The uncertainty around the national ceiling price, which is yet to be disclosed by the Centre, can make it difficult for insurance companies to price their risk correctly under Ayushman Bharat —National Health Protection Mission (AB-NHPM) scheme. The extent to which they may have to bear the excess claims burden remains unclear.
While the premium-sharing ratio between the Centre and the States has been set (60:40 in States other than the seven North-Eastern and three Himalayan States), the burden-sharing of excess claims amount remains uncertain.
Under the existing guidelines on ‘Sharing of Excess Claim Settlement Amount’, if the claim settlement ratio (ratio of claims incurred to net earned premium) exceeds 120 per cent in case of category A States and 115 per cent in case of Category B States, the excess amount over and above this threshold will be shared equally between the insurance company and the government (between the Centre and State in the premium-sharing ratio).
But the extent to which the Centre shares the excess claims will be limited by the national ceiling price when it is determined. If the ceiling price is set low, the insurance company may have to bear a higher burden.
Few insurance players
For Ayushman Bharat, only eight States have opted for the pure insurance model so far. Under this, the premiums are paid to the insurance company that administers and pays the claim. Insurance players participate in the tender process for each State and the lowest bidder is awarded the contract. Of the 25 insurance companies (which participated in multiple meetings with the Centre), only 10 have come on board so far.
Given that this is the first time a health scheme of this size and scale is being launched in the country, insurance companies may be selective in underwriting the risk, as loss experience is yet to be seen. Both under-pricing and over-pricing can hurt insurance players.
Insurance players explain that while underwriting a product, the most critical component remains the historical data of that segment for which underwriting has to be done. In the case of Ayushman Bharat, due to lack of clarity on the national ceiling price, sustainable pricing becomes more challenging for underwriters.
“We are yet to determine and disclose the national ceiling price which will vary from State to State. At this point, it is important that premiums are market determined and not swayed by the ceiling the Centre fixes,” says Dinesh Arora, Deputy CEO, National Health Agency (NHA).
Under Ayushman, 17 States have chosen a trust-based model so far. In a trust-based model, each State will form its own trust to manage the scheme, and claims will be disbursed from a corpus created from Central and State government contributions.
“A trust model offers flexibility and has low probability of rejection rate, which is critical at this stage for Ayushman,” says Arora.
However, he adds that while the health scheme should move to the trust model over the long run, it will take time for States to build capacity and gain experience. Until then, adopting an insurance model, where the risk is ring-fenced and to some extent fraud prevention is taken care of, will be important.
“States need to build in anti-fraud cells. The NHA has issued guidelines in this context,” adds Arora.
Market players also opine that risks need to be realistically priced, which will happen under the insurance model and will be critical to set benchmarks for the future.