Tuesday, March 26, 2013

Would It Be Possible To Introduce A Practical and Workable Health Insurance System In India ?

Health and Mediclaim Insurance have come up in India in the recent years when the government of India opened up these businesses for private participation. Many so-called business leaders and professionals in the banking and related sectors joined hands to reap the big money and jumped into it by setting up so-many health insurance companies.

For getting the government licences and clearances they all collaborated with existing foreign companies who have been doing such businesses for the past many years in other parts of the globe.

They all thought of making money for them, but no one perhaps thought of giving some reasonable benefits to the poor Indian citizens on whose money they would be thriving.

They adopted the US system of health insurance (that too diluting it in the Indian way) instead of adopting the best system that are available in other countries like Canada, Australia, UK, etc.

Insurance in India is all about cheating. Whether it is life, general or health, the fundamental driving principle is cheating and making money by cheating.

Because Indians are all cheaters. That is what an insurance employee told me. That is how they are taught !

I remember reading a famous novel by a foreign author where the insurance business there was briefly described. The companies there go by trusting their patrons, though they well knew that there are a few cheaters here and there. But they would never make a trouble for a genuine customer, just because there are some fraud customers here and there.

But Indian way of business is quite different. In India, every one distrusts the other. The government and its servants are in the forefront who have the least respect and trust for the people !

There could be a larger percentage of citizens also who might do some cheating if they are provided with an opportunity to cheat.

But none of these are excuses for doing a business in the best possible manner, beneficial for the individual.

Let us now come to the basic principles of insurance.

Let us talk about health insurance or medical insurance. No one in his right mind would never like to get ill and spend his time in hospitals. But the possibility of such an event in any ones life at any time cannot be over ruled. If it happens a good fortune of money would be extracted by the hospitals for treatment. So, it is a good idea if there is some one who can provide the person a relief from his unexpected out of budget expenditure that comes quite unexpectedly some time in life. And health insurer comes to play in this scenario by making a win-win situation for both the insurance company and the individual who opt for such a facility.

If the insurance companies spend huge sums on advertisements it means that they are not for extending any real benefits to  the people, but to make profits for them from the ignorance and helplessness of the individual. If service is the main motto of the insurance company, they need not spend huge sums on advertisements. Neither they should spend large sums in establishing their head offices in posh buildings in the metro cities. Every act of theirs should be in such a way that they spend money judiciously considering that it is the money of the not so affluent citizens of the country.

Look at the scores of health insurance companies of India who ventured into this business. All of them are located with their offices in the metros. Why can't they think other than the metros ? Why can't they move out to the state capitals and the tier-2 cities where the establishment costs are much lower ? Just because some of their top executives whom they had hired happen to be from the metros, they want their offices in the metros even if that costs a good lot of money. When their establishment costs are very high, it is quite natural that they take years to turn around and be of any good to the people in the real sense.

Governments are also to be blamed for this kind of a situation in India. They are responsible for unequal development of the country. If they are responsible, they would consider giving incentives to companies to set up their offices in smaller cities ! But regrettably, they are not  or simply they do not think of such things !

Insurance business works on the laws of probability and statistics. But if such data are not reliable, every thing go wrong. Indian companies are yet to learn how to use the power of the internet to do business properly. They should also learn how to trust people, instead of moving with pre-conceived bias against the people.

None of the health or medical insurance companies have options for paying the premiums on small monthly instalments. All have annual payment options only. This, it seems is because of their distrust in the people. They have construed that Indian public are cheaters. That simply means that they think that the person who signs with them for the health insurance will not pay the instalments after availing the insured amounts from the insurance company ! Is it true for all Indians ? Had they had proper market surveys and data, they would have found that it is not correct. In reality, health insurance is something which is only in the agenda of well to do middle class or upper class Indians with a regular income. Such people are the least probable entities who think of cheating any one ! Of course, there could be a minuscule percentage of people who might default payments due to various reasons.

But such defaults are part of any business. Not any thing specific to the insurance business alone ! A good insurer would know how to safe guard and cover such problems.

Now let me explain some more details of this business with some examples from my own view points. Let me admit that this is pure common sense and not based on any high end business analysis by the so-called experts.

Let me explain my own requirements as regard to medical insurance. I am a salaried person. My employer provide me some health care facilities. But they have certain rules and limitations that I am not very comfortable with.

For day to day expenses in medicines and medical check ups, I don't feel going after a medical insurance company for reimbursements. That is simply ridiculous and not befitting my status ! I don't like spending time and efforts in paper works for some small amounts ! For such amounts of say, not exceeding Rs.2000/- per month, I don't mind paying from my pocket.

But that is not going to be the case if due to some misfortune I or some one in my family is admitted in hospital and I have to spend some money which is near or more than my monthly income to the hospital. That is exactly where the medical insurer has some relevance for me. For offsetting such an eventuality, I don't mind spending an insurance amount of say Rs.500/- per month per person in my family on a regular basis for covering a yearly hospitalization expense at actuals not exceeding Rs.100,000/- per person.

Now let us see, how this translate for the insurance provider. Suppose there are 1000 people like me who are willing to pay an average Rs.2000/- per month to the health insurance company for each of their  families with an average of 4 persons. That means the company gets Rs.2 million in a month as insurance premium. In an year, the amount becomes Rs.24 million.

Now assume that 5 % of the total persons are hospitalized in that period, each incurring an average actual hospitalization expenditure of Rs.75,000/- on the average. The insurance company has to bear that expense. How much it would be ? It is 4x1000x5%x75000= Rs.15 Million. Please note that in actual practice, this much hospitalization expense actually does not happen if the company take some minimum care while enrolling the people initially. So, the company is left with a clear margin of Rs.9 Million during the same period.

What would be the potential for the company in India where there are more than 34 Million income tax payers? Assuming that 5 % of this people are covered by the company in the above said manner instead of the 1000 people ? That is a clear profit potential of Rs.1530 Million per year.

Now comes the expenses of the company. It all depends on how many people it wants to employ and how many offices it wants to set up and at what costs. Suppose the company spends 50% of the cash margin for people and infrastructure. Out of this let us say 50 % is for salaries and 50 % is towards other costs such as building rentals, software costs, electricity, etc. The company can well employ more than 1500 employees with an average annual cost to the company of Rs.400,000/- It is all up to them how less they can manage. Similar, for the office costs too.

Now, dear reader, you should have understood the profit potential in this insurance field. That is exactly the reason why the government wants to keep their control over this hugely profit making business. In fact government also wants a cut !

When every body wants a cut and the motive is profit making, the only sufferer is the individual.

And that is exactly what is happening in India.

Had the peoples' representatives and their bureaucratic advisers think of the welfare of the people, just as in the case of welfare nations like Canada, things would have been much different. [I would advise those interested to read more about it in this wikipedia article . It would be interesting to know about health care system of the US also to understand the difference.]

What I wanted to point out is only this:

Health insurance business is a highly profitable one even in India. If it is done with a bit responsibly and a bit commitment to the people, in a manner simple and practical, there is no need for luring people to it by big spending in advertisements, etc. People of India are not fools, they can very well understand what is good for them. The business can be done beneficial to both sides with more benefits passed on to the people.

Neither there is no need for these companies to work out so many so-called insurance products for fooling the people with much in fine prints. All this can be done online with minimal efforts, if they want to do it.

But for that, these companies need clear thinking minds at their top. People with clear thinking, but who think of the people more than how to make profits for the company.

Then they will not need all those people who are required for managing their ad campaigns and other things which drains their coffers. After all that money belongs to the people.

These companies also should think of moving out of the metros. They should also limit their top corporate pay packs at reasonable levels.

If such things do not happen, these health insurance companies of India are not going to survive longer !

Just as what happened to the public sector insurance companies who started health insurance in the past and went out of business due to their unfriendly business practices, the many insurance companies with foreign co-names are going to shut shops.

Let us hope that would not happen !

[Please also take some time to come back and read my previous  blogs and blogs on other topics as well. You can reach to those by clicking the links in this page. I would be happy if you take some time to express your views using the comments facility down below. Please  use the same comment facility to interact with me for any doubts or clarifications that you might have. Here is the page link which gives the   list of all my blogs  where you can open all my blog titles.]

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