As fraudulent practices eat into the profits of health insurance companies, certain checks and balances could help stem the rot
For the health insurance industry, the growing number of fraud cases at various stages has become a major concern and unless collective actions are taken, they may take serious proportions in the years to come. Increase in frauds indirectly drives up the premiums collected from policyholders as insurers ultimately recover the losses by increasing the prices.
Some of the common frauds by customers of health insurance relate to concealing pre-existing diseases or chronic ailments, manipulating pre-policy health check-up findings, duplicate and inflated bills, purchasing multiple policies, staged accidents and fake disability claims.
Moreover, agents and brokers are also involved in frauds, which could include providing fake policy to customers and siphoning off premium, manipulating pre-policy health check-up records, guiding customers to hide pre-existing diseases or chronic ailments and fudging data in group health cover. Also, due to an absence of standard medical protocols, hospital-induced frauds — overcharging, inflated billing, unwarranted procedures, extended length of stay, fudging records and patient history and even billing for services — form a large portion of fraudulent claims.
A Ficci sub-group on health insurance fraud has highlighted the concern that insurance fraud is not defined under the Indian Insurance Act. Even other instruments with the Indian legal system, such as the Indian Penal Code (IPC) or the Indian Contract Act, do not offer specific laws. “Sections of the IPC which deal with issues of fraudulent act, forgery and cheating are sometimes applied, but none of them are specifically targeted at insurance fraud and are inadequate for acting as an effective deterrent,” says the Ficci working paper on health insurance fraud.
In fact, according to an Ernst & Young survey on frauds in insurance, the Indian insurance sector incurs a loss of more than 8% of its total revenue collection in a fiscal year. The average ticket size of a single fraud ranges between R25,000 and R75,000.
Similarly, a survey done by Star Health Insurance says the health insurance industry in India loses approximately 15%, amounting to R600-800 crore per annum on account of fraudulent claims. In 2010, some of the leading public sector companies had a major standoff on treatment costs with the providers due to which the insurers de-empanelled many network hospitals from their existing list and later restored them by forming a preferred provider network.