TPA tangle in health insurance

Among the many moving parts of a hospitalisation insurance policy is a key intermediary — the Third Party Administrator (Health Services), or TPA.

TPAs handle claims management on behalf of insurers. Earlier, such work was done by the claims departments of the insurance companies, well-versed in the specific requirements of fire, marine, health or motor insurance. The idea of outsourcing health claims emerged when the Insurance Regulatory and Development Authority (IRDA, as it was then known) issued regulations in 2001 allowing TPAs to operate.

These TPAs were meant to serve as a bridge between insurers, hospitals and policyholders — helping customers with documentation, processing claims under the insurer’s rules, and settling hospital bills directly under the “cashless” system so that the insured didn’t have to pay upfront and wait for reimbursement.

Early troubles

In the beginning, TPAs took time to come to grips with both insurance and healthcare processes. Customers complained of arbitrary claim reductions or outright rejections. Then came the “float” problem: insurers advanced funds to TPAs for approved claims, but some TPAs delayed payments to hospitals to earn interest on the idle funds. This led to disputes and tighter regulation.

Meanwhile, hospitals realised that the insurance system — despite its paperwork — brought in paying customers. Even government hospitals began preferring insured patients as a source of income rather than free service.

The cashless crunch

As medical costs soared, insurers created closed networks of hospitals with negotiated package rates to contain pricing discrepancies. But this arrangement often left the policyholder stranded — hospitals charged one rate, insurers reimbursed another, and the patient quietly bore the difference.

Eventually, hospitals began protesting too, citing delays in updating tariff agreements and in receiving claim payments from TPAs. Many took to demanding full advance payment from patients to be reimbursed when the insurer/TPA pays out the claim, subverting the very concept of cashless treatment!

In recent months tensions have escalated, with insurers and hospitals blacklisting each other and patients caught helplessly in between. As it is, hospitalisation insurance has been topping the list of general insurance complaints before Insurance Ombudsmen for decades now.

What needs fixing

India’s healthcare operates in a liberalised, market-driven environment — but the absence of price discipline and uniformity is hurting everyone. A measure of standardisation in hospital tariffs, albeit factoring in differences in facilities and location, is essential. Market segmentation is fine; unregulated pricing is not.

Expanding and upgrading the network of public, community and charitable hospitals can ease the burden on both private healthcare and the customer’s wallet. Quality must be benchmarked, monitored and rewarded. The NABH accreditation system has created a base level of quality for hospitals. A similar grading system for TPAs — importantly incorporating customer ratings — would introduce much-needed transparency and accountability. Come to think of it, independent customer ratings for hospitals on a range of factors from pricing to standards to service quality would be very useful too.

Ultimately, while the insurer–TPA relationship may be contractual, the real test is service to the insured. The customer, after all, is not just the policyholder — but the patient.

(The writer is a business journalist specialising in insurance & corporate history)