The Union Government’s recent move to provide free generic drugs to public hospitals is set to give a fillip to the rural health insurance industry.  

The scheme may help bring down the cost of treatment and also lower the claims (from rural areas) thereby infusing a fresh lease of life into the general insurers reeling under the pressure of rising claims from its urban health portfolios.

The government had announced its decision to provide free generic drugs to public hospitals at an estimated expense of $5.4 billion ( Rs 30,240 crore).

The scheme, to be rolled out over the next five years, will require public doctors to prescribe non-branded generic drugs. According to Suyash Borar, Chief Operating Officer, B.M. Birla Heart Research Centre, generic drugs are about 50 per cent cheaper compared with branded drugs.

Health insurance pricing

Rural health insurance accounts for about 30 per cent of the health insurance industry’s total business.  “The cost of rural healthcare will inch down once the government’s move to provide free generic drugs comes into force,” said a senior official at an insurance company.

Cost of medicine in case of surgical hospitalisations may account for 25-30 per cent of the total cost of hospitalisation. For diseases which do not require surgical intervention, the cost of medicines could be as high as 50 per cent, said Gaurav D. Garg, Managing Director and CEO, Tata AIG General Insurance.

Cheaper outpatient treatment

According to Sanjay Datta, Head – Underwriting & Claims, ICICI Lombard GIC Ltd, nearly 60 per cent of healthcare treatment in India is outpatient which is not very well covered by insurance. Naturally, the scheme should help the population at large to benefit from treatment at affordable cost.

In terms of claims, the move will help curb medical inflation to some extent, thereby reining in the cost of claims. “We can pass on this benefit to customer by keeping premiums intact over a period of time,” Datta said.


(This article was published in the Business Line print edition dated August 18, 2012)
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