In India, recent regulatory changes mandating guaranteed renewability, lifetime coverage and restricted premium revision opportunities imply that any substandard risk in the current portfolio could potentially be retained for life. This necessitates a different approach to managing insurers’ growing portfolios.
This article by Milliman’s Lalit Baveja explains how insurers can benefit from treating their covered members using analytics based on population health principles. Such an approach requires a better clinical understanding of member populations to identify the most effective and cost-efficient strategies for managing members’ health and preventing hospitalizations and claims in the long run.
Health insurance is the fastest growing segment in India’s nonlife insurance sector. Health insurance costs are also increasing quickly. According to Milliman’s Lalit Baveja, insurers in the market should consider the benefits of administrative savings as a larger part of a cost containment strategy.
Administrative costs, customer acquisition costs and benefit payment (in the form of claims payouts) are the three key expense areas for insurers. Going forward, the importance of managing administrative expenses will increase as competition continues to put pressure on overall premiums. In line with other markets, the Indian regulator also restricts the percentage of premium income that can be used as management expenses to promote efficiency and the availability of funds for benefit payments after a defined inception period. Insurers themselves have a vested interest in keeping these costs manageable. Topline focus must be complemented with cost containment in both benefits and administrative costs to achieve desired profitability and sustainability. While claims cost containment requires effective provider contracting and optimal utilisation management (and is reliant on multiple providers and other intermediaries), acquisition costs are dictated by market forces. Administrative efficiency within internal operations is one area where an insurance company can effectuate changes more directly. Tracking and managing these administrative costs can be a challenge, and identification of areas where there is opportunity to optimise administrative spending can be an even greater challenge.
Lalit discusses how benchmarking is an effective tool that can help health insurers manage their administrative efficiencies and expenses. To learn more, read his article “Administrative benchmarks for health insurance in India.”
The 2015 Kaiser Employer Health Benefits Survey found that a majority of employers said controlling the rising cost of healthcare and other employee benefits is one of their most important concerns. Medical trend has consistently outpaced inflation, which is expected to result in an unsustainable situation that will require across-the-board changes in the industry. The implementation of the excise tax on high-cost health plans, effective for plan years after 2017, has created even more incentive for managing costs, because any healthcare costs above the excise tax thresholds will be taxed at 40%. In the past, one of the ways an employer could control costs was by increasing member cost-sharing through deductibles, copayments, and coinsurance. However, because an employer needs to maintain at least minimum value (60% actuarial value, approximately equivalent to a bronze plan) in order to avoid paying penalties, increasing member cost-sharing is, at best, a temporary solution, as the excise tax thresholds only increase by inflation. Additionally, for a typical gold plan (approximately 80% actuarial value), the impact of the excise tax will be felt even sooner. As a result, managing healthcare costs beyond cost-shifting will become the main focus of employer-sponsored insurance.
Given the greater emphasis on improving the quality of care in employer-sponsored insurance, employers and their consultants need to work together to implement cost containment programs into their medical and prescription drug plans. A cost containment program can be defined as any action by the plan, excluding increasing broad-based member cost-sharing that results in savings on total plan costs. Cost containment programs encourage the utilization of necessary services and avoidance of unnecessary services, and generally fall into one of the following categories:
• Prescription drug management
• Medical management
• Provider programs
Employers can utilize these programs in order to attempt to control plan costs and provide members with the most cost-efficient services that promote wellness and the improvement of overall health.