Published in Mint on, Jul 03 2013, Written by Kapil Mehta
As an insurance broker, I interact with health insurance buyers every day and come across their issues first hand. The barrage of questions is overwhelming—Should I buy this product or that? Is private sector better or public sector? Why was this claim denied? Why did the insurer pay less than half my claim? How dare the insurer refuse to renew my parent’s insurance? Which company has a good claims record? And so on.
Even for an expert, selecting the best health insurance is hard. Consider this: there are over 10 important product features that vary across products. Not all these features are listed at one place. Crucial data is hard to get. For example, to collate insurers’ annual claims repudiation we had to trawl 23 websites, find data for each quarter in schedule 25 of the public disclosures listed in footnotes of the corporate websites, remove reporting inconsistencies and combine quarterly data for an annual result. This is difficult. The complexity increases manifold because people have differing priorities; product features can vary across age, product variant or city. This is why when Mint asked us to put together an easy-to-follow health insurance rating, I hesitated. However, we were easily persuaded because of the enormous benefits of such a rating to a lay person. The Mint team worked closely with us in refining the ratings. A-rated products are the best in class. In some specific situations, B- or C-rated products could make sense.
I expect these ratings will encourage health insurers to improve specific product features and pricing, when they re-file with the regulator later this year.
We followed four steps. First, identify important features that characterize health insurance products. This included obvious features such as price and claims payment record but also several less understood areas such as the period for which pre-existing diseases are excluded, caps on room rentals, availability of lifelong renewability, co-pay on benefits, disease-wise sub-limits, presence of waiting periods for specific diseases and availability of no-claim benefits. Second, assign weights and a scale to each feature. For the age group of 55 and below, we gave the highest weights to price (30%), pre-existing disease exclusion (20%) and claims payment record (15%). Six other features accounted for the remaining 35% weight. Price has the highest weight but is less than a third of the total possible weightage. This captures our view that several non-price features determine the usability of your insurance. A friend purchased the cheapest insurance but less than a quarter of her claim got paid because of the limits on room rent. The number of years that pre-existing diseases are excluded gets the second highest weight because in our experience it is the largest reason for declining claims. A young lady was perplexed when her claim for an internal cyst removal was denied because the insurer felt that the cyst had started developing before the policy was issued. It did not matter that the young lady had no inkling of the problem. Clearly, a shorter exclusion period is better. Claims payment is the actual on-the-ground performance of an insurer.
For people over 55, we increased the importance of a low pre-existing exclusion period from 20% to 25% and for lifelong renewability from 10% to 15%. We reduced the weights for items such as co-payment since this is standard for seniors. Different weights are needed because older people have different priorities—concern about lifelong coverage and disease exclusion is high. For each feature we developed a simple scale to rate the product. For example, products in the lowest price quartile got full marks and highest quartile got zero.
The third step was to collate information on product features and finally compute a net score for each product. Health insurance products with over 70 points got an “A” rating, between 50 and 70 points “B” and the rest “C”, not dissimilar to the grading in our universities.
The analysis has been done at specific age, sum insured and family size. However, the results are applicable much more broadly. An “A” rated product for a 45-year-old is likely to be best even for a 48- or 42-year-old. Similarly health insurance that is best at Rs.20 lakh of sum insured will stand out even for Rs.16 lakh or Rs.24 lakh of cover.
To identify the best product for yourself, evaluate the top-rated products for the age and sum assured closest to your own age and requirement. These are likely the best options for you.
There may be a few situations when “B” or “C” rated products are better. This could happen when you have specific needs such as a family member with diabetes or are planning a baby in the near future.
Trust but verify
Health insurance is always a contentious issue because it touches the lives of so many. That is precisely why it is important to get it right—regulators need to encourage simple and transparent products, distributors need to look at the long-term value of these products and not just the relatively low first year commissions, hospitals must standardize costs and procedures, insurers must continue to advance the quality of products and ombudsmen must dispose off grievances efficiently. Our contribution is to publish fact-based product ratings that can help buyers navigate the complex landscape of health insurance and buy products that are best for them.