1. Indian Cashless Health Insurance: A window of opportunityNitin Pahuja & Ujjawal JainAn analysis of the Indian Cashless Health Insurance Industry identifying the key structuraldeficiencies leading to a situation of distrust between parties involved. The study as a part ofIIM, Indores Consulting competition, Chanakya, organized in association with Cognizant alsoproposes solutions for resolving the present imbroglio between the service providers andinsurance companies.Team Unnati, Great Lakes Institute of Management

2. Table of ContentsIntroduction ......................................................................................................................... 3 The new India ............................................................................................................................... 3 Being Pro-active ........................................................................................................................... 3 Role of Health Insurance ........................................................................................................... 3 The recent spats ........................................................................................................................... 4 Going forward ............................................................................................................................... 4 Shift of focus .................................................................................................................................. 5 Getting it right and opportunities for Cognizant .............................................................. 5Methodology ......................................................................................................................... 7Proposed Solutions ............................................................................................................ 8 Grading Healthcare Service Providers: Foundation of broader product variety . 8 Broadening the product portfolio ................................................................................................... 8 Customer Segmentation ...................................................................................................................... 8 Grading Methodology ........................................................................................................................... 8 Marketing the grades ............................................................................................................................ 9 Establishment of Standard Operating Procedures across the industry ................10 Need for Standardization ................................................................................................................. 10 Bringing clarity .................................................................................................................................... 10 Action Plan ............................................................................................................................................. 11 Risk Management: Surprise Audit & Customer Feedback ..........................................12 Product Innovation & Customer Engagement through Co-Pay .................................13 Product Innovation............................................................................................................................. 13 Action Plan ............................................................................................................................................. 13 Channel Distribution: Reaching out to Bharat ................................................................15 Building and managing new retail channels ............................................................................ 15 Choosing channels .............................................................................................................................. 15 Stronger, consumer-oriented branding ..................................................................................... 15 Marketing effectiveness.................................................................................................................... 16 Action Plan ............................................................................................................................................. 16Works Cited ....................................................................................................................... 16Appendix ............................................................................................................................. 18 Appendix I (Specimen Grading Account Sheet) ...................................................................... 18 Appendix II(Service Provider Grading Matrix) ....................................................................... 19 Appendix III ........................................................................................................................................... 20 Appendix IV ........................................................................................................................................... 21 2 3. IntroductionThe new IndiaIndia is on the anvil of becoming an economicsuperpower leveraging its demographic dividend. Adynamic & healthy workforce in context of ourrapidly growing service economy is critical. Ensuringthat our young population remains healthy andcontinues to operate at maximum productivity is animportant imperative. Indian growth has seen atransformation of the average Indian into aformidable commercial power with huge disposableincome.While the growth is far from inclusive, it has led tothe creation of a prospering middle class, which isexpected to increase to 500 million by 2025. It isalso proclaimed that food, transportation, housingand utilities,healthcareandpersonalproducts/services will account for over 80 per cent of total cumulative spending in Indiaover the next 20 years. It is worthwhile noting that the last 20 years have seen healthcareconsumption growing rapidly at 8 per cent, approximately double the rate of growth foroverall consumption. This strong growth trend is expected to accelerate over the next 20years creating a nearly 9 trillion rupee healthcare market. (Singhal, 2007)World-class and inclusive healthcare financing is critical for Indias 2020 vision as most ofthe healthcare expenditure is still paid out of pocket by individuals, leading to financialdistress or inadequate care. In this context, there is a clear need for a rapid increase inaccess to health insurance.Being Pro-activeHowever it will be nave to assume that the massive expected growth of the market willhave an absolute positive correlation with the growth in Health care industry. The beliefthat profits are assured by an expanding and more affluent population is dear to everyindustry, wrote Theodre Levitt in his famous HBR article, Marketing Myopia. He went ontoexplain that such assumptions often lead to a myopic perspective leading to a self-deceiving cycle of bountiful expansion and undetected decay, which ultimately leads to thefall of the industry. It is therefore important that the health care sector remains pro-activeand innovates to leverage the huge opportunity that the Indian market will offer goingforward.Role of Health InsuranceHealth insurance as a component of theoverall health care eco-system in thecountry holds tremendous importance.Indian Health Insurance Industry is still in itsinfancy and has just about reached a stageof transition. Its expansion is critical toproviding health care facilities in an inclusivemanner.Cashless healthinsuranceespecially holds the key to stimulatingfurther penetration in the market. In arecent study of IMRB commissioned byKPMG, majority of the focused groupparticipants across six cities in Indiaexpressed Cashless Insurance as a primaryadvantage. The arrangement of CashlessInsurance has led to the increase in sales of3 4. Health Insurance policies. (Lombard, ICICI)The recent spatsThe cashless model however has been undergoing rough times with multiple problemsstemming out of the structural deficiencies prevalent in the multiparty setup. There havebeen few controversies over the hefty billings done by large hospitals to the patients thatare covered by insurance companies.This has been followed by a decision by public sector health insurance companies to denycashless services for some of the networked hospitals. While progress has been made onthis issue with regulators, healthcare providers and insurance companies coming together,a lot remains to be achieved.Going forwardWe strongly believe that the insurance industry especially in the health care segment willhave to emerge into a retail driven model thereby taking relevant cues from the advancedretail oriented way of business. Right from product innovation in terms of Co-pay todistribution realignment powered through alliances with SHGs in rural India, the healthinsurance model of business is slated for significant change. Build an Build expertise Strong processesProduct InnovationRisk Management Channel Distribution innovative set ofin managing governed by a core healthretail channels stringent insuranceand bolster their monitoring products and anapproach to body, array of distribution by periodically ancillaryimproving their evaluates, tested products and branding andand reinvented services.marketing.in line withlatestconventions. 4 5. Tracking the western markets that have evolved into an advanced retail set up, it isrationale to believe that strategic elements like product innovations combining financingmechanisms, elements of managed care and advice; the ability to manage multi-channeldistribution; and capabilities for risk-based pricing, will emerge as the key drivers ofbusiness going forward. (Ehrbeck & Kumra)Shift of focusAn important aspect critical to Health Insurances future in the country would be its abilityto shift the focus from curative care to preventive care. Insurance companies thus far havefocused on improving their products with respect to better coverage and support forcurative care but have failed to give due importance to preventive care. This has led to ahuge market notably the young remaining oblivious to the health insurance product andalso has a significant role in the high claims to premium ratio in the Indian framework.Health Insurers need to come up with product innovations that focus on preventing fataldiseases by having regular checkups or yearly evaluation as a free option for allpolicyholders.As depicted by the figure above, forty per cent of the disease burden in India is caused byinfectious and parasitic diseases, nutritional deficiencies, prenatal and maternal conditions, andrespiratory conditions. These are relatively easily preventable and arguably a matter of publichealth programs. Indias expenditure on primary prevention and public health is low byinternational standards (US$13 per capita on a purchasing-power-adjusted basis compared to,for example, US$17 per capita in Vietnam, US$22 per capita in Mexico, and US$25 per capita inEgypt) and can be significantly increased in line with the Central Governments declaredintentions. (Ehrbeck & Kumra)Getting it right and opportunities for CognizantIt is with view of these issues that we have attempted to dig deep down to the root causesof these symptoms of structural misalignment. We have carried out a thorough researchand incorporated the views of industry experts in defining the core problems from theperspective of the stakeholders. We have studied different models of operation as followedin the western economies and benchmarked the best practices followed in those marketsas a driving force for our suggestions.We have concluded with five broad solutions that are aimed towards development of aprocess driven and well monitored cashless health insurance setup. We have also been5 6. able to clearly outline opportunities for Cognizant to fill the structural gaps through itstechnology and consulting practices.We have deliberately abstained from offering myopic solutions and stuck to suggestionsthat are comprehensive and form the basic foundation for robust, long-term developmentfor the sector. This approach we believe will offer Cognizant a much larger role in changingthe whole landscape for this domain of the Indian insurance industry.6 7. MethodologyIn this study we have outlined the key dynamics of the Indian Health Insurance market.We have covered critical macro aspects of the Industry like its structure, potential forgrowth and key stakeholders. The macro analysis of the industry is followed up by afocused overview of the basic processes involved in the functioning of Cash-less insurance(being the primary area of exploration for this study). Health Insurance ProvidersHeath care ConsumerServiceproviders Third Party Media AssuranceGovernment IRDAThe next segment of the report deals with key learnings from the western HealthInsurance model. We have outlined core competencies for a healthy health insuranceindustry drawing its origin from the US Health Insurance industry. The penultimate sectiondeals with an insight into the Indian industry with a focus on key problems and theirrespective root causes categorized with respect to the following perspectives:1.Insurance Companies2.Healthcare Service Providers3.TPAs4.Industry as a whole (Macro Issues)The last section deals with suggestions that can facilitate Indian Health InsuranceIndustrys evolution into a truly world-class healthcare management system which isaffordable, inclusive and flexible. The suggestions have been elaborated under thefollowing heads Grading of Healthcare Service Providers and products on the basis of service quality & premium price Establishment of Standard operating procedures across the industry Establishment of internal controls alongside process audits Introduction of Co-pay schemes in the Indian health insurance industry Channel Distribution: Reaching out to Bharat 7 8. Proposed SolutionsGrading Healthcare Service Providers: Foundation of broader product varietyHealth Insurance offerings over the years have not undergone much change leading tounsatisfactory levels of market penetration and low consumer recall. The recent chain ofevents has also highlighted the problems with respect to insurance companies incurringlosses due to high claim ratio.Broadening the product portfolioWe believe that lack of customized offerings for consumers across demographics, needsand regions is the primary driver of the above-mentioned eventualities. Therefore in ouropinion an immediate expansion of health insurance products is an imperative. Insurancecompanies must broaden their product portfolio in order to cater to the different consumerclasses, profitably.Customer SegmentationThe implementation of this recommendation however is heavily dependent on insightsdrawn from market data that captures customer needs, consumer perceptions, and qualityof service delivery apart from other key metrics that will serve as the basis of customerdriven product innovation in the future. Key issues with Standard Mediclaim Policies across segmentsGrading MethodologyWe propose the establishment of a dynamic grading methodology that will gradehealthcare service providers on the basis of quality of service, affordability andgeographic coverage amongst other key variables. Customer satisfaction will alsobe an integral component of the overall score for the service providers andtherefore play a critical role in determining the actual spread of grades. Thespecimen of Grading Account Sheet and Grading Matrix has been attached in Appendix I &II respectively.These grades will help the insurance companies identify conspicuous customer segmentson the basis of their uniqueneeds. For e.g. a customer looking to secure quality service ina multicity hospital chain should ideally be charged differently from a small town customerwho is satisfied with access to nursing homes and small hospitals in his city. Insurancecompanies can therefore create products that are based on the quality of service,availability of co-pay and coverage of preventive services on the basis of these grades.We are confident that insurance companies can reduce their claims to premium ratiosignificantly by offering diverse products based on these grades matching the uniqueneeds of the customers. They can charge an extra premium from the buyers of policiesthat provide cover in the top grade healthcare service providers while they can stop clientswith low insurance premiums from overspending in these highly priced facilities byrestricting access except in the case of emergency.8 9. Marketing the gradesThese grades should be available on the websites and policy brochures of all the insurancecompanies and serve as a benchmark for price negotiations with the service care providersthemselves.Note: It is important to note that we dont suggest restriction of access in case ofemergencies. Such a step will lead to serious dilution of trust between the parties therebyleading to an overall bad impact on the insurance companies.9 10. Establishment of Standard Operating Procedures across the industryThe health insurance industry comprises several key players across its value chain. Thefollowing can be listed as the major players engaging with each other throughout the valuechain, very often with mutually conflicting goals.1.Insurance companies2.Third Party Administrators (TPAs)3.Reinsurers4.Healthcare Providers5.Distribution Channel Partners6.RegulatorsNeed for StandardizationThe recent spat between the service providers and the insurance companies is testamentto the prevalent distrust amongst the parties involved. It is unreasonable to expect mutualtrust to be able to drive a robust operational framework in a market of such high stakes.Therefore it is imperative for the industry participants to be aligned with a set of industrywide standard operating procedures filling key process gaps and structural deficiencies inthe present framework.Source:(KPMG & CII, 2008)An off-shoot of the lack of standardization of healthcare providers is the differing qualitiesof service, costs, procedures, treatments across different providers. This has resulted inlow customer satisfaction, unethical practices such as long hospital stays, expensivetreatments and drugs. For building a strong and consistent healthcare infrastructure,standardization of healthcare costs and introduction of accreditation norms is a pre-requisite. (KPMG & CII, 2008)Bringing clarityWe propose the formation of a regulatory body with participation from all partiesinvolved with a clear goal of establishing and monitoring compliance to industrywide standard operating procedures.We are positive about the ability of this move to even counter the failed attempts in somestates toinstitutionalize uniform standards for hospitals, with health being a state subjectin India. We foresee the creation of an industry wide web based operational platform toenable Linking all the parties involved through a single channel Seamless communication amongst parties involved Clear establishment of authority and responsibility 10 11. Action PlanThis proposal demands industry wide support and cooperation from all the parties involvedand the following schematic elaborated upon the role of all the parties in great detail.Source: (KPMG & CII, 2008)We are positive that this will lead to the following favorable outcomes for the industry as awholeImproved performance of all parties w.r.t service quality and turn-around timeReduced administration and processing costsEffective risk control across processesA key input for grading service providersElimination of multi-party bargaining and contracts which led to confusionDevelopment of a co-operative model, critical for evolution of the health insurance industry as a whole11 12. Risk Management: Surprise Audit & Customer FeedbackCashless insurancecreates disincentives to control costs as it appears to be afree good forthe patient and the provider, often resulting inexcessive treatment by the provider(induced demand) and frivoloususe by the patient taking treatment even for aconditionwhich he would normally have ignored or cured with ahome remedy (moralhazard)(Rao, 2008). Also problem such as asymmetry in information put the patient andthe insurer at a disadvantagedue to their inability to resist or challenge medicalopinionregarding an existing condition or future treatment. Besides,in the absence ofknowledge of prices, the provider can shortchangethe two by overcharging. Some of thekey initiatives and the actions required to tackle this are:Independent regulatory body:One ofthe key issues identified from the insights that wehave received is the absence of an independent regulatory body. A panel comprising ofindependent Doctors appointed by IRDA should be formed. The team should be responsibleforAudit of bills: A random check of claim cases to assess the necessity of varioustreatments. The team should be responsible for checking of bills and claims made fromhospital. Higher the amount of claim, more the chances for fraudulent bills, to tackle thiswe propose a mandatory audit of bills above Rs. 1.5 lac post redemption of claimsGhost Audits: Mystery shopping as a patient to assess the quality of advice/suggestionmade by the health care service provider with regard to theinsurance coverageCustomer Feedback: Feedback evaluation for service providers through a dynamiccustomer feedback system that generates ranking for service providers on variousparameters such as Responsiveness Reliability EmpathyThere are various touch-points where technology can help create and monitor processes ina much more efficient way. Feedback can be collected for different service providersthrough Internet, data collection at bill payment by audit team during surprise visits etc.The objective is to establish integrated standard operating procedure across the countryand build a ranking system on the basis of overall customer satisfaction & compliance toindustry standards.12 13. Product Innovation & Customer Engagement through Co-PayIn a retail-oriented world, health insurers need straightforward, segment-tailored, quick-to-market products. Consumer industries gain limited advantages from any singleinnovative offering, as rivals are quick to copy. However, competency in developingdistinctive products faster than competitors delivers substantial value in the long run. Toachieve leadership, health insurers must focus on building a broad product portfolio andmanaging products more effectively.Product InnovationHealth insurers in a retail context need an innovative set of core health insurance productsand an array of ancillary products and services. Breadth is important to realizingeconomies of scope (e.g., in distribution) and covering the range of risks and expensesthat consumers face. We have looked at the following four broad categories of productinnovations from the prospective of all stakeholders.Coverage of incidental costs and more diseases: While hospitalization forms asubstantial cost in medical care, pre-hospitalization entails visits to specialists, diagnostictests etc., and post-hospitalization care also entail high costs. Therefore,coverageofthese expenses is desirable. As per a research done by,(CII, 2008)consumers expectcoverage of diabetes, blood sugar, dental ailments, surgeriessuch as eye surgeries, rootcanal etc that do not require hospitalization, andspecialized coverage for women to be partof their Model Health Insurance offerings. A wellness oriented policy model followed in theUS has been attached in Appendix IV and it reflects the needs of a maturing market.Product Bundling: Sophisticated bundling approaches will be needed to combine productdistribution synergies, consumer preferences, and ease of communication. One suchapproach is one U.S. insurers attempt to bundle individual health insurance, dental, andlife insuranceLong-term policies: Consumers should also have an option to take longer-term healthinsurance policies compared to the existing one-year policies.Pricing Innovation: Currently for most policies, the frequency of payment of premium isyearly. However, an alternative possibility of a one-time premium with life-long coveragewill be preferred especially by self-employed people who could have a spurt in earningsduring a particular year, which can be invested in a policy as a onetime investment.Another alternative is the payment of a one-time large premium, followed by yearly top-ups to cover a family for a long periodCo-PayCo-pay is a policy option whereby the customer is bound to pay a small percentage of thetotal bill by his pocket. Whenever possible all enrollees should contribute, even if onlysymbolically, to premium and co-pay to increased perceived ownership and manageutilization. Co-payments can be tiered as per different network toencourage patients tolook at other hospitals in allianceTo ensure extensive penetration of health insurance in India, companies can test theacceptability of two successful global health insurance modelsstated in Appendix IIIamongst Indian consumers.Action PlanProduct & pricing innovations is expected to be the key driver for penetration of healthinsurance in India.Some of the key initiatives and the action steps for various stakeholdersinclude: 13 14. Source: (KPMG & CII, 2008)14 15. Channel Distribution: Reaching out to BharatTo increase the penetration of Health Insurance in India, there is a need to exploreinnovative distribution channels. Health insurers must build expertise in managing retailchannels and bolster their approach to distribution by improving their branding andmarketing. Whether they distribute directly to consumers or through intermediaries, theywill also need distinctive brands and an overall brand communication strategy that gainsthe consumers trust.Building and managing new retail channelsReaching individuals requires a host of channels and sales approaches. Five types holdpromise:Direct-response channels. These include a captive sales force, call centers, the Internet,direct mail, mobile medium and television commercials. WellPoint in US, primarily uses theInternet, for example, to sell a product aimed at consumers aged 18 to 29 (younginvincible) who think they do not need health insurance. The online channel is alsogaining in importanceweb agencies sold roughly 10 per cent of new individual policies in2006. The online channel has the potential of attracting younger and healthier customersRetail stores. Health insurers are offering health benefit products through Costco andWal-Mart, and pharmacies such as Walgreens in US. One of the biggest success stories forpayors has been in selling Medicare-related products to the elderly through bricks-and-mortar retailers. Kiosks can be established at the waiting areas of stores to garnerinformation about the products, which can be further followed up by the insuranceprovidersAffinity-marketing relationships. Health insurers that have used such relationshipssuccessfully include Humana (with Virgin) and United Healthcare (with the AmericanAssociation of Retired Persons, or AARP). Organizations like Baghidari in Delhi should beapproached for this purposePartnerships with financial institutions As consumers pay more for healthcare andhealth-oriented financial products, these two areas will naturally converge. RoyalSundaram, for instance, has employed partnerships with CitiFinancial, Citibank amongothers in India for distribution of insurance. More such tie-ups are needed with NBFCs,Banks, SHGs, NGOs and organizations like ITCs e-Choupal for wider insurance inclusionWorksites. The worksite provides an attractive channel as it garners a natural trustamong employees that their employer has vetted the carrier. In addition, it providesaccess to payroll deductions as well as opportunities to implement wellness programs.Individual insurance carriers are, for example, working to partner with small employers tooffer individual products at the workplace, with or without financial contribution from thebusiness.Choosing channelsDifferent consumer segments have different preferences and attitudes, and payors mustunderstand them. Some consumers, for example, want a trusted adviser who can makedecisions for them, while others desire information and tools to make their own decisions.Preferences also vary by demographics; for example, most retirees like greater support.Understanding such preferences is important when companies decide whether to use directchannels or channels that provide for human intervention. Because a consumers riskprofile (that is, health status) is correlated with demographics, the choice of channels canbe a significant driver of profitability.Stronger, consumer-oriented brandingWhether health insurers distribute directly to consumers or through intermediaries theywill need to develop distinctive brands and an overall brand communication strategy. At aminimum, health insurers must gain the trust of consumers, which frequently does notexist. If done well, a strong consumer brand can deliver significant value in the way ofprice premiums, positive risk selection, and lower distribution expenses. Develop multiple sub-brands under an umbrella brand to provide more targetedsupport to different products, channels, and/or customer segments15 16. Continue experimentation with affinity marketing and co-branding, both of which canbe effectiveMarketing effectivenessIn a retail context, health insurers need to effectively manage their marketing spendbecause their distribution approaches will become exponentially more complex and thenominal amounts in play could be significant. Build up ability to track and measure the performance of each marketing spend, suchas the impact on the response rate of changing the type of envelope used for a directmail piece Health insurers will need segment-specific targeting and positioningAction PlanSome of the key initiatives and the action steps for various stakeholders include:16 17. Works CitedCII, K. (2008). Health Insurance Inc: The Road Ahead. Health Insurance Summit2008, (p. 18). Mumbai.Ehrbeck, T., & Kumra, G. Sustainable Health Insurance. McKinsey & Company, Inc ,Healthcare Payors and Providers Practice . McKinsey & Company, Inc .ICICI. (n.d.). Tips for Insurance Card Holders. ICICI Prudential Life InsuranceBrochure . India: ICICI Prudential.KPMG & CII. (2008). (p. 31). Mumbai: KPMG, CII.Levitt, T. (2004). Marketing Myopia. Harvard Business Review .Lombard, ICICI. (n.d.). Popularizing Cashless Hospitalization. Delhi, Delhi, India.Rao, K. S. (2008). Financing and Delivery of Health Care Services in India. NewDelhi: Commission on Macroeconomics and Health, Govt of India.Singhal, S. (2007). Sustainable Health Insurance : Global perspectives for India.McKinsey & Company, Inc . New Delhi: McKinsey & Company, Inc , FICCI.17 18. AppendixAppendix I (Specimen Grading Account Sheet)Service Provider: Grading Account SheetGrading Dimensions Methodology ScoreInfrastructureLocal Coverage No of beds/Population of cityNo of Operating Theaters No of beds/Population of cityCapacity of ICUNo of beds/Population of cityTotalExpertiseNo of permanent DoctorsNo of Doctors/Avg Patient InNo of MD Doctors MD Doctors/Total DoctorsNo of DM Doctors DM Doctors/ Total DoctorsNo of MS Doctors MS Doctors/ Total DoctorsTotalValue for Money IndexOPD ChargesExpressed as a percentile scoreBed ChargesExpressed as a percentile scoreSurgery ChargesExpressed as a percentile scoreHeart Surgery ChargesExpressed as a percentile scoreTotalCustomer SatisfactionIndexResponsiveness Expressed as a percentile scoreEmpathyExpressed as a percentile scoreReliabilityExpressed as a percentile scoreTotal Weighted average of the dimensionComprehensive Scorescores18 19. Appendix II(Service Provider Grading Matrix)Grade MatrixGrading IndexScore RangeGrade AMore than 90Grade B+ 76-90Grade B66-75Grade C+ 50-65Grade CBelow 5019 20. Appendix III (Globally Successful Health Insurance Models)Source: (KPMG & CII, 2008)20 21. Appendix IV ( Wellness Products Offered in the US)21