Cost of Group Health Cover to Soar

The cost of providing group health insurance is set to go up by 25% to 50% for majority of the corporates that provide this benefit as insurance companies prepare to hike rates in April when most policies come up for renewal.

More than half of the companies that buy group health insurance for their employees have ended up claiming more for employee treatments than what they had paid as premium. This has resulted in what insures describe as an "underwriting loss in their group health insurance business". Many multinationals buy group health policies which coincide with the calendar year and premium under these policies have gone up by 5% to 10%. However, the larger policies which are purchased by big employers like IT companies will come up for renewal in April and insurers say that prices will rise for those companies with an adverse claims ratio.

Under claims data for the last 3 years, 50% companies are observed to be experiencing a high claims ratio of 100-150%, says a report on healthcare trends by Towers Watson, a global consultancy. The report says that all respondent companies with claim costs between 125% to 150% faced premium increase to the extent of 25% to 50% this year as against only 9% last year.

"The insurance industry has realized that it is not worth carrying with losses and every insurer has made correction in their group insurance premium," said Antony Jacob, CEO, Apollo Munich Health Insurance. "I believe that in the next 12 to 24 months group health insurance will stop being a loss making business." 

One reason for the increase in health insurance was the advancement in medical technology which resulted in medical inflation growing at a faster rate than general inflation. Claims are higher for companies that provide insurance coverage to employees' parents. The insurers face a higher level of losses with total parental claims forming 60% of the claims for the companies that cover employee families.

"Companies are also trying to deal with this by putting some restrictions on the cover provided to parents. Some companies have even started excluding parental cover from group benefits," said Sanjay Dutta, head of health at ICICI Lombard General Insurance. "However, the increase is not across the board it is largely on a case-to-case basis," he added.

According to the Towers Watson report, some companies have chosen to introduce new features like co-pay arrangements for meeting parental claims, customized approach to limit risk exposure, and putting sub limits on certain claims, to bring in some respite to high premiums

Insurance companies are under pressure to increase rates wherever possible also partly because they have been asked by the regulator to increase provisioning on motor third-party insurance losses where claims are turning out to be much higher than originally expected. As a result, public sector companies which had been aggressive in underwriting group health business have started becoming conscious of margins.