Health Insurance- Misuse and Misappropriation

Group -5

C026 Omkar Joshi C038 Jahnavi Modi

C027 Akriti Kalra C048 Shikhar Saxena

C036 Neerav Mahajan C059 Syed Essam Rashid

1 | P a g e

Contents

INTRODUCTION 2

INDIAN HEALTH INSURANCE SCENARIO 2

DEFINING HEALTH INSURANCE FRAUD 4

ESSENTIAL COMPONENTS OF HEALTH INSURANCE FRAUD 5

MISUSE OF HEALTH INSURANCE 5

ETHICAL PRINCIPLES VIOLATED 6

EXISTING INSTRUMENTS TO PREVENT HEALTH INSURANCE FRAUD 7

PROPOSED SOLUTIONS 8

CASE STUDY: ICICI LOMBARD 8

References 10

2 | P a g e

INTRODUCTIONHealth insurance has historically played a pivotal role in

The Health Insurance has historically played a pivotal role in improving access to healthcare around the world. Health insurance is a contract between the insurance company and the insured person to cover the medical costs that will arise from illnesses, accidental injuries, surgeries and other medical complications. Over the last 50 years, India has achieved a lot in terms of health improvement. In case of the government funded health care system, the quality and access of these services has always remained a major concern for everyone.

An extremely fast growing private health market has developed in India. This private sector market bridges most of the gaps between what government offers and what people need. However, in the emerging Insurance scenario in India, pricing as well as claims servicing decide where the Insurance Company would stand. Moreover, with proliferation of various health care technologies / innovations and general price rise, the costs of care have also become very expensive and unaffordable to the large segment of the population. In fact, in the future, claim costs will have a direct bearing on the pricing of the claims. Leakages and frauds on account of claim / underwriting will adversely affect the claims experience, which in turn will affect the pricing. Because of the misdeeds of a few people in the society and because of the lack of effective controls and regulations by the Insurance Companies, the genuine customers, who constitute the majority, will have to pay higher prices for the Insurance Products. In an open market with a lot many options available, the consequences are quite so obvious. Not only because of higher prices it will hamper new customers to come – even existing clients base will start dwindling. Thus, Marketing of Health care insurance policies is of paramount importance to help the people to meet out to the untoward expenses arising out of unexpected situations. It is, therefore, essential for their own survival that Insurance Companies should formulate a claim management philosophy where concerns on the account of leakages and frauds are taken care of properly. A transparent claims management policy in fact can be a very good market strategy.

We all accept that as long as there has been Insurances, there have been Insurance frauds. So let’s accept the fact that the leakages and frauds cannot be eliminated altogether. But let’s also accept the fact that they can be managed, regulated and kept within a limit.

INDIAN HEALTH INSURANCE SCENARIOIndia is a country where less than 15% of the population has some or the other forms of health insurance coverage, thus the potential for the health insurance segment remains high. It seems that there is a need to revamp the health insurance coverage in the country as out-of-pocket payments are still among the highest in the world.

3 | P a g e

Moreover, according to the statistics of the World Health Organization (WHO), in 2011, India has spent only 3.9 per cent of gross domestic product (GDP) on the healthcare sector which is the lowest amongst all of the BRICS (Brazil, Russia, India, China, South Africa) member countries.

Moreover, amongst the BRICS nations, in 2011, Russia’s out-of-pocket expenses stood highest at 87.9 per cent closely followed by India (86 per cent), China (78.8 per cent), Brazil (57.8 per cent), and South Africa (13.8 per cent). However, these expenses in developed economies of US and UK were comfortably poised at 20.9 per cent and 53.1 per cent respectively. (Refer: Exhibit-2)

Although the Indian health insurance market has been trailing behind other countries in terms of penetration but the health insurance segment has been rising from quite some time. It continues to be one of the most rapidly growing sectors in the Indian insurance industry with gross premiums for health insurance segment increased by 16% from Rs 13,212 crore in 2011-12 to Rs 15,341 crore in 2012-13. The health insurance premiums have registered a compounded annual growth rate (CAGR) of 32 per cent for the past eight financial years. (Refer: Exhibit-1)

The health insurance industry is presently dominated by the following players:

1. 4 public sector entities (National, New India, Oriental, and United India) that together have 60 per cent market share

2. 17 private sector players with 40 per cent market share of which:

a. 4 Standalone Health Insurance Companies (Star Health, Apollo Munich, Max Bupa, and Religare Health).

b. Health Insurance from life insurance companies

4 | P a g e

DEFINING HEALTH INSURANCE FRAUD

There is a tremendously growing concern among the insurance industry about the increasing incidences and cases of the abuses and frauds in the health insurance industry. It is a matter of grave concern that the 'Insurance Fraud' is not defined under the Indian Insurance Act. However, IRDA has recently quoted the definition which is provided by the International Association of Insurance Supervisors (IAIS) which defines fraud as:

“An act or omission intended to gain dishonest or unlawful advantage for a party committing the fraud or for other related parties."

In common men’s language “Insurance Fraud” can be defined as:“Non-disclosure of material fact with the intention of:

- Getting reduced Insurance Premium – rate- Getting claim settled, which otherwise could not have been possible.”

Another definition of Insurance Fraud is:“In simple parlance, insurance fraud can be defined as: The act of making a statement known to be false and used to induce another party to issue a contract or pay a claim.This act must be wilful and deliberate, involve financial gain, done under false pretences and is illegal.”

5 | P a g e

Although there are various definitions of Insurance Fraud but all these are not penalised under the court of law.Other instruments of the Indian legal system, such as the Indian Penal Code (IPC) orIndian Contract Act, also do not offer specific laws so as to define ‘Fraud’ or ‘Insurance Fraud’. Certain sections of the IPC that are dealing with the issues of fraudulent acts, forgeries, cheating cases, etc. are sometimes applied to it but none of them are not that specifically targeted at the insurance fraud and they are also inadequate for the purpose of acting as applicable to punishment. In absence of specific laws and harsh punishments, prosecution will rarely be successful and if successful, the penalty inadequate to deter others. As social health insurance grows the central and state governments will become one of the largest victims of health insurance fraud and that may be the catalyst that leads to the development of a comprehensive legal framework to tackle health insurance fraud.

ESSENTIAL COMPONENTS OF HEALTH INSURANCE FRAUD

The essential components of a health insurance fraud include the intention to deceive, to derive the benefits from Insurance Industry, the preparation of exaggerated or inflated claims or medical bills and malign intention to induce the firm to pay more than it otherwise would have.

Moreover, devising innovative methods and tactics including the pressure tactics, favouritism, etc. also form a part of the insurance fraud, which is a hazard growing by leaps and bounds since the last decade.

MISUSE OF HEALTH INSURANCE

Misuse by AgentsAgents who provide health insurance sometimes resort to unethical means to get financial gains. They sometimes provide fake policies to customers and siphon off the funds. In other cases they may manipulate the pre policy health records of the customer, in order to extract more money from them. Frauds committed by health insurance agents also include channelizing customers to fake doctors, fudging data in group health covers etc.

Misuse by CompaniesHealth insurance companies cheat customers not giving them their rightful claim or deducting a heavy amount of money from their deposit. Due to the absence of standard medical protocols, no oversight of a regulator, the provider induced fraud and abuse forms quite a large portion of fraudulent claims. It would be quite difficult for a customer to file a fraudulent claim or fake medical documents without connivance of treating doctor or hospital. Frauds of such companies also include overcharging the customers, while the services may be available at a lower cost. They may also deny coverage claims citing company policies introduced after the health insurance had been taken by the customer.

6 | P a g e

Misuse by CustomersCustomers sometimes exploit their health insurance policies or the health insurance policies of their family members for financial gains. Customer frauds may include concealing pre-existing disease or chronic ailment, manipulating pre-policy health check-up findings, submit fake documents to meet policy terms conditions, fake disability claims etc. For example in Delhi man faked his father’s death in order to claim Rs. 50 lakhs.

Statistics Insurance companies in USA incur losses over 30 billion USD annually to healthcare

insurance frauds. In 2007, insurance firms in India lost as much as Rs.15,288 crore, of which life

insurance accounted for `13,148 crore while the general insurance segment lost Rs.2,140 crore

According to the Federal Bureau of Investigation, healthcare fraud, both private and public, is estimated to account for between 3 and 10 percent of total healthcare expenditures, or between $81 billion and $270 billion in 2011.

The Institute of Medicine said in a 2012 report that the U.S. healthcare system wastes $75 billion a year on fraud.

ETHICAL PRINCIPLES VIOLATED

Utilitarianism TheoryWhen health insurance companies or agents or even customers resort to fraud, according to the utilitarianism theory, this is unethical since the perpetrators know that they would gain financially using such means. It puts them in a dilemma since on one hand it is a breach of trust and on the other hand there is a financial gain at stake. An agent resorting to fraud not only betrays his customer but also his company. Similarly a company doing fraud betrays the trust of its customer.

Deontological TheoryAn agent of a company may commit fraud unknowingly if the rules of the company are flawed. In such a case it becomes the responsibility of the agent to give the customer the complete details of the health policy which the company offers. If an agent knows that the policies of the company are not in the best interest of the customer, then he faces an ethical dilemma. On one hand he misguides a customer by giving him wrong or incomplete information. On the other hand, he loses a potential customer which can reduce the revenue of the company.

Moral RelativismIn some case a customer may commit a fraud not for the purpose of financial gains but because of some crisis he/she is in. In the middle of a crisis it, a person is torn apart between two decisions. If the victim is forced to commit fraud to take him out of the crisis it affects his reputation and may further lead him into other crisis. While he may not

7 | P a g e

resort to fraud but at the same time may be forced to bear the brunt of the crisis he is already in. Hence it becomes a case of moral relativism where a right thing is right from one perspective and wrong from some other perspective and vice versa.

Moral HazardMoral hazard occurs in cases where the health insurance agents are subjected to take more risks on behalf of their firms. In these cases, the moral duty lies with the agents since they take the unnecessary amount of risks due to the fact that the onus finally lies on the company to which they belong to and not on them.

8 | P a g e

EXISTING INSTRUMENTS TO PREVENT HEALTH INSURANCE FRAUD

Insurance Regulatory Development Authority (IRDA) Regulations on Fraud:The Authority has taken a number of measures to address the various risks faced by the insurance companies. The Corporate Governance guidelines mandate insurance companies to set up a Risk Management Committee to lay down Risk Management Strategy.

The Guidelines mandate insurance companies to put in place, as part of their corporate governance structure, fraud detection and mitigation measures and submit periodic reports to IRDA.

The Anti-Fraud Policy dictated by IRDA requires all insurance companies to set up fraud monitoring departments, assess high risk areas of fraud, establish procedures to co-ordinate with law enforcement agencies, formulate frameworks for transparency, procedures to carry out due diligence on personnel appointments along with a strong whistle blower policy.

IRDA has launched a user friendly and menu driven portal www.policyholder.gov.in which helps policy holders in redressing grievances, making complaints and buying insurance policies.

IRDA has initiated the development of a platform called Electronic Transaction Administration and Settlement system (ETASS) to administer settlement of insurance, co-insurance and re-insurance effectively.

Indian Penal Code:Section 23, 24 and 25 of the IPC deal with wrongful gain and define fraud. Section 25 asserts that a person involved in fraud can be convicted only if he has fraudulent intent. However most of the times it is difficult to prove fraudulent intent in the court of law and defendant can easily get away maintaining that the act was an oversight.

Section 463 defines forgery and section 477A deals with falsification of accounts. These may be applicable in certain cases of health insurance fraud wherein claims were misappropriated or false bills were submitted to insurance companies in support of the claim. Such fraudulent claims may involve claimants colluding with insurance agents or insurance company employees. Any person found guilty can be punished with imprisonment for a term which may extend to seven years, or with fine, or with both.

9 | P a g e

PROPOSED SOLUTIONSA particular law addressing health insurance fraud is conspicuous by its absence in Indian Legislation. We are of the view that government of India should pass a specific legislation addressing the intricacies and loopholes that are observed in Indian Health Insurance Sector. General sections in IPC as mentioned above benchmark frauds committed in health insurance sector vis-à-vis frauds committed in other sectors. Any health insurance deal consists of 3 stakeholders: the insurance company, the agent and the insurant. If the fraud has been committed by the insurance company or agent it could have a huge impact on the life of the policy holder and hence the punitive penalties should be higher in case of fraud. Legislation should include clear policies about risk identification, risk abatement and settlement guidelines. In accordance with the legislations effective in Western countries, India should also include provisions for “Claw-back” procedures which ensure that the enable an insurer to recover payments, if fraud is proven.

Insurance companies can deploy robust technology and data analytics processes for detecting outlier behaviour or for predictive modelling. These function as a kind of early warning system for detecting fraud. The solutions offered can work in conjunction with existing practices to create a robust framework for early detection / prevention of fraud.

Whistleblower policy at company level can help motivate individuals to alert an insurer about individual cases of fraud or systematic fraud. This can be a very attractive mechanism through which the general population can be engaged in the fight against fraud. In addition this is a mechanism for disgruntled co-conspirators to exit a risky situation whilst claiming credit for stopping it.

A structured training program along with mandatory examination, as well as continuing education requirements should be developed for fraud investigators. All fraud investigators must meet a minimum skill set requirement. In addition, there should be a mechanism whereby a fraud investigator can be assessed and certified for higher skill levels. This would create a cadre of professional and highly skilled fraud investigators. It may be desirable to ensure that these investigators are licensed by the IRDA.

CASE STUDY: ICICI LombardOne of the most recent frauds committed by a health insurance company to have come up in the Health Insurance sector is that by ICICI Lombard GIC Ltd, India’s largest privately-owned general insurance company. The fraud comes in the wake of the direct cash transfer scheme initiated by the Government of India. The company has been alleged to have swindled the central government of crores by forging beneficiaries and enrolling thousands of ineligible people under the Rajiv Gandhi Shilpi Swasthya Bima Yojana (RGSSBY), a health insurance scheme for artisans.

10 | P a g e

In the year 2009- 2010, the government signed a Memorandum of Understanding with ICICI Lombard. The company was to enrol 8 lakh artisans across the country in the fourth year of RGSSBY. ICICI Lombard denied genuine beneficiaries of their insurance claims and made fake accounts of policy holders and charged the government several crores as premium against fake enrolments. Of the 8 lakh, almost 30,000 were from Rajasthan. Evidence shows fake enrolments were used to meet the target and at least 20 per cent of the total enrolments are dubious. Besides this, the company also destroyed cards issued under the scheme. The fraud was revealed by a whistleblower which was followed by an investigation.

Chart representing stock price of ICICI Bank

The report was made public by DNA newspaper on July 2, 2014. The stock price of ICICI Bank, part owners of ICICI Lombard reached a 52 week low the same day.

11 | P a g e

References

http://www.quackwatch.com/02ConsumerProtection/insfraud.html

http://x-claim.in/controlling-fraud-abuse

http://www.insurancefraud.org/statistics.htm#.VGy_DPmUfpc

http://www.policyholder.gov.in/uploads/CEDocuments/Guidelines%20on%20Standardization%20in%20Health%20Insurance.pdf

http://www.icf.indianrailways.gov.in/uploads/files/The%20Indian%20Penal%20Code.pdf

http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/countries/models.html

http://planningcommission.nic.in/sectors/health.php?sectors=hea

http://www.cii.in/sectors.aspx?enc=QSdUUao7W0XCpepCNkEO7m+jHQk2ggcRzaMHfDJr1kjWUn9yjAV1mFZQFFgrWQfI

http://www.dnaindia.com/health/report-health-insurance-in-india-still-remains-an-untapped-market-1891509http://www.cognizant.com/InsightsWhitepapers/Healthcare-Insurance-Evolution-in-India-An-Opportunity-to-Expand-Access.pdfhttp://www.ficci.com/spdocument/20185/Health_Insurance_Fraud.pdfhttps://www.insuranceinstituteofindia.com/c/document_library/get_file?uuid=e4632c21-da80-494c-9264-395283e3e4c0&groupId=16940http://indiatoday.intoday.in/story/frauds-blow-a-hole-in-insurance-firms/1/176477.htmlhttp://www.insureatclick.com/insurance-news-article.aspx?newsid=605http://dnasyndication.com/dna/top_news/dna_english_news_and_features/icici_lombard_cheated_govt_of_crores_of_rupees/dnmum248733http://www.dnaindia.com/money/report-dna-investigation-icici-lombard-cheated-govt-of-crores-of-rupees-1709315http://www.niapune.com/pdfs/Research/MANAGEMENT%20OF%20LEAKAGES.pdfhttp://www.cognizant.com/InsightsWhitepapers/Healthcare-Insurance-Evolution-in-India-An-Opportunity-to-Expand-Access.pdfhttp://en.wikipedia.org/wiki/Health_insurance

http://caribbean.scielo.org/scielo.php?script=sci_arttext&pid=S0043-31442011000400023

http://www.issuesinmedicalethics.org/index.php/ijme/article/view/134/997

http://www.issuesinmedicalethics.org/index.php/ijme/article/view/537/1400

http://bobmaconbusiness.com/?p=1618

12 | P a g e

http://en.wikipedia.org/wiki/Health_insurance

http://en.wikipedia.org/wiki/Philosophy_of_healthcare

http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/countries/models.html

http://planningcommission.nic.in/sectors/health.php?sectors=hea

http://www.cii.in/sectors.aspx?enc=QSdUUao7W0XCpepCNkEO7m+jHQk2ggcRzaMHfDJr1kjWUn9yjAV1mFZQFFgrWQfI

http://www.dnaindia.com/health/report-health-insurance-in-india-still-remains-an-untapped-market-1891509

https://www.dnb.co.in/bfsi2012/insurance.asp