Post on 18-Dec-2015
Problems and Prospects of TPAs in the Healthcare Industry
IIRM National SeminarMr. Girish Rao
24th January 2012
Why were TPAs created?
Health Insurance was introduced in 1986 and was sold by the 4 state owned non life insurance companies
The industry had grown at 22% CAGR in the first decade. It was still being viewed as ‘accommodation business’
Even in 2001 HI was less than 5% of total premium – this also meant that skills did not get institutionalized
Source: WHO – Health Insurance in India – 2006
The Government’s strategic objective of providing access to a financing mechanism was being fulfilled at a slow pace
Why were TPAs created?
In 2001, the Insurance was set to be privatized. There was a need to create specialized health insurance capacity in order to ensure adequate participation
Health Insurers need to monitor a variety of factors which drive the cost of claims – these require specialized medical and analytical skills
As compared to both, Life Insurance and Non Life Insurance – the interplay of skill bases in the case of Health insurance also included clinical skills
Why were TPAs created?
Source :TTKH TPA
For retail customers – access to “cashless” hospitalization was created via the institution of TPAs
Providing cashless facility helps customers access care at the point of need
Cashless facility significantly contributes to ensuring that latent demand is converted into consumption
Health Insurance - Growth
Source: IRDA, Company balance sheets, indiastat.com Long term projections@ approx 20%
HI Market : Projections are at a long term growth rate of approx 20%
'2001 '2002 '2003 '2004 '2005 '2006 '2007 '2008 '2009 '2010 '20110
10
20
30
40
50
60
70
80
90
100
0
2000
4000
6000
8000
10000
12000
14000
488 676 892 12001612
2221
3209
5125
6625
8305
11627
92.2
74.4
Perc
enta
ge o
f Priv
ate
Expe
nditu
re
Prem
ium
in IN
R Cr
ores
Penetration – 1% Penetration - 2.3%
Out of pocket expenditure
Source: IRDA, Company balance sheets, indiastat.com; WHO Health Statistics
Health Insurance - GrowthWhile the CAGR of premiums collected between 2001 and 2008 has been over 22%, the CAGR of
insurance penetration has been only 12%
Impact of TPAs on HI
Market growth before and after TPAs were introduced
TPAs were instrumental in providing cashless services and networked access to care – which
helped catalyze market growth
Impact of TPAs on HI
•More than 25,000 hospitals and nursing homes all over India, who provide cashless facility to patients*
Creation of a Provider Network with cashless
access to care
•Standard reporting across all TPAs has helped the Regulator create its “Insurance Information bureau” with more than 1 mio records for health insurance
Data Repository
•TPAs have partnered in the rollout of various Social insurance schemes such as RSBY
Administration of Social insurance
schemes*Source: WHO presentation on the Health Insurance Market – June 2010, Asscocham
In sourcing of TPAsStructural shift in the market during 2007-8 when some insurance companies in-
sourced administration
In sourcing of TPAs
Both “INSCO1” and “INSCO2” are large private sector insurers INSCO1 in sourced administration in 2006-7 & INSCO2 had
inhouse TPA
In sourcing has not improved cost containment, if any, it has stifled growth
Source : IRDA
In sourcing of TPAsHealth Insurance Value Chain
TPA skill baseInsurer skill base
In the above value chain – TPAs bring economies of scale across multiple clients and also learnings in areas such as fraud management and tariffing
When Insurance companies build these skills from scratch – they must re-learn these. The operational complexity distracts them from pursuing top-line opportunities
Challenges : Tiny Sector Mindset
Entry Barrier
• Very low and therefore attracted several players
Revenue
• In the first 5 years of operations average top line for each TPA was under Rs 5 crores
Volatility
• Revenue volatility was high and shareholders were not willing to invest
*Source: IRDA Annual reports for the health insurance premium; TPA mkt size is estimated at 5.5% of health insurance market; No of players is based on press clippings and mentions in the IRDA circulars; Average revenue per player is a mathematical average.
Entry Barrier Revenue*
Challenges : Evaluation
Insurers do not price rationally – studies suggest that group insurance premium rates need to increased by 50 to 75% - so that they are rational
Medical inflation is 12 to 15% per annum but premium rates are reset sporadically
Claims management can at most impact the claims ratio by 2 to 3% - It cannot make up for a market deficiency
TPAs are held responsible for the claims ratio which they can influence only marginally and are evaluated on price alone
In the Indian market, premiums are structurally under priced
Future Focus : Network Management
Create preferred provider network of hospitals with specific tariffs
Tariff designed linked to claims pattern and different categories of providers
Utilise core strength of TPAs for customised solutions of network management
Source: TTK Data. Note: A1 to A4 represent different hospital segments however all of them have the requisite clinical skills to carry out complex procedures.
Future Focus : Integrated Partnership
• Large bancassurance portfolio of >100,000 credit card holders
• Claims data available from 2003 onwards. • Adverse claims ratio from 2003 to 2005
(>105%)• Analysis of claims patterns and disease
profiles showed the need to change product features.
• Sub-limits for specific disease and cost elements introduced based on TPA advice.
• Claims ratio improved and since then has been profitable.
Enough evidence to show that TPAs can help change the trend of adverse claims ratios
Future Focus : Long term Partnership
TPA skill baseInsurer skill base Government
Social Health Insurance Value Chain
Social Insurance will be an area of focus in future
There is a case to create a variant of self insured model
Future Focus : Standardisation
Internationally, long term contracts are signed between administrators and insurers
Such an arrangement reduces revenue volatility and enhances capacity / capability of administrators
Payors need to consider TPAs as long term strategic partners to achieve standardization and consolidation
Standardisation across
Ecosystems
Need of the hour is to direct capital towards structures which will help with standardization
Future Focus : Consolidation
Source : IRDA Annual Reports
Scale is a prerequisite for the industry’s survival
Skill sets have been established
Social Insurance (which is TPA administered) requires scale
Consolidation to be actively pursued
Summary
Consolidation
CompetenceScalability
Thank You!
Mr. Girish Rao24th January 2012