1. Indian Cashless Health Insurance: A window of opportunity
Nitin Pahuja & Ujjawal Jain
An analysis of the Indian Cashless Health Insurance Industry identifying the key structural
deficiencies leading to a situation of distrust between parties involved. The study as a part of
IIM, Indore’s Consulting competition, Chanakya, organized in association with Cognizant also
proposes solutions for resolving the present imbroglio between the service providers and
insurance companies.
Team Unnati, Great Lakes Institute of Management

2. Table of Contents
Introduction ......................................................................................................................... 3
The new India ............................................................................................................................... 3
Being Pro-active ........................................................................................................................... 3
Role of Health Insurance ........................................................................................................... 3
The recent spats ........................................................................................................................... 4
Going forward ............................................................................................................................... 4
Shift of focus .................................................................................................................................. 5
Getting it right and opportunities for Cognizant .............................................................. 5
Methodology ......................................................................................................................... 7
Proposed Solutions ............................................................................................................ 8
Grading Healthcare Service Providers: Foundation of broader product variety . 8
Broadening the product portfolio ................................................................................................... 8
Customer Segmentation ...................................................................................................................... 8
Grading Methodology ........................................................................................................................... 8
Marketing the grades ............................................................................................................................ 9
Establishment of Standard Operating Procedures across the industry ................10
Need for Standardization ................................................................................................................. 10
Bringing clarity .................................................................................................................................... 10
Action Plan ............................................................................................................................................. 11
Risk Management: Surprise Audit & Customer Feedback ..........................................12
Product Innovation & Customer Engagement through Co-Pay .................................13
Product Innovation............................................................................................................................. 13
Action Plan ............................................................................................................................................. 13
Channel Distribution: Reaching out to Bharat ................................................................15
Building and managing new retail channels ............................................................................ 15
Choosing channels .............................................................................................................................. 15
Stronger, consumer-oriented branding ..................................................................................... 15
Marketing effectiveness.................................................................................................................... 16
Action Plan ............................................................................................................................................. 16
Works Cited ....................................................................................................................... 16
Appendix ............................................................................................................................. 18
Appendix I (Specimen Grading Account Sheet) ...................................................................... 18
Appendix II(Service Provider Grading Matrix) ....................................................................... 19
Appendix III ........................................................................................................................................... 20
Appendix IV ........................................................................................................................................... 21
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3. Introduction
The new India
India is on the anvil of becoming an economic
superpower leveraging its demographic dividend. A
dynamic & healthy workforce in context of our
rapidly growing service economy is critical. Ensuring
that our young population remains healthy and
continues to operate at maximum productivity is an
important imperative. Indian growth has seen a
transformation of the average Indian into a
formidable commercial power with huge disposable
income.
While the growth is far from inclusive, it has led to
the creation of a prospering middle class, which is
expected to increase to 500 million by 2025. It is
also proclaimed that food, transportation, housing
and utilities, healthcare and personal
products/services will account for over 80 per cent of total cumulative spending in India
over the next 20 years. It is worthwhile noting that the last 20 years have seen healthcare
consumption growing rapidly at 8 per cent, approximately double the rate of growth for
overall consumption. This strong growth trend is expected to accelerate over the next 20
years creating a nearly 9 trillion rupee healthcare market. (Singhal, 2007)
World-class and inclusive healthcare financing is critical for India‟s 2020 vision as most of
the healthcare expenditure is still paid out of pocket by individuals, leading to financial
distress or inadequate care. In this context, there is a clear need for a rapid increase in
access to health insurance.
Being Pro-active
However it will be naïve to assume that the massive expected growth of the market will
have an absolute positive correlation with the growth in Health care industry. “The belief
that profits are assured by an expanding and more affluent population is dear to every
industry,” wrote Theodre Levitt in his famous HBR article, Marketing Myopia. He went onto
explain that such assumptions often lead to a myopic perspective leading to a self-
deceiving cycle of bountiful expansion and undetected decay, which ultimately leads to the
fall of the industry. It is therefore important that the health care sector remains pro-active
and innovates to leverage the huge opportunity that the Indian market will offer going
forward.
Role of Health Insurance
Health insurance as a component of the
overall health care eco-system in the
country holds tremendous importance.
Indian Health Insurance Industry is still in its
infancy and has just about reached a stage
of transition. Its expansion is critical to
providing health care facilities in an inclusive
manner. Cashless health insurance
especially holds the key to stimulating
further penetration in the market. In a
recent study of IMRB commissioned by
KPMG, majority of the focused group
participants across six cities in India
expressed Cashless Insurance as a primary
advantage. The arrangement of Cashless
Insurance has led to the increase in sales of
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4. Health Insurance policies. (Lombard, ICICI)
The recent spats
The cashless model however has been undergoing rough times with multiple problems
stemming out of the structural deficiencies prevalent in the multiparty setup. There have
been few controversies over the hefty billings done by large hospitals to the patients that
are covered by insurance companies.
This has been followed by a decision by public sector health insurance companies to deny
cashless services for some of the networked hospitals. While progress has been made on
this issue with regulators, healthcare providers and insurance companies coming together,
a lot remains to be achieved.
Going forward
We strongly believe that the insurance industry especially in the health care segment will
have to emerge into a retail driven model thereby taking relevant cues from the advanced
retail oriented way of business. Right from product innovation in terms of Co-pay to
distribution realignment powered through alliances with SHG‟s in rural India, the health
insurance model of business is slated for significant change.
Build an Build expertise Strong processes
Product Innovation
Risk Management
Channel Distribution
innovative set of in managing governed by a
core health retail channels stringent
insurance and bolster their monitoring
products and an approach to body,
array of distribution by periodically
ancillary improving their evaluates, tested
products and branding and and reinvented
services. marketing. in line with
latest
conventions.
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5. Tracking the western markets that have evolved into an advanced retail set up, it is
rationale to believe that strategic elements like product innovations combining financing
mechanisms, elements of managed care and advice; the ability to manage multi-channel
distribution; and capabilities for risk-based pricing, will emerge as the key drivers of
business going forward. (Ehrbeck & Kumra)
Shift of focus
An important aspect critical to Health Insurance‟s future in the country would be its ability
to shift the focus from curative care to preventive care. Insurance companies thus far have
focused on improving their products with respect to better coverage and support for
curative care but have failed to give due importance to preventive care. This has led to a
huge market notably the young remaining oblivious to the health insurance product and
also has a significant role in the high claims to premium ratio in the Indian framework.
Health Insurers need to come up with product innovations that focus on preventing fatal
diseases by having regular checkups or yearly evaluation as a free option for all
policyholders.
As depicted by the figure above, forty per cent of the disease burden in India is caused by
infectious and parasitic diseases, nutritional deficiencies, prenatal and maternal conditions, and
respiratory conditions. These are relatively easily preventable and arguably a matter of public
health programs. India’s expenditure on primary prevention and public health is low by
international standards (US$13 per capita on a purchasing-power-adjusted basis compared to,
for example, US$17 per capita in Vietnam, US$22 per capita in Mexico, and US$25 per capita in
Egypt) and can be significantly increased in line with the Central Government’s declared
intentions. (Ehrbeck & Kumra)
Getting it right and opportunities for Cognizant
It is with view of these issues that we have attempted to dig deep down to the root causes
of these symptoms of structural misalignment. We have carried out a thorough research
and incorporated the views of industry experts in defining the core problems from the
perspective of the stakeholders. We have studied different models of operation as followed
in the western economies and benchmarked the best practices followed in those markets
as a driving force for our suggestions.
We have concluded with five broad solutions that are aimed towards development of a
process driven and well monitored cashless health insurance setup. We have also been
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6. able to clearly outline opportunities for Cognizant to fill the structural gaps through its
technology and consulting practices.
We have deliberately abstained from offering myopic solutions and stuck to suggestions
that are comprehensive and form the basic foundation for robust, long-term development
for the sector. This approach we believe will offer Cognizant a much larger role in changing
the whole landscape for this domain of the Indian insurance industry.
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7. Methodology
In this study we have outlined the key dynamics of the Indian Health Insurance market.
We have covered critical macro aspects of the Industry like its structure, potential for
growth and key stakeholders. The macro analysis of the industry is followed up by a
focused overview of the basic processes involved in the functioning of „Cash-less insurance‟
(being the primary area of exploration for this study).
Health
Insurance
Providers
Heath care
Consumer Service
providers
Third Party
Media
Assurance
Government IRDA
The next segment of the report deals with key learnings from the western Health
Insurance model. We have outlined core competencies for a healthy health insurance
industry drawing its origin from the US Health Insurance industry. The penultimate section
deals with an insight into the Indian industry with a focus on key problems and their
respective root causes categorized with respect to the following perspectives:
1.Insurance Companies
2.Healthcare Service Providers
3.TPA’s
4.Industry as a whole (Macro Issues)
The last section deals with suggestions that can facilitate Indian Health Insurance
Industry‟s evolution into a truly world-class healthcare management system which is
affordable, inclusive and flexible. The suggestions have been elaborated under the
following heads
 Grading of Healthcare Service Providers and products on the basis of service
quality & premium price
 Establishment of Standard operating procedures across the industry
 Establishment of internal controls alongside process audits
 Introduction of Co-pay schemes in the Indian health insurance industry
 Channel Distribution: Reaching out to “Bharat”
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8. Proposed Solutions
Grading Healthcare Service Providers: Foundation of broader product variety
Health Insurance offerings over the years have not undergone much change leading to
unsatisfactory levels of market penetration and low consumer recall. The recent chain of
events has also highlighted the problems with respect to insurance companies incurring
losses due to high claim ratio.
Broadening the product portfolio
We believe that lack of customized offerings for consumers across demographics, needs
and regions is the primary driver of the above-mentioned eventualities. Therefore in our
opinion an immediate expansion of health insurance products is an imperative. Insurance
companies must broaden their product portfolio in order to cater to the different consumer
classes, profitably.
Customer Segmentation
The implementation of this recommendation however is heavily dependent on insights
drawn from market data that captures customer needs, consumer perceptions, and quality
of service delivery apart from other key metrics that will serve as the basis of customer
driven product innovation in the future.
Key issues with Standard Mediclaim Policies across segments
Grading Methodology
We propose the establishment of a dynamic grading methodology that will grade
healthcare service providers on the basis of quality of service, affordability and
geographic coverage amongst other key variables. Customer satisfaction will also
be an integral component of the overall score for the service providers and
therefore play a critical role in determining the actual spread of grades. The
specimen of Grading Account Sheet and Grading Matrix has been attached in Appendix I &
II respectively.
These grades will help the insurance companies identify conspicuous customer segments
on the basis of their uniqueneeds. For e.g. a customer looking to secure quality service in
a multicity hospital chain should ideally be charged differently from a small town customer
who is satisfied with access to nursing homes and small hospitals in his city. Insurance
companies can therefore create products that are based on the quality of service,
availability of co-pay and coverage of preventive services on the basis of these grades.
We are confident that insurance companies can reduce their claims to premium ratio
significantly by offering diverse products based on these grades matching the unique
needs of the customers. They can charge an extra premium from the buyers of policies
that provide cover in the top grade healthcare service providers while they can stop clients
with low insurance premiums from overspending in these highly priced facilities by
restricting access except in the case of emergency.
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9. Marketing the grades
These grades should be available on the websites and policy brochures of all the insurance
companies and serve as a benchmark for price negotiations with the service care providers
themselves.
Note: It is important to note that we don‟t suggest restriction of access in case of
emergencies. Such a step will lead to serious dilution of trust between the parties thereby
leading to an overall bad impact on the insurance companies.
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10. Establishment of Standard Operating Procedures across the industry
The health insurance industry comprises several key players across its value chain. The
following can be listed as the major players engaging with each other throughout the value
chain, very often with mutually conflicting goals.
1. Insurance companies
2. Third Party Administrators (TPA‟s)
3. Reinsurers
4. Healthcare Providers
5. Distribution Channel Partners
6. Regulators
Need for Standardization
The recent spat between the service providers and the insurance companies is testament
to the prevalent distrust amongst the parties involved. It is unreasonable to expect mutual
trust to be able to drive a robust operational framework in a market of such high stakes.
Therefore it is imperative for the industry participants to be aligned with a set of industry
wide standard operating procedures filling key process gaps and structural deficiencies in
the present framework.
Source:(KPMG & CII, 2008)
An off-shoot of the lack of standardization of healthcare providers is the differing qualities
of service, costs, procedures, treatments across different providers. This has resulted in
low customer satisfaction, unethical practices such as long hospital stays, expensive
treatments and drugs. For building a strong and consistent healthcare infrastructure,
standardization of healthcare costs and introduction of accreditation norms is a pre-
requisite. (KPMG & CII, 2008)
Bringing clarity
We propose the formation of a regulatory body with participation from all parties
involved with a clear goal of establishing and monitoring compliance to industry
wide standard operating procedures.
We are positive about the ability of this move to even counter the failed attempts in some
states toinstitutionalize uniform standards for hospitals, with health being a state subject
in India. We foresee the creation of an industry wide web based operational platform to
enable
 Linking all the parties involved through a single channel
 Seamless communication amongst parties involved
 Clear establishment of authority and responsibility
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11. Action Plan
This proposal demands industry wide support and cooperation from all the parties involved
and the following schematic elaborated upon the role of all the parties in great detail.
Source: (KPMG & CII, 2008)
We are positive that this will lead to the following favorable outcomes for the industry as a
whole
 Improved performance of all parties w.r.t service quality and turn-around time
 Reduced administration and processing costs
 Effective risk control across processes
 A key input for grading service providers
 Elimination of multi-party bargaining and contracts which led to confusion
 Development of a co-operative model, critical for evolution of the health insurance
industry as a whole
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12. Risk Management: Surprise Audit & Customer Feedback
Cashless insurancecreates disincentives to control costs as it appears to be a„free‟ good for
the patient and the provider, often resulting inexcessive treatment by the provider
(induced demand) and frivoloususe by the patient taking treatment even for a
conditionwhich he would normally have ignored or cured with ahome remedy (moral
hazard)(Rao, 2008). Also problem such as asymmetry in information put the patient and
the insurer at a disadvantagedue to their inability to resist or challenge medical
opinionregarding an existing condition or future treatment. Besides,in the absence of
knowledge of prices, the provider can shortchangethe two by overcharging. Some of the
key initiatives and the actions required to tackle this are:
Independent regulatory body:One of the key issues identified from the insights that we
have received is the absence of an independent regulatory body. A panel comprising of
independent Doctors appointed by IRDA should be formed. The team should be responsible
for
Audit of bills: A random check of claim cases to assess the necessity of various
treatments. The team should be responsible for checking of bills and claims made from
hospital. Higher the amount of claim, more the chances for fraudulent bills, to tackle this
we propose a mandatory audit of bills above Rs. 1.5 lac post redemption of claims
Ghost Audits: Mystery shopping as a patient to assess the quality of advice/suggestion
made by the health care service provider with regard to the insurance coverage
Customer Feedback: Feedback evaluation for service providers through a dynamic
customer feedback system that generates ranking for service providers on various
parameters such as
 Responsiveness
 Reliability
 Empathy
There are various touch-points where technology can help create and monitor processes in
a much more efficient way. Feedback can be collected for different service providers
through Internet, data collection at bill payment by audit team during surprise visits etc.
The objective is to establish integrated standard operating procedure across the country
and build a ranking system on the basis of overall customer satisfaction & compliance to
industry standards.
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13. Product Innovation & Customer Engagement through Co-Pay
In a retail-oriented world, health insurers need straightforward, segment-tailored, quick-
to-market products. Consumer industries gain limited advantages from any single
innovative offering, as rivals are quick to copy. However, competency in developing
distinctive products faster than competitors delivers substantial value in the long run. To
achieve leadership, health insurers must focus on building a broad product portfolio and
managing products more effectively.
Product Innovation
Health insurers in a retail context need an innovative set of core health insurance products
and an array of ancillary products and services. Breadth is important to realizing
economies of scope (e.g., in distribution) and covering the range of risks and expenses
that consumers face. We have looked at the following four broad categories of product
innovations from the prospective of all stakeholders.
Coverage of incidental costs and more diseases: While hospitalization forms a
substantial cost in medical care, pre-hospitalization entails visits to specialists, diagnostic
tests etc., and post-hospitalization care also entail high costs. Therefore, coverage of
these expenses is desirable. As per a research done by,(CII, 2008)consumers expect
coverage of diabetes, blood sugar, dental ailments, surgeriessuch as eye surgeries, root
canal etc that do not require hospitalization, andspecialized coverage for women to be part
of their Model Health Insurance offerings. A wellness oriented policy model followed in the
US has been attached in Appendix IV and it reflects the needs of a maturing market.
Product Bundling: Sophisticated bundling approaches will be needed to combine product
distribution synergies, consumer preferences, and ease of communication. One such
approach is one U.S. insurer‟s attempt to bundle individual health insurance, dental, and
life insurance
Long-term policies: Consumers should also have an option to take longer-term health
insurance policies compared to the existing one-year policies.
Pricing Innovation: Currently for most policies, the frequency of payment of premium is
yearly. However, an alternative possibility of a one-time premium with life-long coverage
will be preferred especially by self-employed people who could have a spurt in earnings
during a particular year, which can be invested in a policy as a onetime investment.
Another alternative is the payment of a one-time large premium, followed by yearly top-
ups to cover a family for a long period
Co-Pay
Co-pay is a policy option whereby the customer is bound to pay a small percentage of the
total bill by his pocket. Whenever possible all enrollees should contribute, even if only
symbolically, to premium and co-pay to increased perceived ownership and manage
utilization. Co-payments can be tiered as per different network toencourage patients to
look at other hospitals in alliance
To ensure extensive penetration of health insurance in India, companies can test the
acceptability of two successful global health insurance modelsstated in Appendix III
amongst Indian consumers.
Action Plan
Product & pricing innovations is expected to be the key driver for penetration of health
insurance in India.Some of the key initiatives and the action steps for various stakeholders
include:
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14. Source: (KPMG & CII, 2008)
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15. Channel Distribution: Reaching out to Bharat
To increase the penetration of Health Insurance in India, there is a need to explore
innovative distribution channels. Health insurers must build expertise in managing retail
channels and bolster their approach to distribution by improving their branding and
marketing. Whether they distribute directly to consumers or through intermediaries, they
will also need distinctive brands and an overall brand communication strategy that gains
the consumer‟s trust.
Building and managing new retail channels
Reaching individuals requires a host of channels and sales approaches. Five types hold
promise:
Direct-response channels. These include a captive sales force, call centers, the Internet,
direct mail, mobile medium and television commercials. WellPoint in US, primarily uses the
Internet, for example, to sell a product aimed at consumers aged 18 to 29 (“young
invincible”) who think they do not need health insurance. The online channel is also
gaining in importance—web agencies sold roughly 10 per cent of new individual policies in
2006. The online channel has the potential of attracting younger and healthier customers
Retail stores. Health insurers are offering health benefit products through Costco and
Wal-Mart, and pharmacies such as Walgreens in US. One of the biggest success stories for
payors has been in selling Medicare-related products to the elderly through bricks-and-
mortar retailers. Kiosks can be established at the waiting areas of stores to garner
information about the products, which can be further followed up by the insurance
providers
Affinity-marketing relationships. Health insurers that have used such relationships
successfully include Humana (with Virgin) and United Healthcare (with the American
Association of Retired Persons, or AARP). Organizations like “Baghidari” in Delhi should be
approached for this purpose
Partnerships with financial institutions As consumers pay more for healthcare and
health-oriented financial products, these two areas will naturally converge. Royal
Sundaram, for instance, has employed partnerships with CitiFinancial, Citibank among
others in India for distribution of insurance. More such tie-ups are needed with NBFC‟s,
Banks, SHG‟s, NGO‟s and organizations like ITC‟s e-Choupal for wider insurance inclusion
Worksites. The worksite provides an attractive channel as it garners a natural trust
among employees that their employer has vetted the carrier. In addition, it provides
access to payroll deductions as well as opportunities to implement wellness programs.
Individual insurance carriers are, for example, working to partner with small employers to
offer individual products at the workplace, with or without financial contribution from the
business.
Choosing channels
Different consumer segments have different preferences and attitudes, and payors must
understand them. Some consumers, for example, want a trusted adviser who can make
decisions for them, while others desire information and tools to make their own decisions.
Preferences also vary by demographics; for example, most retirees like greater support.
Understanding such preferences is important when companies decide whether to use direct
channels or channels that provide for human intervention. Because a consumer‟s risk
profile (that is, health status) is correlated with demographics, the choice of channels can
be a significant driver of profitability.
Stronger, consumer-oriented branding
Whether health insurers distribute directly to consumers or through intermediaries they
will need to develop distinctive brands and an overall brand communication strategy. At a
minimum, health insurers must gain the trust of consumers, which frequently does not
exist. If done well, a strong consumer brand can deliver significant value in the way of
price premiums, positive risk selection, and lower distribution expenses.
 Develop multiple sub-brands under an umbrella brand to provide more targeted
support to different products, channels, and/or customer segments
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16.  Continue experimentation with affinity marketing and co-branding, both of which can
be effective
Marketing effectiveness
In a retail context, health insurers need to effectively manage their marketing spend
because their distribution approaches will become exponentially more complex and the
nominal amounts in play could be significant.
 Build up ability to track and measure the performance of each marketing spend, such
as the impact on the response rate of changing the type of envelope used for a direct
mail piece
 Health insurers will need segment-specific targeting and positioning
Action Plan
Some of the key initiatives and the action steps for various stakeholders include:
16

17. Works Cited
CII, K. (2008). Health Insurance Inc: The Road Ahead. Health Insurance Summit
2008, (p. 18). Mumbai.
Ehrbeck, T., & Kumra, G. Sustainable Health Insurance. McKinsey & Company, Inc ,
Healthcare Payors and Providers Practice . McKinsey & Company, Inc .
ICICI. (n.d.). Tips for Insurance Card Holders. ICICI Prudential Life Insurance
Brochure . India: ICICI Prudential.
KPMG & CII. (2008). (p. 31). Mumbai: KPMG, CII.
Levitt, T. (2004). Marketing Myopia. Harvard Business Review .
Lombard, ICICI. (n.d.). Popularizing Cashless Hospitalization. Delhi, Delhi, India.
Rao, K. S. (2008). Financing and Delivery of Health Care Services in India. New
Delhi: Commission on Macroeconomics and Health, Govt of India.
Singhal, S. (2007). Sustainable Health Insurance : Global perspectives for India.
McKinsey & Company, Inc . New Delhi: McKinsey & Company, Inc , FICCI.
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18. Appendix
Appendix I (Specimen Grading Account Sheet)
Service Provider: Grading Account Sheet
Grading Dimensions Methodology Score
Infrastructure
Local Coverage No of beds/Population of city
No of Operating Theaters No of beds/Population of city
Capacity of ICU No of beds/Population of city
Total
Expertise
No of permanent Doctors No of Doctors/Avg Patient In
No of MD Doctors MD Doctors/Total Doctors
No of DM Doctors DM Doctors/ Total Doctors
No of MS Doctors MS Doctors/ Total Doctors
Total
Value for Money Index
OPD Charges Expressed as a percentile score
Bed Charges Expressed as a percentile score
Surgery Charges Expressed as a percentile score
Heart Surgery Charges Expressed as a percentile score
Total
Customer Satisfaction
Index
Responsiveness Expressed as a percentile score
Empathy Expressed as a percentile score
Reliability Expressed as a percentile score
Total
Weighted average of the dimension
Comprehensive Score scores
18

19. Appendix II(Service Provider Grading Matrix)
Grade Matrix
Grading Index Score Range
Grade A More than 90
Grade B+ 76-90
Grade B 66-75
Grade C+ 50-65
Grade C Below 50
19

20. Appendix III (Globally Successful Health Insurance Models)
Source: (KPMG & CII, 2008)
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21. Appendix IV ( Wellness Products Offered in the US)
21