Introduction

The Insurance Regulatory and Development Authority (IRDAI) of India introduced the IRDAI Health Insurance Regulations 2016, with the stated objective of protecting the interests of policyholders. IRDAI’s first mission statement is “To protect the interest of and secure fair treatment to policyholders”[i]; however, it’s an irony that the health insurance regulations, 2016 shows that the IRDAI does a poor job in achieving the very first mission statement it has.

A critical analysis of the regulation reveals a lack of serious intent on the part of the IRDAI to ensure adequate safeguards to protect the interest and fair treatment of policyholders. A careful reading of the complete regulation shows that most of the clauses which can safeguard the interests of the policyholders are written in a very generic tone, without providing detailed guidelines, and it looks like the author/s of the regulation have little exposure to the difficulties faced by an average policyholder or their caregiver while making a health insurance claim.

This negligence in framing a strong regulation has caused a lot of difficulties to an average policyholder at a time, when dealing with the insurance rejection is the last thing one should face. The regulations don’t mention any conditions, rules or procedures based on which the claim must be accepted or rejected. The acceptance or the rejection of the claim depends on the discretion of agent reviewing your file, whose incentives might lie in rejecting the claims.

Key Issues

Rejection of claims and related difficulties

Cashless claims

One of the key features of a health insurance policy is the cashless treatment at an empaneled hospital in the insurer’s network. However, cashless treatment is often denied based on unreasonable excuses like lack of a specific treatment or pointing out that the policy holder failed to disclose the prevailing health condition while buying the policy. In many cases the policy might be running for a couple of years and the insurance provider will be doing an annual checkup, yet they disregard the findings from these annual checkups to decline the claim.

Reimbursements

There are issues with the reimbursement claims too, often, after declining the cashless hospitalization the reimbursement is declined too, when the policyholder makes a claim after getting discharged. Often the reimbursement is declined saying the line of treatment is not correct[ii] or the stay in the hospital was not required or the surgery performed was not required in their view[iii].

Post-hospitalization

Once the hospitalization expense is covered and settled, a new challenge is of getting the post-hospitalization claims, here the bills are rejected on unfair grounds, which at times will be against the terms and condition of the policy itself. Another issue with the post-hospitalization claims is that all the processes of the insurance, like claim status updates, claim intimation, submission of bills by the empaneled hospital, grievance etc. are online except submission of the bills for post-hospitalization claims, just to make it so much more difficult and inconvenient for the policy holder. One is supposed to submit the post-hospitalization bills either in an insurer’s office nearby or post it to their designated office, and in both the cases at the time of payment, often the insurer claims that certain bills are missing and there’s no way a policy holder can prove otherwise as the insurers purposely don’t provide an official receipt of the documents if submitted to the local office and obviously you’ll get nothing when you post the bills to them. I do understand that they might gave fears of getting fake and bogus bills, but that can’t be an excuse to deprive the large number of policy holders from the convenience of online filing the post-hospitalization bills.

Low claim ratio

These issues can be corroborated with the average claim ratio of 61.44% for the Standalone Health Insurers[iv] (SAHI), which means they only pay about 61.44 Rs for every 100 Rs collected as a premium. In certain countries like USA this level of claim ratio would have led to refund of a portion of premiums to the policy holders[v]. Such a low claim ratio indicates that SAHI are charging their customers way more than they should or rejecting the claims without any reasonable merits.

Things are much better when it comes to the private and public sector insurers who are providing health insurance policies. The public sector insurers are giving out more claims than the premiums they are getting which makes them unsustainable in long run, but due to government backing they can sustain without any issues. One reason for such high claim ratio is that the public insurers generally charge a much lower premiums compared to their private counterparts. Whereas the private sector health insurers are having a claims ratio of roughly 80% which is reasonable and sustainable for them.

Weak Regulation

The section 27 of the regulation which deals with the settlement or rejection of the claim doesn’t even talk about the process to be followed to reject or accept the claim, it only talks about the logistics of the claim process like how soon the claim should be settled, how the information should be stored etc. This is the most important section of the regulation and yet the weakest one leaving the decisions in the hands of the insurers, and hence they abuse their power to frivolously reject the genuine claims.

If one reads the regulation carefully, the word “penal provision” comes only twice once in section 28(iv) which deals with the minimum disclosures, and the second time in point 11 of the Schedule-I of the regulation which deals with the sharing of data between the insurers during the portability of insurance. Both of which is nothing to do with the claims, and there are no penal provisions from IRDAI if the insurer wrongfully rejects your claims. It shows the lax attitude of IRDAI to not cover the most important clause of the whole regulation under a penal action, rather it leaves the field open to the insurer to decide the acceptance or rejection of claims as they please.

Litigation

The rejections of claims are unfair, and the insurance provider knows about it and hence at times insurance providers don’t even appear in the court when their decisions are challenged[vii], displaying the unethical situation of the insurance industry and the mockery of the spirt of the very idea of insurance. In an analysis of health insurance sector of India, a paper titled “Fair Play in Indian Health Insurance” from the “National Institute of Public Finance and Policy”, the authors claim that the complaint rates against the health insurance providers are highest in India compared to the other common law jurisdictions, when adjusted for the various factors like litigation rate, number of touchpoints etc.[viii] The authors of this paper also claims that “One common thread which stood out was the absence of complexity in these disputes, most relation to arbitrary and illegitimate rejection of claims by the insurers”. A cursory look at our consumer courts shows that highest share (27%) of their cases in 2022 are related to insurance disputes[ix], out of which the disputes related to health insurance claims are the biggest chunk.

For the insurers the penalties involved in such cases are insignificant and therefore, for them it’s financially more prudent to reject a claim and settle it after the court verdict. This helps them save money as only a fraction of policy holders generally goes to courts with their disputes and the penalties involve doesn’t even cover the time value of the claimed amount. Rejection of legitimate claims furthers the surplus of insurance companies[x].

Side-effects of the current condition

Today when you visit a hospital, everyone in the hospital, be it doctors, administrators of ICU, or staff from the billing department, they’ll keep reminding you at every point that the insurers are in lookout for just one excuse to decline the claim and hence we need to be very careful while filling the papers or giving any statement to the insurer. It’s an environment filled with complete distrust and helplessness.

There’s another side effect too, due to the prevalent conditions and issues witnessed by policyholders, today people have a high level of distrust towards the health insurance products. There are people who think that it’s makes more sense to save money for future health emergencies rather than relying on the insurance products, which seldom fulfill its promises at the time of need. Hence, solving these issues are not only in interest of the policyholders but also in the long term interest of the health insurance industry.

Solutions

A good regulation or act is the one, which not only addresses the problem at hand by putting down detailed rules and procedures to fairly preserve the interest of all the parties involved, but also removes all the grey areas where discretionary powers can lead to unfair business practices and disputes which further results in a litany of avoidable litigations which ends up chocking the judiciary and delaying the rightful claims of the aggrieved party.

To address the current issues, IRDA must strengthen the regulations to make it more transparent, fair, and stringent. IRDAI needs to ensure that the policyholders - who are the biggest yet the most vulnerable stakeholder in the whole exercise – needs to feel protected and secure. The insurers need to have an empathy towards the policyholders and their caregivers and should understand the mental state of people involved and should extend a helping hand instead of creating a mess while someone is fighting for life.

IRDAI needs to amend or update the relevant sections in such a way that the burden of proof should be on the insurer when they decline a claim. A claim can’t be simply denied because in the insurer’s view the treatment wasn’t required, or the line of treatment was not correct. Once a qualified doctor prescribes anything, be it hospitalization, a line of treatment, a particular surgery or medication, it should become bound to the insurer to settle such claims. Time and again the supreme court and other high courts have extended the benefit of doubt to the weaker party, for example an accused in case of a criminal case[xi], or to a taxpayer in cases related to taxation[xii]. Using the similar spirit of law in case of a doubt, the IRDAI rules needs to ensure that the benefit of doubt should favor the insured not the insurer.

IRDAI also needs to include a clause in the regulation that the treating doctor should have the final say when it comes to hospitalization, a line of treatment, prescribed medicines, or procedures. An insurer shouldn’t be able to challenge or decline the claim because they don’t agree with the treating doctor on any aspect.

Section 28 (Minimum Disclosures in Policy Document) of the regulation should also include the details on the number of people insured in the given plan, number of disputes raised by the policyholders in the last three years, and how many of those disputes went into the favor of insurer or the policyholders. This information in the policy document will not only empower the policyholders to take an informed decision, but will also incentivize insurers to improve their numbers by providing better service.

There must be severe penalties and penal actions prescribed in the regulation, to ensure that it makes business sense to accept the claims which are genuine. These penalties should be a large multiple of the legitimate claim under dispute, so that insurers are disincentivized to allow a dispute to go to court.

There also should be mandatory refunds to the policyholders if the claim ratio for a given insurer is less than the prescribed value, a standard practice in many parts of the world. This will not only disincentivize them to reject claims but will also make it more affordable for the policyholders.

Finally, IRDAI needs to review the complaints, disputes and the rulings coming from various courts to continuously evolve the health insurance regulations to fulfill its mission statement “To protect the interest of and secure fair treatment to policyholders”. Without immediate actions, this will remain a mission statement, not a reality.

Summary

In a country where good healthcare is a luxury and every year millions of people are pushed to poverty due to healthcare costs[xiii], we need more stringent regulations to address the issues currently seen in the health insurance market. IRDAI needs to step up and ensure that they do something to address the issue at hand while being empathetic towards the policyholders and update regulation to make it more transparent, fair, and effective for the policyholders at a time when they are fighting hard to save their lives and the health insurance policy is the only thing, they are clinging on to save their life and going into poverty.

Managing health care for a nation as large and as diverse as India is a complex task, and considering the income inequality in India, the fastest and the best way is to improve the quality of health care is to pass it on to the private sector, and to pay for the cost the insurance, but before that India needs more better and more fair regulations to support and ensure that the rights of patients are not compromised.

[i] ‘Mission Statement’, IRDAI <https://irdai.gov.in> [accessed 9 March 2024].

[ii] Jay Pachchigar, ‘“Insurance Company Can’t Decide Patient’s Line of Treatment”’, The Times of India, 25 April 2019 <https://timesofindia.indiatimes.com/city/vadodara/insurance-company-cant-decide-patients-line-of-treatment/articleshow/69032757.cms> [accessed 9 March 2024].

[iii] ‘Only Doctor Can Decide on Hospitalisation: Consumer Court Orders Compensation for Denying Covid-19 Claim’, Latestlaws.Com <https://www.latestlaws.com/latest-news/only-doctor-can-decide-on-hospitalisation-consumer-court-orders-compensation-for-denying-covid-19-claim-202929/> [accessed 9 March 2024].

[iv] Insurance Regulatory and Development Authority of India, ‘IRDAI Annual Report 2022-23’, IRDAI <https://irdai.gov.in> [accessed 9 March 2024].

[v] United States: National Archives and Records Administration: Office of the Federal Register and United States: Department of Health and Human Services, ‘Medical Loss Ratio Requirements Under the Patient Protection and Affordable Care Act. Part IV: Rules and Regulations’, Federal Register. Vol. 76, No. 235, 2011, 76293–600.

[vi] Insurance Regulatory and Development Authority of India.

[vii] Tribune News Service, ‘Insurer Fined for Denying Claim’, Tribuneindia News Service <https://www.tribuneindia.com/news/archive/amritsar/insurer-fined-for-denying-claim-465238> [accessed 9 March 2024].

[viii] Shefali Malhotra and others, ‘Fair Play in Indian Health Insurance’, SSRN Electronic Journal, 2018 <https://doi.org/10.2139/ssrn.3179354>.

[ix] Arora.

[x] Malhotra and others.

[xi] Legal Correspondent, ‘Benefit of the Doubt Must Go to Accused: Supreme Court’, The Hindu, 18 December 2018, section India <https://www.thehindu.com/news/national/benefit-of-the-doubt-must-go-to-accused-supreme-court/article25776010.ece> [accessed 9 March 2024].

[xii] ‘SC Gives Govt Benefit of Doubt in Tax Exemption Cases’, Moneycontrol, 2018 <https://www.moneycontrol.com/news/business/sc-gives-govt-benefit-of-doubt-in-tax-exemption-cases-2783861.html> [accessed 9 March 2024].

[xiii] ‘India: Extreme Inequality in Numbers’, Oxfam International, 2022 <https://www.oxfam.org/en/india-extreme-inequality-numbers> [accessed 9 March 2024].