Health insurance: Insurers hope for profits amid lax regulations

Despite reforms, frequent premium hikes and limited OPD coverage have frustrated Indian policyholders.

Despite regulatory interventions to improve health insurance coverage in India, consumers continue to face significant challenges that indicate policy is not properly prioritizing benefits. The Insurance Regulatory and Development Authority of India has introduced several reforms, but has failed to address frequent premium increases above the rate of inflation in healthcare and rigid claims rejection processes that continue to frustrate policyholders. The exclusion of comprehensive OPD benefits and the underutilization of employer-sponsored health plans highlight the industry’s neglect of consumer needs​​. Despite growing demand for more inclusive and affordable insurance products, these systemic problems persist, causing many consumers to become dissatisfied and resort to legal action for redress.

Health insurance policy holders are increasingly demanding higher protection from their insurers, especially in the field of outpatient services (OPD). In the years after the pandemic, patient awareness increased, which resulted in an increase in the number of medical consultations and diagnostic tests. As a result, consumers are calling on insurers to expand coverage. This demand highlights a long-standing gap in health insurance because policyholders have needed these benefits for years.

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According to the latest data from Policybazaar, more and more customers are choosing OPD benefits when choosing health insurance. This share increased from 5% in FY21 to 20% in FY24. While there was a need earlier, industry experts attribute the significant increase to the COVID-19 pandemic. Before the pandemic, OPD benefits were often a side issue, tied to employee health plans and underutilized. However, rising costs of consultations and diagnostics, along with increased access to telemedicine, have increased demand. Currently, every second policyholder actively uses OPD services covered by their plan.

Previously, OPD benefits were included in employer-sponsored health plans, with a utilization rate of approximately 25%. As the demand landscape has changed dramatically post-pandemic, insurers are responding by offering standalone OPD products. The popularity of these customized plans is obvious, with an OPD benefit utilization rate of 70%.

Status of health insurance in India

The insurance sector in India is extremely chaotic, and dissatisfaction is growing among consumers, many of whom are resorting to legal action. The number of claim rejection cases is increasing rapidly, prompting policyholders to take their insurance companies to consumer courts. The Department of Consumer Affairs has advised insurance companies to implement measures to protect consumers’ interests.

In addition to expanding eligibility and providing more options for policyholders, health insurance must also become affordable. Recently, the Insurance Regulatory and Development Authority of India (IRDAI), the apex regulator of insurance products, recognized the need to cover a wide demographic of citizens. Despite IRDAI regulations requiring revision of health insurance prices only every three years, policyholders have to face frequent increases in premiums. These increases are significant, exceeding the rate of health care spending inflation (ranging from 4.3% to 6.3% last year), and regardless of the consumer’s age and claim history. There is a large gap between regulations and industry practices.

Another area worth considering is health insurance for seniors. People over the age of 65 are currently not allowed to issue new policies to themselves. According to the India Aging Report 2023, the number of elderly people in India will increase from about 10% of the population (149 million in 2022) to 30% (347 million) by 2050. This elderly population will exceed the current US population. Although most developed countries allow anyone to purchase health insurance, it becomes much more expensive as you age because insurance companies base their prices on risk and older people are more likely to need medical care.

In several developed countries, the proportion of older people ranges from 16% to 28%, raising concerns about access to health care, affordable medicine and adequate care infrastructure. India needs to learn from those countries that have government-funded healthcare systems.

In India, economic elites have access to “family” plans that cover individuals and their parents at a lower cost than individual health insurance for seniors. However, the government must strive to make such plans available to all sections of society. A healthy population is key to prosperity, especially as the coming decade is being billed as India’s defining moment in reaping its demographic benefits. The focus now needs to be on expanding health insurance eligibility and massively modernizing affordable health care.