies and capabilities which can handle sensitive
customer service requirements to hardcore financial management and specialty
technical/medical knowledge to robust information technology. TPAs must be
U8L86
p°3
23
organised with an emphasis on the selection of the adequately qualified personnel and
an intensive comprehensive training regime (Parekh, 2003).
There is no knowledge base which guides the policy makers to develop appropriate
training interventions. There are no recognised training facilities and availability of
trainers in this field is almost non-existent. The limited training imparted to personnel
of most insurance companies is also inadequate. The lack of training has several
unintended consequences to the growth and development of health insurance market
in India. The current regulations do not address these concerns.
6.4
Characteristics of healthcare provision
Quality of healthcare is a critical issue in an unregulated private medical sector (Bhat
1999). TPAs are expected to develop a network of healthcare providers. It is
expected that TP As will follow some process in selecting providers to form the
network. The quality of care can be ensured by insisting on following certain criteria
such as minimum qualification of service provider, evidence that service providers
follow basic minimum standards of care. However, TPAs will face a number of
challenges here. The minimum standards of care are not defined. Healthcare service
providers have a much higher bargaining power in the system and TPAs will not be
able to persuade the providers to follow standards and quality guidelines. Also, TPAs
would have less influence on controlling the cost of care. In the case of indemnity
insurance arrangement, moral hazard problems because of provider side demand
inducements are quite high. There are no mechanisms or incentives in place which
TPAs can use to address these issues. Patients would have no interest in resisting this.
These combinations of factors would continue to reinforce the increased demand for
healthcare services and diagnostics which are expensive and resource intensive. In
many situations increased use of resources generally has no significant impact either
on overall quality of care and/or health outcomes. Without proper regulation of
private practice on what is being provided and at what cost, indemnity system will
continue to lead to more expensive healthcare. TPAs and IRDA will have a less
influencing role in regulating healthcare service providers.
Lack of standardisation or accreditation system for hospitals also makes the concern
of pricing and billing serious. Billing systems differ from facility to facility. Most of
the payments are cash based and less transparent. TPAs would face difficulties in
scrutinising and processing claims and reimbursements using common standards
across facilities.
There is no standardisation of charges across hospitals in the country. In many
situations, billing systems are not in at par with standards of care. One observes
significant variations in charges across hospitals. The following table presents
information from 670 claims and reimbursement data for various healthcare services.
24
Health______________
Entric fever
Cataract
Gastroenteritis
Accidents
Heart disease/chest pain
Appendicitis
Treatment cost range (Rs.)
1800-18000
5500 - 20000
1500-11000
2000-1.71 lakhs
5000-1.70 lakh
12000 - 20000
Age group
5 yrs - 35 yrs
44 yrs - 66 yrs
35 yrs - 50 yrs
all age groups
35 yrs - 68 yrs
below 50
One of the ways a managed care organisation bargains for better prices and discounts
is by providing volume business. In indemnity insurance arrangement, TPAs cannot
assure a certain volume of business to a particular healthcare service provider upfront.
Since the insurance company and TPAs function as separate entities and TPAs have
to deal with a large number of service providers, offering bulk deal to one single
provider is not possible. This would have implications for costs of medical services.
TP As make anangements with care providers and guarantee reimbursements of fee
for services. The risk of collection has shifted from the policyholder to the healthcare
service provider. In many situations healthcare providers would insist on advance
payment even in the new system. In these cases TPAs will be required to make
advance payment for a part of expected charges as soon as admission is notified to
TPA.
IRDA recognises that future health insurance products should be customised focusing
on meeting clients’ demands. There is no actuarial involvement in designing health
insurance products. Past experiences are important in calculating premiums. A
centralised database containing information on costs of insurers and healthcare
providers is, therefore, desirable. However, there is lack of information on healthcare
services and utilisation. Recognising this as problem, IRDA has constituted a
committee with representation from insurers, third party administrators (TPAs), the
Tariff Advisory Committee (TAC) and IRDA to suggest framework for collection of
health related data and advise on use of this information in (a) building health
insurance products by insurance companies, (b) establishing benchmarks for the
services to be provided by TPAs, and (c) standardising the services to be provided by
hospitals to policyholders (IRDA Journal, 2003).
There is very little information and documentation on approaches which can be used
to influence consumer behaviour, provider practices and restructuring the market both health and insurance. The approaches such as standardisation of treatment
protocols as proposed by IRDA can be problematic. These efforts may imply
proposing treatment practices that may be contrary to existing practices and the
regulators may face serious opposition from powerful professional groups. The
monitoring function is vital but difficult to sustain in the long term. Such efforts are
highly resource intensive, especially when they involve working with large number of
geographically dispersed and small sized service providers having backing of highly
politicised professional bodies. The regulator has to make careful judgments in
developing appropriate strategies to deal with the private healthcare service providers.
It is also not clear that how without involving the service providers the standards of
care can be set. Also, given the diversity of providers and absence of uniform
standards, getting information on disease management and costs/pricing are going to
be challenging tasks.
25
6.5
Other inherent risks and issues
Do TPAs have incentive in controlling costs? The remuneration of TPA has been
decided as a fixed percentage of the policy premium. In case reimbursements are
controllable (which in practice are), the payments to TPA for their services are not
linked to the effort of controlling reimbursements. Hence, how TPAs are paid for
their services should take into account TPA’s efforts and successes in controlling the
costs and reimbursements. In any insurance system, focus on prevention and
promotive services can cut down many costs. TPAs can play an important role in
these areas. However, the mechanisms for these are not in place and their role is not
clearly defined. TPAs are in position to offer and organise these services but this will
come at a cost.
In many situations policyholders are not aware of various conditions and exclusion
clauses in insurance policies. As a result, disputes between policyholders and
insurance companies have increased. In many situations both parties have resorted to
litigation. In many situations these problems arise because of lack of information and
lack of awareness. There is also inadequate understanding of various nuances of
insurance. It is expected that TPAs can play an important role in educating
consumers and bringing awareness. TPAs are the interface between the insurer and
the insured and they are in a position to educate the insurer on health insurance.
TPAs are not allowed to charge any kind of fees or demand a share of proceeds or
indemnity from the claimant. Most other important services will remain neglected.
TPAs point out that if they can collect money from the customer, it will mean more
competition and thus better service.
On demand side, one positive impact of TPAs’ existence would be on service
utilisation. In most situations utilisation of high cost speciality care will need
approval and concurrence from TPA. Utilisation of such services would be rationed
by restricting direct access to specialists. TPAs face serious challenge in mitigating
negative consequences of health insurance and control malpractices. While dealing
with a large number of policyholders TPAs would be in position to generate lot of
comparable data on utilisation of services and their cost structures. This information
can be used to set benchmarks for costs and quality of care. However, this is going to
take time. Developing these benchmarks and putting them in place will need research
on understanding of cost drivers.
In order to mitigate the risks of working capital, insurance companies may be required
to keep cash balances with TPAs to meet the reimbursement pressure. There is no
regulation on cash management practices of TPAs. Insurance companies and IRDA
need address this area as there are perverse motives to use these funds for other than
meeting working capital requirements.
IRDA can revoke the licence of TP A if the financial condition of TPA deteriorates at
any point of time. TPAs stand as guarantor between insurer and provider of service.
The risks are high. What happens if a TPA fails? Who stands as the guarantor for
TPA to meet its liabilities in case of failure? Many healthcare providers are reluctant
to offer cash-less service without receiving advance from TPA. Healthcare facilities
consider the risks are too high in dealing with TPAs.
26
IRDA has made it mandatory for health insurance companies to have significant
presence in rural areas. As part of fulfilling this obligation IRDA requires a detailed
plan on how the insurance company will cover rural areas. For this insurance
companies would require TP As to set up infrastructure in rural areas. Addressing the
rural segment will be a challenge for TPAs. ~
There are several other areas which have not been addressed clearly in the present
regulations. For example, in case there is dispute between TPA and insurance
company what will be the process of resolving the conflict? Who will audit TPAs? It
has become mandatory for the insurance company to appoint TPA. What will be the
process of selection of TPA? How are TPAs going to market their services? Who
would set prices for TPA services? As TPA is a new concept, there is little awareness
about these services provided by TPAs among the people.
27
Appendix 1
List of TPAs who have been granted licence by IRDA
______________ Company_____
Dawn Services
Parekh Health Management
3. Medi Assist India
4. Guardian Health Management
5. MD India Healthcare Services
6. Paramount Health Services
7. E Meditek Solutions
8. Heritage Health Services
9. Universal Medi-Aid Services
10. Medicare Foundation
11. Tower Insurance Services
12. Medicare TPA Services (I)
13. Family Health Plan
14. ICAN Health Services
15. Raksha TPA
16. TTK Healthcare Services
17. Anyuta Medinet Healthcare
18. East West Assist
19. Med Save Health Care
20. Genins India
21. Alankit Healthcare
22. Bhaichand Amoluk Insurance Services
23. Good Healthplan
1.
2.
Location
Secunderabad
Mumbai
Bangalore
Bangalore
Pune
Mumbai
New Delhi
Kolkata
New Delhi
Goa.
Mumbai
Kolkata
Hyderabad
Pune
New Delhi
Bangalore
Bangalore
New Delhi
New Delhi
NOIDA
New Delhi
Mumbai
Hyderabad
I
28
Appendix 2
TPAs in India
Sedgwick Parekh Health Care Management Limited is one of the first TPAs in managing
health care products in India. The company was set up in 1996 in Mumbai as a joint venture
between the Sedgwick Group through its subsidiary Sedgwick Noble Lowndess, and Dr
Ramnik Parekh family in Mumbai. Sedgwick Parekh specifically provides services to the
corporate sector. The services are customised health benefits strategies for employers,
supported by state-of-art software and health management processes. Sedgwick Parekh
provides a host of health services that complement a company's health benefit plan and covers
a wide spectrum of healthcare needs of employees. It currently provides service to about 108
companies with coverage of 85,000 employees and dependants. Sedgwick Parekh has a
network of 255 hospitals nation-wide covering 77 cities - from small community based
hospitals to large hospitals. The company recently added 123 diagnostic centres and 184
general physicians spread across more than 10 cities. Germany based re-insurance major
General Cologne Re has formed a strategic alliance with Sedgwick Parekh to enter the Indian
insurance market as TPA. Recently, the US based health services company United Health
Care International finalised a deal to control 80 per cent stake in Sedgwick Parekh.
Paramount Healthcare Management is another leading TPA operating from Mumbai. Munich
Reinsurance Company of Germany has picked up one-third stake in Paramount and plans to
make it into a world class TPA in India. Munich Re has also the option to increase its stake to
51 per cent in this venture. Paramount has a network of 386 hospitals nation-wide.
Family Health Plan Limited is a subsidiary of the Apollo Group and is based in Hyderabad.
The company has its offices in Delhi, Chennai, Calcutta, Mumbai, Bangalore, and Pune. The
company was established in 1995. Major clients of FHP are public sector companies. It caters
to the corporate sector and individual policyholders as well. FHP networks with around 600
hospitals, 250 diagnostic centres, and 1000 general practitioners across the country.
Dawn Services Private Limited operates from Secunderabad since 1997. The network consists
of 45 hospitals, 33 diagnostic centres, 6 dental clinics, 4 hearing aid centres, 3 physiotherapy
centres, 24 pharmacies, and 142 general practitioners. Individual Mediclaim policy holders
are the major clients of this company. The company also provides services to other companies
and institutions.
29
Appendix 3
United Healthcare, USA: United Healthcare (UHC) is an HMO and is part of the United
Health Group, one of the largest and prominent health care companies in the United States.
The company offers a wide variety of health services internationally.
United Healthcare offers consumer-oriented health benefit plans for individuals, small
businesses, and mid-sized businesses. Healthcare plans and services reach over 16 million
people, from groups ranging in size from 2 to over 5000 with one and multiple locations.
UHC also serves Medicare and Medicaid population. Customers can access 400,000
physicians and 3,300 hospitals. Over 50 per cent of US hospitals are part of the network.
Customers have the choice of various health plans. It is also involved in designing healthcare
benefit plans and services that provide access to quality physicians and other healthcare
professionals, offering greater consumer choice and control over healthcare services, and
supporting informed decision-making by delivering relevant information to consumers and
physicians. The services can be categorised into: (a) medical, (b) life, (c) dental and (d)
vision. In America, the traditional health insurance plans require a primary physician’s
referral to get access to a specialist. In 1984 UHC pioneered the introduction of what it calls
open access” or “no gatekeeper” model for health care. Patients could have direct access to
specialists.
United Healthcare International (UHI) was set up as an international health service provider.
The company is interested in investing or building health service organisations that provide
expert management and administration of health insurance portfolios for partners and clients
throughout the world. In effect, UHC facilitates the provision of local health insurance
products for insurers and/or self-funded employers, but does not provide actual insurance.
The company has long experience in health administration for clients and subsidiaries in
countries throughout Europe, Asia, Africa, and South America. UK’s health insurance
administration system is designed specifically for use in the international market.
The core strengths of UHC are:
The largest US portfolio of comprehensive insured health products
The largest US administrator of self-insured health products
Specialised companies that manage supplemental health products (mental health, dental,
vision, and alternative care)
A flexible, comprehensive proprietary IT platform to manage health products
internationally
Innovative data mining tools to manage health risk
Effective care coordination programs
Significant expertise in establishing and managing provider networks
Significant expertise in developing/managing international private health insurance
products
For its international companies, UHI typically has a strong local partner. These partners
provide the local market expertise to complement the technical expertise and know-how
contributed by UHI. The make-up of the partners may differ from country to country and
can include the following:
Insurers (multi-line and health specific)
Supplemental health benefit insurers
Third party administrators (TPAs)
Assistance companies
Preferred provider organizations
Medical management companies
30
Till now UHC has ownership interests in health service operations in Hong Kong, India,
Malaysia, the Philippines, Portugal, and a health care administrative system in South Africa.
This company offers comprehensive health care administration services, outsourcing the
back-office" services typically provided in-house by insurers and large employers. The
services depend upon the operational strategy and tie-up with local partner.
United Healthcare India: United Healthcare estimates a big health insurance market in
India. United Healthcare International in February of 2002 purchased equity stake in
Sedgwick Parekh Health Management (Private) Limited, a Mumbai based third party
administrator and health management company. Sedgwick Parekh since its establishment in
1996 has pioneered the concept of managed healthcare services in India. United Healthcare
India has positioned itself as a leading company for consultation, evaluation, and development
of corporate health plans and employee health benefits. United Healthcare India today has
offices located in Mumbai, New Delhi, Bangalore, Chennai, Hyderabad, Ahmedabad, and
Pune serving a client base of 135 corporations with over 100,000 members. The provider
network which is called Health Connect spans over 510 hospitals and nursing homes in 171
cities, over 200 diagnostic centres, specialist consultants, and primary care physicians giving
a network spread of over 900 providers in 179 cities.
UH India offers a complete range of managed health care services such as:
•
•
•
Claims and benefit management for both network and indemnity products, for both
inpatient and outpatient services
Billing and enrolment services
Provider network services, through our contracted network,
Care coordination and health services programs
Customer service/call centre facilities for all constituencies, including members,
providers, and employer groups
Nurse line/Help line for health care questions and information
Health care communications
Employee health plan design; claims management and administration, call centre services
Preferred provider organization marketed as Health Connect
Health risk management
Occupational health
Case management and disease management services
Pre-enrolment screening and medical examination services and logistics for life insurers
In addition, the following value added products and services are also offered depending upon
the operational strategy in each country.
•
•
•
Healthcare management consulting services
Product development and underwriting support
Benefit design
Member communications materials
Member education and training programs
Customised medical and dental products, for example, well woman, and flu management
programmes
31
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