For a while, Insurers may be taking a hit on their urban health portfolios, but government’s rural healthcare initiatives, including its decision to provide free generic drugs to public hospitals is set to open fresh growth avenues for them.
Government’s recent decision to provide free generic drugs to government hospitals at an expense of Rs 29,820 crore or $5.4 billion could be a game changer for the health insurance business in India. In urban centers insurers suffer high claim ratios, in excess of 100%; with this new initiative cost of health insurance in rural centers is expected to come down.
Cost of a generic drug is 80-85% lower than branded drug. In case of health insurance, medicines accounts for 15-20% of health care cost. This component is higher in rural areas, which generally have poor hospitalization facilities. Also, in the case of several critical deceases, cost of medicines is much higher than the cost of hospitalization.
If government decides to provide generic drugs to hospitals, it will have huge impact, and the cost of health insurance will come down by a few times.
Meanwhile, government sponsored health insurance schemes have changed the scenario of health insurance in the country.
As per planning commission’s document, dated 31 January 2011, three schemes Rashtriya Swasthya Bima Yojana (RSBY), Rajiv Aarogyasri and Kalaignar in as many years have covered roughly 247 million, a fifth of India’s population.
Comparatively, breadth of the coverage is by any global standards is very high. And moreover it has occurred rapidly, in the span of three years. And this feat could also be achieved even among the vulnerable population and informal workers, where the penetration has been difficult till now.
This is in contrast to urban health insurance schemes, where insurers are forced to increase premiums due to the high claim ratio. In group health insurance schemes claim ratios are as high as 150%. And in government sponsored schemes it ranges from 95 to 100%.
Hence, in future insurers may drive growth of health insurance segment from rural market where penetration is low and profit margins are better.
It is mix and variation of rural micro-insurance policy that give insurers profit margins. Take for instance in RSBY, the variation in burnout ratio (evolved specifically for the schemes) is reported to be in the range of 27-136% in a large number of districts. This is given the fact that in several districts the utilization rate of hospitals is extremely low.
At present, 80% of all health expenditure in the country is spent through personal resources; this is despite an increase in premiums from Rs 519 crore in 2000-01 to Rs 9,944 crore in 2010-11.
Government decision to provide generic drugs instead of branded drugs will surely bring down the claim ratios for insurers; however, it is needed to be clubbed with other supply chain initiatives as well.
Generic drugs will definitely bring down claim ratios in rural areas but most of the claims still come from private hospitals.
