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.”
A top-down cost-allocation model averages out all of a hospital’s expenses based on its activities. This type of model provides a more accurate reflection of a hospital’s expenses when defining package rates. In this short film, Lalit Baveja provides a primer on top-down cost-allocation and discusses a Milliman project for the state government of Mandholi, India, that used the methodology.
Read more about how Milliman consultants assisted India’s Meghalaya Health Insurance Scheme (MHIS) set up a top-down cost-allocation model here.
To read the video transcript, click here.
A top-down cost-allocation approach may help developing countries set appropriate bundled rates for providers to participate in universal healthcare coverage. Such an approach focuses on averaging the costs of current utilization and actual expenses for hospital groups. One advantage of this practical approach is that it is feasible in situations with limited data.
In this new paper, Milliman consultants discuss their experience utilizing this top-down approach under India’s Meghalaya Health Insurance Scheme (MHIS). The following excerpt highlights the scheme’s objective:
In its first phase of rollout, the Meghalaya Health Insurance Scheme (MHIS) had limited benefits. The government wanted to expand its scope to better serve the population by providing a wider breadth of procedures, including tertiary care specialist procedures in oncology, neurosurgery and cardiac surgery. However, to make its second phase a reality, the Meghalaya scheme needed greater participation by private healthcare providers offering such specialist services. The state needed to offer realistic pay rates to private healthcare providers to attract participants.
Milliman helped the state identify the potential demand and gaps in benefits by conducting an extensive review of hospital utilization data, publications about disease burden and disease registries in the state. This was the basis of recommendations for additional surgical procedures that needed to be included in the scheme to ensure comprehensive coverage.
Milliman was asked to develop indicative prices for recommended additional surgical procedures under expanded benefits. To determine rates, Milliman used a top-down cost-allocation approach to estimate the cost of each procedure, using local hospital utilization and financial information. We developed specific tools to collect data from a representative group of hospitals.
Here are the outcomes and important considerations:
Using the top-down costing approach, we were able to estimate the costs of the following:
• Per-bed-day department cost for the five hospitals in the study
• Cost of 20 common surgeries in MHIS Phase I as a reference point for comparison with existing package rates
• Cost of 160 surgical and 20 medical conditions for tertiary care benefit expansion in Phase II
Developing the final package rates involves additional parameters, making adjustments for inflation trend, capacity utilization, quality, profit margins and specific variations among the participating hospitals. MHIS will need to apply various adjustments for these parameters to arrive at the final cost of each procedure for the social insurance scheme.
If providers are not keeping reimbursements in line with their expenditures to manage a clinical condition, there will be a tendency to pass on the shortfall to the members and deny or avoid admissions for procedures, potentially compromising the quality of care. This makes it critical that frameworks for costing are regularly updated. These frameworks also need to seek wider participation from providers. Apart from recurring medical inflation, wider provider participation and cost impact of new practices should be consolidated in updates.
Health insurance models vary from country to country. As highlighted in our first series of articles on international health markets, governments often dictate the role of private and public health insurance within any country. Milliman has produced a new series of blogs focused on the medical underwriting and risk adjustment practices of eight countries: Australia, Ghana, Ireland, New Zealand, Saudi Arabia, South Africa, Spain, and United Arab Emirates. This is the third article in our series.
Ghana reformed its healthcare provision and launched the National Health Insurance Bill in 2003 with an aim to provide universal access to healthcare. The law translated into the National Health Insurance Scheme (NHIS), which comprises three health insurance schemes:
• District mutual insurance
• Private mutual insurance
• Private commercial health insurance
Every Ghanaian resident is required to enroll in one of the three schemes under the law.
The paper summarizes the health insurance landscape and underwriting practices in Ghana.