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The future of India’s Health Insurance and why NHCX will unlock a trillion-dollar value

A few days ago, I came across a brilliant article about the National Health Claim Exchange (NHCX). Even though we are building everything on the ABDM (India’s Health Stack) and were aware of its development, Dr Bashan Garg (Additional CEO of NHA) mentioned that the working version of NHCX would go live by the end of December. This is significant and will unlock one of the most substantial benefits for Indian society. I will explain how this works in this essay.

Let’s get started…

This is a personal observation about the Indian startup ecosystem. It appears that investors, including angels and early-stage investors, often miss the key aspect of a paradigm shift and market creation with new and unconventional ideas. For instance, at Y Combinator (YC), one of the questions YC partners often ask is, "What prevented this problem from being solved in the past? Why does this idea not exist yet? Or why did previous teams fail to address the same problem?"

After evaluating thousands of new ideas they have identified a few key traits

  • Unavailability of technology

  • Wrong timing

  • Wrong team, from the perspective of both the problems and the target audience.

I resonate with this approach to evaluating unsolved problems or creating something from scratch. We have been working on Jile Health for the past 15 months, driven by a personal problem and the scale of ABDM. If you asked me why our mission is so ambitious—making quality healthcare affordable for India's 1.2 billion people—it began when I faced a personal problem in August last year and learned about ABDM and other digital healthcare initiatives. The sheer scale and vision of ABDM were evident, and it seemed that by leveraging ABDM in line with our users' needs, we could solve this problem at that scale.

However, every time we pitched our idea to people, most of them thought we were crazy. They believed that if this were such a massive opportunity, it would have already been addressed. In fact, people struggled to grasp our mission and approach, with questions revolving around go-to-market strategies, monetization, and user-related concerns.

Surprisingly, I have yet to hear a question like, "Why do you believe that the market or audience you are targeting is now the right time, or what prevented this problem from being solved earlier? What is the source of this belief?" As an ecosystem, we need to understand that many unsolvable problems are constrained by the unavailability of technology, especially when it comes to solving problems at scale.

So, let me answer that question for all of you. Our rational belief in making quality healthcare affordable for 1.2 billion people is driven by the availability of technology. When it comes to healthcare, which involves multiple stakeholders, we currently possess the necessary technology to solve this problem and unlock trillions of dollars of value from a previously neglected market.

From day zero, we have approached Jile Health from the perspective of addressing the problem. We realized that to make healthcare affordable, we must think full-stack and be technology-driven, leveraging India's extensive network of stakeholders. Our focus was not just on building software or a user product; there was a central monetization plan that could generate billions of dollars in annual revenue. We understood that our users would not pay for preventive care, diagnosis, or even storing their health records. The most financially burdensome aspect of healthcare is treatment, which is inherently unaffordable. The only tool that has made treatment affordable is health insurance.

However, building a technology-driven full-stack solution and ensuring the generation of billions of dollars in revenue requires a different approach. While studying successful healthtech companies worldwide, we realized that most of them exist at the intersection of healthcare and insurance, rather than solely within the healthcare domain. The content from a16z has been particularly influential for us, as it suggests that every healthtech company is also a fintech company. Consequently, we have aligned our healthcare work with health insurance, which is one of the reasons we don't classify ourselves as a pure healthtech company but as a company at the intersection of healthcare and insurance.

Now, let's explore the full-stack approach and the healthcare journey of any individual along the care continuum:

The Care Continuum diagram

Today, it's possible to offer preventive care, components of diagnosis, and recovery through smartphones at nearly zero cost. However, the treatment phase, which occurs in the physical world, will always be unaffordable for a significant portion of India's population. Nevertheless, this presents an opportunity for us to generate and unlock billions of rupees in revenue.

This means that to make quality healthcare affordable for 1.2 billion people, we must ensure that users purchase health insurance out of necessity rather than being coerced into it, as is often the case currently. Users will only purchase if they see genuine value in their investment. This is where our advantages come into play. We have been on the ground, seeking to understand the root causes behind the low uptake of health insurance by both users and providers. If you examine insurance penetration among privately voluntary holders (the current health insurance is designed for this target group), it is only around 4 to 5%. Niti Aayog's report on the current status of insurance highlights that one of the significant reasons for the low adoption of available health insurance is its lack of suitability and affordability.

If something is neither suitable nor affordable, we cannot reasonably expect anyone, rational or otherwise, to open their wallet. We understood this problem very well from day 1, as we were on the ground. Initially, we had limited insight into how we could demonstrate that by focusing on the intersection of healthcare and insurance, we could make health insurance suitable and affordable for 1.2 billion people. However, we now have that understanding and know how to execute this at scale.

Before we move forward, did you know that ACKO Health Insurance is 10 to 15% cheaper than all other available health insurance options for the same claim amount simply because they sell directly to users, saving on commission fees? You can verify this on their website. Additionally, I recently had a conversation with the co-founder of India's largest advisory-based insurance platform, who stated that "the nature of the product—health insurance—compelled it to be sold through brokers or advisors". However, when health insurance becomes an integral part of core healthtech, it eliminates complexity. It's not the nature of the product but rather the manufacturers that create the complexity. Now, let's delve into the details of the price components and suitability of health insurance.

We need to understand why NHCX will make Health Insurance affordable and suitable:

Let’s start with the affordability aspects first:

To begin, let's break down all the cost components of health insurance:

Key Points from the above table:

  1. Each cost component inflates the insurance premium paid by users.

  2. The current claim processing cost is approximately INR 500 to 600 due to its paper-based and manual nature.

  3. The Medical evaluation cost is ~INR 1000

  4. According to Milliman, Indian insurers lose INR 30,000 to 50,000 Cr in preventable claims (This is mostly the fraud committed by providers and that is technically paid by policyholders)

  5. Also, according to McKinsey & Company Indian insurers lose INR 50,000 to 70,000 Cr due to inaccurate pricing and risk assessment

However, when we build at the intersection of healthcare and insurance, many cost components either overlap or healthcare data points can be used to eliminate them. For instance, with health records (the "Source of Truth") of individuals, the medical evaluation cost can be avoided, inaccurate pricing can be rectified, better risk assessment can be achieved, and fraud committed by providers (preventable claims) can be reduced or eliminated.

We will have both - affordability and suitability - answers at the end of this essay, but let’s understand why the current Health Insurance is not suitable for the 1.2 billion Indians.

  • Currently, only 15,000 healthcare providers are part of health insurance's cashless claim system, and 90% of these providers are located in Zone A and Zone B. The fact is that Zone C, which includes just 500 cashless facilities, contains a population of 1.23 billion people. [You can see this in the image below.]

  • The current health insurance only covers In-Patient Department (IPD) expenses.

The distribution of facilities for cashless claims, based on Zones

One reason many Indians find no value in current health insurance is that it only covers In-Patient Department (IPD) expenses, while Out-Patient Department (OPD) expenses are something individuals encounter at least once a year. The utilization of OPD services eliminates the sunk cost mindset. This is a prime example of how technology can facilitate solutions. As the current claim processing cost is above INR 500, and OPD expenses are typically in the range of INR 200 to 300 from an economic perspective, it doesn't make sense to include OPD expenses. However, if the claim processing cost is reduced to INR 10 to 15, it opens the door to including OPD expenses in health insurance claims.

Currently, only 15,000 healthcare facilities are part of health insurance's cashless claim system, and 90% of these are located in Zone A and Zone B, containing only 10% of India's population. In reality, India has 3.4 million healthcare providers, and only 15,000 are part of health insurance cashless claims. To make health insurance suitable for the rest of Indians, this number must increase. Here too, technology has made solving previously unsolved problems possible. Let's understand why smaller providers are not part of cashless health insurance and what's preventing them:

  • Lack of incentive (Being part of the insurance creates a net negative for providers)

  • Claim processing time is between 15 to 30 days (causing cashflow blockage)

  • The demand to manage multiple software to process claims from multiple Insurers (requiring investment and trained personnel)

  • Lack of trust

We can grasp the gravity and complexity of this problem by comparing it with the USA's health insurance market. According to the Kaiser Family Foundation, 1.6 million healthcare facilities or providers are part of the cashless claim system there. The table below shows the top 10 health insurance manufacturers.

If this problem has not been solved yet, it is mainly because of the unavailability of technology. However, all these problems are going to be addressed by NHCX and ABDM, which will bring a paradigm shift in India's health insurance landscape.

  • The claim processing cost is going to be reduced to INR 10 to 15,

  • The claim processing time will be almost real-time,

  • A single "Source of Truth" for all stakeholders will eliminate provider fraud, and

  • A single software system will process claims for all insurers, eliminating the need for multiple systems and high technical skills.

All these are possible because 98% of insurers are already on the NHCX platform and regulators are super active in solving this problem at scale. This means, now even smaller providers will have incentives to be part of the Health Insurance umbrella and OPD will be an integral part of the Health Insurance.

Now, let's see how, by following the path from healthcare to insurance and utilizing the technology mentioned above, the final health insurance premium for the same claim amount can be affected:

This means,

  • The premium of current Health Insurance for the same claim amount would be up to 60% lower.

  • OPD integration will make Health Insurance suitable for 1.2 billion

  • More facilities under cashless claims mean even smaller providers can participate, eliminating the problem of having to travel long distances for cashless claims.

  • Personalized and incentive-driven Health Insurance rather than one size fits all.

Thanks to NHCX now it is possible to offer suitable and affordable Health insurance for the "Missing Middle" or "Lower Middle" which is a 1,25,000 Cr revenue opportunity. Many of the Health Insurance components that seem trivial or impossible today will feel like no-brainer in another few years. The way in Patna even shared auto collects online payments and thanks to that I don’t use private vehicles for travelling anymore. I was not using shared auto also because of the cash problem not because I have a status problem. (Sorry, I know this is also called signalling, lol)

As an a16z article mentions, every Healthtech company is a Fintech company, and the world's largest tech company would be building on the intersection of Healthcare and Insurance. What we visualize every day is a trillion-dollar tech company built on the intersection of Healthtech and Fintech making quality healthcare affordable for the 1.2 billion Indians at a price point that is affordable for 250 million families. This is only possible because of the availability of technology.

Before I conclude this essay, what I have written about the future of India’s healthcare and insurance is not just a potential future; it is the only future because we will build that future!

Thanks for reading, if you find my essay informative, please share this with your networks. I shall see you all next week :)

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