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Parallel between cash transfer schemes and health insurance claims

By Deepak Yohannan
January 23, 2013

(Any opinions expressed here are those of the author, and not necessarily of Reuters)

The more I think about it, the more I am convinced that the direct cash transfer scheme is a money saver for the government and the taxpayer. A direct parallel is the way insurance companies handle claims in health insurance plans.

There are two players, the policyholder who makes the claim and the insurance company which makes a payout. There are two ways in which payment is made by an insurance company while honouring claims. One in which the treatment cost is borne by the policyholder who then applies for reimbursement from insurance companies. And the other is the cashless facility in which the cost of treatment is directly borne by the insurance company.

The first is a nightmare scenario for insurance companies and we saw public sector insurance companies backing out of cashless treatment in several hospitals. It took a lot of time and negotiations to sort this mess out and reinstate the cashless facility.

Both are supposed to work well in theory but increased costs and discrepancies are seen when cashless insurance claims are honoured.  This was not beneficial to either the health insurance company or the policyholder as the increased costs would be passed on at some point to the policyholder in the form of higher premiums. Only the service provider stood to benefit. This vitiates the entire chain and insurance companies start looking at ways to reduce their payout in claims.

In health insurance, cashless claims are customer-centric and can’t really be done away. In fact, the decision to buy insurance might be largely based on this feature.

If the often repeated statistic of only 15 percent of the payout reaching the beneficiary in case of subsidies and other payouts is true, there is no reason why it should not make windfall savings for the government and hence taxpayers. By removing layers, if gains can be made, why not?

Not convinced? Try a game of Chinese whispers or talk to the claims head of an insurance company.

For more articles by Deepak Yohannan, please visit MyInsuranceClub.com

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