Health Business–the Vicious Circle

Aunindyo Chakravarty

America has a new folk hero who happens to be a murderer! And it is because he has struck right at the heart of the most desperate aspect of life in the US–health insurance.

Now, people are writing viral songs about Luigi Mangione, the man who allegedly murdered the CEO of a big health insurance company, shooting him dead.

But there’s virtually zero sympathy for the man who was killed in cold blood. All because he led a health insurance company that had rejected a large number of claims.

While the health system in the US has been a sore spot for American capitalism for decades, now it seems to have reached a tipping point. Insurance companies have taken the names and photographs of their CEOs from their websites, fearing copycat attacks.

The US might be an extreme case, but when it comes to the cost of health, India seems to be heading that way.

Take me, for instance. I have paid Rs 1, 62,500 as a health insurance premium for my family of four. This includes something called ‘critical care’ insurance, where you get a lump sum in case you are diagnosed with a life-threatening condition. Spread this across the year, and my monthly average cost of medical insurance comes to about Rs 13,500. And this does not cover outpatient visits to a doctor or medicines that we buy for common ailments or periodic vaccines.

So, I am paying through my nose not for an illness that I have actually got, but to derisk myself for the possibility that I might fall ill sometime in the future. That is because one episode of hospitalisation, in any big city, can wipe out a significant chunk of a family’s savings.

What is worse is that, even after paying these hefty premiums, there is no guarantee that your insurer will pay out the full cost of hospitalisation. While Indian insurers have a decent claim settlement ratio–the number of payouts per 100 claims–they often don’t pay the full amount that a hospital charges.

This is because insurance agreements often have a clause that says that the insurer will only pay if hospitalisation is necessary, and the patient is being ‘actively’ treated.

To understand why this can be a huge problem for a patient, let’s take a hypothetical, but highly probable case.

Imagine that you go to your doctor with chronic pain in your left flank. Your doctor sends you for a scan to see whether you have kidney stones. Indeed, there are two large stones in your left kidney – and there’s one that has descended and is stuck in the ureter.

Your doctor says she wants to keep you under observation and see if the stones can be flushed out without surgery. You get admitted into the hospital. A battery of tests is run in the first two days. You are given a lot of liquids, but to no avail. Finally, on the third day, the stones are removed in the operation theatre.

Normally, you would be discharged after 24 hours of treatment, but you are mildly diabetic and have high blood pressure. So, your doctor says she would like you to stay on in the hospital for another day.

By the time you leave, you have run up a huge bill. Luckily you have medical insurance. But your insurance company says it won’t pay the entire amount.

Your surgery and the next 24 hours would be covered, but nothing else, since the rest of the tests and the days in the hospital were neither necessary nor were you being ‘actively’ treated.

So, despite paying a hefty health insurance premium, you might still end up paying as much as 30-40 percent of your hospital bill out of your own pocket.

Who is to blame for this? Unfortunately, it is built into the health business itself.

Hospital management are willing to pay doctors high salaries and bonuses provided they can get more of their patients admitted to the hospital. This is sometimes referred to as the IPD/OPD conversion ratio, or the rate at which a visiting patient can be converted into an ‘inpatient’.

Hospitals also gain when a patient is prescribed several diagnostic tests. An admitted patient gets all their tests done in-house, instead of going to some other diagnostic lab. This increases the hospital’s earnings.

It is also an open secret in medical circles that the real money is made by surgeons. Medical students are willing to pay crores in capitation fees to learn surgery. They then are tempted to be trigger-happy with surgical procedures to earn back the massive fees they had paid as students.

Of course, hospitals encourage this too, leading to an epidemic of unnecessary surgeries across the world. One report suggests that over 200,000 unnecessary back surgeries were done in the US in just three years between 2019 and 2022. Similarly, an Indian study from 2015 estimated that more than 40 percent of surgeries it examined were unnecessary.

Medical insurance companies are aware of this. Long hospital stays and surgical procedures that could have been avoided force them to pay much more than they plan for. This eats into their profits. So, the only way they can deal with it is to reject claims or pay less than what a hospital bills the patient.

It’s the patient who is squeezed between the two. They can neither question an authority figure like a doctor nor can they stop paying their health insurance premium.

Only strict oversight, and regular intervention, by the state can solve this problem. But instead of doing that, the government seems to be happy to join in the game of extracting rent from the average citizen. What else can explain that we still pay 18 percent GST on the already bloated medical insurance premiums?

(Source: The Quint)

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Vol 57, No. 35, Feb 23 - March 1, 2025