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Namrata Acharya / Kolkata Jul 17,
2012, 00:56 IST Insurers may be burning their fingers in urban health
portfolios for some time now, but the government’s rural healthcare initiatives,
including its decision to provide free generic drugs to public hospitals, are
set to offer fresh avenues of growth for them.The recent government decision to
provide free generic drugs to government hospitals at an expense of $5.4
billion (Rs 29, 820 crore) could be a game-changer for the health insurance
business in India. While insurers suffer a high claim ratio in urban centres, in
excess of 100 per cent, the cost of health insurance in rural centres is
expected to come down with the new regulation.The cost of a generic drug is 80
to 85 per cent lower than the branded product, according to data from the US
Food and Drug Administration. In case of health insurance, medicines account
for 15-20 per cent of healthcare costs. This component is higher in rural areas,
which generally have poor hospitalisation facilities. Also, in the case of
several critical diseases, the cost of medicines is much higher than the
hospitalisation cost.“If the government decides to
provide free generic drugs to hospitals, the impact will be huge, and the cost
of health insurance would come down by a few times. The cost of branded
medicines in health insurance is huge,” said Kuldip Singh, director and general
manager, National Insurance Co Ltd.Notably, a number of government-sponsored
micro-insurance schemes have quietly changed the landscape of health insurance.A
Planning Commission document, dated January 31, 2011, states three major
schemes (Rashtriya Swasthya Bima Yojana (RSBY), Rajiv Aarogyasri and Kalaignar)
have in as many years covered roughly 247 million, a fifth of India’s
population.“Comparatively, the breadth of the coverage
is by any global standards quite breathtaking and has occurred at a rapid rate
in a span of three years, and this feat could be achieved even among the
vulnerable population and informal workers, where the penetration has been
difficult till recently,” the document said. This is in contrast to urban
health insurance schemes, where insurers are being forced to raise premium due
to high claim ratio. Recently, the finance ministry had asked four general
insurance companies—New India Assurance Co Ltd, United India Insurance Co Ltd, National
Insurance and Oriental Insurance Co Ltd—to reduce losses in the group health
insurance segment by increasing premium.The net combined losses of the four
insurance companies on group health insurance were estimated at Rs 1,500 crore
in 2011-12. Group health insurance schemes constitute more than 50 per cent of
the health insurance business of most public sector companies.While in group
insurance schemes the claim ratio is often as high as 150 per cent, in
government-sponsored schemes it ranges from 95 to 100 per cent, said an
executive of an insurance company, requesting anonymity.“The way forward for health insurance could be to tap the rural segment, as
the penetration is low and profit margins are better,” the executive said.It is
the mix and variation of rural micro-insurance policy that gives insurers a
profit margin. For example in RSBY, the variation in burnout ratio (evolved
specifically for the schemes) is reported to be in the range of 27 -136 per
cent in a large number of districts.“This is given the fact that in
several districts the utilisation rate of hospitals is extremely low. Commercial
insurers are obviously making usurious profits,” said the Planning Commission
document. At present, 80 per cent of all health expenditure in the country is
spent through personal resources. This is despite an increase in premium from
Rs 519 crore in 2000-01 to Rs 9,944 crore (19 times) in 2010-11.“The health insurance segment is expected to grow at 30-35 per cent. If the
government decides to provide generic, instead of branded, drugs, it will help
in reducing the claim ratio. However, it has to be clubbed with other supply
chain initiatives,” said Samir Bali of Accenture. Added P V S Lakshmi Prasad, deputy
general manager, United India Insurance: “In rural centres, the move to provide
free generic drug will definitely bring down the cost of insurance, but most
claims in health insurance still come from private hospitals.”
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