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Medical Insurance-some concerns

The basic concept of pooling resources at large to compensate few who suffer losses due to unforeseen calamities finds mention in the ancient history way back to the times of Manu and Kautilya. India has a rich history of compensation of loss through insurance. This sector which was once dominated by private business houses was taken over by public sector after independence. It was in the year 1956 when life insurance business was merged and got taken over by life insurance Corporation of India and in the year 1973 non life insurance was nationalized. The basic concept of nationalization of insurance sector after independence was to make it more popular, transparent, organized, and cost effective and to safeguard the interests of insured. Insurance being a social security was given special emphasis by the government through incentives for healthy growth and fulfillment of its objectives. The sector was again thrown open to private business houses in the year 1999 but with a stiff and constructive competition from public sector companies .One of the best products offered by insurance sector fulfilling all the essentials of being social service or social security is medical insurance popularly known as med claim policy.

Since government was not able to offer adequate medical services with the ever growing demand from the explosive and uncontrollable growth of population it started encouraging private sector to invest in medical services by setting up hospitals/medical labs and dispensaries. To ensure the growth of this sector special incentive like allotment of land at cheaper prices and other incentives including tax concessions were made available by the government. During last two decades India saw a consistent upward growth in private sector medical services. Medical professionals moved from government owned health services to private sector to get better compensation packages which resulted in private sector hospitals providing better, quicker and quality treatments as compared to government hospitals barring certain exceptions. Since the services 0ffered by these hospitals came at a cost this prompted people to think about medical insurance to ensure medical treatment without having adverse effect on their savings/finances. At present not only individuals get themselves or their families covered under medical insurance but a majority of employers offer medical insurance benefits to their employees and their families as a perquisite.  The premiums under group insurance policies are very low compared to individual policies. Responding to the needs of public at large insurance sector came out with best and economical insurance plans and started to grow at a reasonable rate of 15%-20% per annum. The basic object of these policies was to reimburse the medical expenses to those who needed medical attention at hospitals by getting admitted for a period not less than twenty four hours. However recently it was felt to allow claims against few specific diseases which do not require hospitalization. To make medical insurance more comfortable and hassle free rules regarding third party administrator (TPA) were formed by IRDA. This was the beginning of cashless era wherein a patient was expected to enter the hospital and get treated without paying even a single rupee and the claim is paid by the insurer directly to the hospital. On the one hand insurance companies kept releasing new and innovative plans to help the needy but on the other hand the hospital services started becoming dearer due to hike in room rent and other paid hospital services since they were directly linked to the applicable room rent. While settling claims the insurance companies observed that claims lodged included around 60% as stay charges and 40% being cost of medicines. This increased claim ratio in terms of percentage to the sum insured and the result was upward revision in yearly premiums which made medical policies costlier. This trend continued for some time which prompted insurance companies to come with plans wherein a cap on room rent was introduced and for no cap policies extra loading is levied. This means if a patient is admitted to a hospital with a medical policy of two lacks  having a cap of 2% on room rent , he will be able to claim room rent at a rate of Rs  4000 per day and if rent is paid in excess of the established limit the difference will be borne by the  patient. The situation thus created has defeated the very basic purpose of this kind of insurance policies and has compelled beneficiaries of such policies to move away from big hospitals where the quality and efficiency of treatment is unmatched to small time medical centers. It is true that setting up a medical facility with all modern facilities require induction of huge capital and unless there is adequate return no business house would like to invest. Here comes the role of regulatory authority, it is for this authority to look into these problems and work in the interests of all the insured, the insurance companies and the health service providers. The importance given by the government can be understood by the speech made by the honorable finance minister while presenting the budget in parliament for the year 2008-09 “I propose to insert a new sub-section (11C) in Section 80-IB to grant a five year tax holiday to encourage hospitals to be set up anywhere in India, except certain specified urban agglomerations, and especially in tier-2 and tier-3 towns in order to serve the rural hinterland. This window will be open for the period April 1, 2008 to March 31, 2013, during which the hospital must commence operations”. This incentive was given to private sector in case they setup medical facilities in rural areas with an aim to provide quality medical services to the majority of population living in villages and other medically underdeveloped areas. At present medical policies where in limit on room rent has been fixed have no longer remained cashless as the patient is required to pay the differential rent at the time of getting discharged from the hospital. Keeping in view the policy of the Government to treat medical insurance a social security and the income levels of majority of Indians it is duty of the regulatory authority to secure the interest of insured, insurer and the service provider either working out details directly with the service providers and or satisfy the state authorities for some more incentives to be given to the service providers to secure their interests.


DILIP K RAINA –Chartered Accountant

B.Com; FCA (ICAI); PGDFM; PGDCA; DBM; Cert. IFRS (ICAEW); Microsoft Certified IT Professional: Application for Microsoft   Dynamics NAV.

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Dilip K Raina
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