Ayushman Bharat. Why there is no cap on insurer’s profit in Chhattisgarh

To avoid windfall gains for insurance companies, a model tender document, under Ayushman Bharat, specifies the maximum gain an insurer can make if there is a surplus after claims settlement. But Chhattisgarh has not included the pertinent clause while implementing the scheme in the State.

This implies that if there is a surplus after settling all claims (say, of ₹100 of the premium, total claims during policy period is ₹60), then the entire profit (₹40 in this case) can be kept by the insurer. In Chhattisgarh, which has adopted the hybrid model, Religare Health is the insurance partner.

Non-inclusion of clause

According to the ‘Model Tender Document for Selection of Insurance Company’, clause 12.2 deals with the refund of premium by the insurer (in case claims are less than the premium), and additional premium by the State Health Agency (SHA) (in case claims are more than the premium).

In case of surplus, if claims ratio (ratio of claims incurred to net earned premium) is less than 60 per cent, then the insurer can keep only 12 per cent of premium as profit when it comes to category A States (10 per cent for category B States).

If claims ratio is between 60-70 per cent, then the maximum profit an insurer can keep is 15 per cent (12 per cent in category B States), and if claims ratio is 70-80 per cent, then the insurer can keep 20 per cent profit (15 per cent in category B States, where the claims ratio is 70-85 per cent).

In the same clause, the burden of excess claims – to be borne by insurer and State – is also mentioned. If the claim settlement ratio exceeds 120 per cent in case of category A States and 115 per cent in case of category B States, then the excess amount over and above this threshold will be shared equally between the insurance company and the government (between Centre and State in the premium sharing ratio). But this is provided the Centre’s premium and excess claim burden does not exceed the maximum ceiling set for the particular State.

Chhattisgarh has not included this clause, implying the insurer gets to keep the entire profit in a good year (when claims ratio is less than 100 per cent) and will have to bear the excess claims burden in a bad year (when claims ratio is more than 100 per cent). “We have not included the 12.2 clause as our experience so far has been that the loss ratio is over 100 per cent. In such a case, the insurer bears the burden of excess claims entirely. If we had adopted the clause, then the State’s outgo would be higher if claims are in excess of 115 per cent,” explains Vijendra Katre, Additional CEO of Ayushman in the State.

Profit no cap

In case of profit, too, the insurer gets to keep the entire amount. “If we had included the clause of capping the profit, then the premium could have been higher than the current ₹1,100,” he adds.

In Chhattisgarh, the State already had Rashtriya Swasthya Bima Yojna (RSBY) launched in 2009-10 for those below poverty line (BPL), with a cover of ₹50,000. Aside from this, the State also has a Mukhyamantri Swasthaya Bima Yojana (MSBY), which covers all those who are not covered under RSBY. RSBY has been subsumed under Ayushman, while MSBY continues for other beneficiaries.

Chhattisgarh has adopted the hybrid model to implement Ayushman, where a claim package of up to ₹50,000 is taken under the insurance model, while a package of more than ₹50,000 is processed under the trust model.

The insurance player on board to implement the scheme in the State is Religare Health, which has quoted ₹1,100 per household as premium. There are so far 55.8 lakh smart-card holders, which works out to a total premium of ₹600 crore. So far, there have been 2.4 lakh claims, totalling ₹168 crore. Katre, however, expects the claims ratio to be in the 95-100 per cent range by the end of the policy period.

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