New Bugbears for Mediclaim Policyholder

Close on the heels of the announcement on July 1st, whereby government-owned insurance companies disallowed the cashless mediclaim facility to many hospital chains, the Union Government introduced a service tax of 10.3 per cent on every medical insurance claim made using the cashless facility. While the introduction of the preferred provider network (PPN) by public sector insurance companies has brought cashless transactions to a virtual standstill in metros, the service tax move has so far gone unnoticed. Insurance companies feel that the service tax should not be seen as a deterrent, as TPAs would be reimbursed for it. Also, they argue, it is paid by every sector. On paper, the service charge component won’t be visible to consumers; the sum being paid directly by TPAs (Third Party Administrators) to hospitals after every cashless transaction. Experts however disagree, saying that the tax certainly has an impact on consumers and their insurance cover, as it shrinks the total cover available. Consider, a patient with a cover of `2 lakh has been allowed a claim of the full sum. Now, the TPA has to pay 10.3 per cent of the claim as a service tax. As it cannot pay the hospital 110 per cent of the original policy sum that the patient purchased, it would have to pay 90 per cent of the original claim plus 10 per cent as service tax. Thus, in effect, the consumer’s policy will shrink by 10.3 per cent to accommodate the service tax charges. Moreover, in the long run it could even lead to an increase in premiums.

Along with the service tax news, there was the stoppage of cashless claims to many high-end hospital chains across the country by public insurers - National Insurance Co, New India Assurance Co, Oriental Insurance Co and United India Insurance Co. This action has been primarily taken because insurance companies have been hurt on their balance sheets by the allegedly inflated bills for medical costs of people covered by cashless mediclaim facilities, especially at the larger chain hospitals. If you now go to any of these hospitals, you will have to pay upfront even if you have a valid mediclaim policy with all premiums paid. You will then have to claim reimbursement from the insurer. Cashless facility will now be available at only 100-odd hospitals, very few of them from the big chains. The four state-run insurance companies have said that such a move is beneficial to consumers because:[PAGE BREAK]

a)  It would bring down the costs for the insured.
b) Lower cost of every hospitalization will leave a larger balance in the sum insured in the policy for future hospitalization within the policy period.
c)  Lower cost will also reduce loading on policy premium at the time of renewal.  

Taken as a whole, health insurers are making an estimated loss of `1,500 crore annually on a yearly premium collection of `6,000 crore on mediclaim policies across the country.

These 18 insurance companies had so far been providing cashless services at over 3,000 hospitals pan-India. A recent study carried out by the TPAs found that only 350 of them or roughly 11 per cent were consuming more than 80 per cent of the total claims. It was also found that customers were being fleeced for each hospitalization, irrespective of the treatment. For instance, hospitals that are part of the big chains charged around `55,000 to `60,000 on average for a gall bladder operation. Now, according to the new package deal, a hospital would be offered anywhere between `30,000 and `48,000 for the same. Similarly, for a cataract operation, the average payout earlier was `35,000. The new deal provides for a maximum of `24,000. The insured are getting caught in the tussle between hospitals and insurance firms. Most insurance firms now take recourse to the reasonability clause in their policy products to refuse full claims. The reasonability clause however cannot hold ground in the court of law. Still, rather than challenging the same in the court, patients accept whatever money that is offered by the insurance firm.