Claim settlement process of health insurance: TPA Vs In house claim department

The claims settlement process is one of the most important aspects of an insurance policy, especially if it is a health cover. A policyholder's health insurance claim can get settled by an insurer in two ways: third-party administrators (TPA) and through the insurer's in-house claims processing department.

You should know that TPAs are available only for processing of health insurance claims, i.e., there are no TPAs for other kinds of claims like life or motor. There are advantages as well as disadvantages of both methods of claims processing.

What is a third-party administrator?

A TPA is basically a middle man who facilitates the settlement of a health insurance claim. A TPA is appointed by the insurer. TPAs help you (the insured) process your health insurance claim using various hospital bills and documents. However, they are not responsible for claims rejection or acceptance.

Vaidyanathan Ramani, Head Product and Innovation, Policybazaar.com says, "You need to contact the TPA as soon as the claims process starts. All kinds of assistance related to claim settlement is provided to you by the TPA from the process perspective until the claim is done/settled. Here what you (policyholder) should know is that the acceptance and rejection of the claim is the job of the insurance company and not of the TPA."

Many insurers have a tie-up with a TPA company. Ramani said that there are 26 companies in India authorised by the Insurance Regulatory Development Authority of India (IRDAI) to act as TPAs. Health insurance companies can have a contract with any one of these TPAs and the insurer's claims processing department would then be associated with the contracted TPA, Ramani added. Among the TPAs, Health Insurance TPA of India is the one that caters solely to claims relating to policies issued by public sector insurers. One can directly visit their website and find out the network hospital providers and TPAs.

What is an in-house claims processing department?

In the in-house claim settlement process, instead of taking the services of a TPA company, insurers set up an entire department within their own company to act as in-house claims processing department. The in-house claims processing department is also known as HAT (Health Administration team).

Rakesh Goyal, Director, Probus Insurance, a Delhi- based online insurance broker, said that one of the major advantages of having an in-house claim settlement process is that the turnaround time (TAT) for resolving a query or claim is faster and hassle-free as the decisions are directly taken between insurers and policyholders since there is no TPA in between. "So, for instance, if you are getting your health insurance claim processed through a TPA you need to submit all the details to the TPA and then they will get your claims settled by the health insurer. However, in case of the in-house claim settlement process, the health insurer will directly deal with you and the concerned hospital and settle the claim probably within a few hours or a day itself," Goyal said. Nowadays, many insurers have their own in-house departments to handle the claims process, especially for the retail health portfolio. But, there are some points to consider as to what can work better under different circumstances, Ramani explains:

Advantages of in-house claims processing department over TPAs

The insurer builds a key differentiator on the claims handling front, around TAT and other facilities. Building an in-house claims process allows the insurer to provide special offerings to their policyholder from time to time.

TPAs cannot take any judgement on claims and are only allowed to process them. So, if there are a large number of cases requiring a formal judgement (on applicability or quantum of cover), a TPA may be inefficient and will end up escalating most cases to the insurer only. So, in case of in-house claims processing department where the entire process is done within the insurance company itself, claim process is more hassle-free and takes less time as compared to TPAs. TPAs are dependent on the insurer for getting the health insurance claim settled for the policyholders.

Thus, the efficiency of a TPA depends on how tight its terms of operations are and how clearly the processes are defined for them by the health insurer to process the claims they receive.

Advantages of TPAs over in-house claims processing department

According to Ramani, TPAs have their own hospital networks which is mostly larger than an in-house claim settlement department of an insurance company. The extent of coverage provided by some of the largest TPAs for cashless is higher than most insurance companies in India.

TPAs are focused toward claim management process and have streamline processes for it. "While in case of in-house claims settlement, policyholders have to go through the customer care route, it may take time in explaining the complete scenario to the insurer," added Ramani.

Comparative analysis

According to Ramani, one may expect a difference between claims settlement process in health insurance by in-house department and TPA to be in terms of TAT, which is important from the policyholder's perspective.

This is likely to be the reason why many large private insurers like Religare Health Insurance, Apollo Munich Health Insurance, Max Bupa Health Insurance, Bajaj Allianz Health Insurance, and HDFC Ergo General Insurance have in-house claims processing department. But there are still many private health insurers who do not have their own in-house claims processing department. Further, none of the PSU health insurers have in-house departments to process claims.

However, at an overall level, there is not much difference between the outcomes from a TPA and the insurer's in-house claim processing department. This is because both implement the process that has been set up by the insurance company, in favour of its policyholders. Both help in processing health insurance claims as per IRDAI rules and regulations. Goyal said, "Even if we look at health insurance claims handled through TPAs and directly by insurers (in-house claims processing department) there is not much difference. The data from IRDAI shows that, in the financial year 2017-18, both TPAs and insurers (in-house claims processing department) have settled around 91 percent and 91.6 percent, respectively, of claims received by them within three months. However, one thing that policyholders should know is the claims settled in-house took much lesser time as compared to TPAs," said Goyal.

What should policyholders of PSU insurers do?

If you have a policy from a public sector health insurance company like National Insurance, The Oriental Insurance, The New India Assurance, and United India Insurance, then you have to process your health insurance claim through their TPAs. A PSU insurance agent who did not want to get quoted said, "You don't have to pay any additional charges for the TPA services."

Anand Shrikhande, CEO, Quickinsure, a Mumbai- based insurance broker, said PSU insurance companies do not have in-house claims processing facilities. They rely on TPAs for all claim settlements. For providing claim settlement services, the TPA generally charges the insurance company 6 percent of the claim amount. "However, PSU insurers' policy pricing takes care of this and does not pass the premium charges to the policyholder. Hence, as a policyholder, TPA charges does not affect you directly," he said.

The insurance agent quoted above said that the TPA of a public sector health insurer has a larger hospital network as compared to a private insurer and all PSU policy holders have to route their claims through a TPA. He also said, "You should not compare both claims process because both have advantages over each other. For instance, mostly the premium pricing of a policy taken from a PSU health insurer is slightly lesser than the policy taken from a private insurer. However, on the other hand, the private insurer settles claims slightly faster than TPAs of PSU health insurance companies."

What policyholders should do

Be it an in-house claims processing department or TPA, both have effective claim settlement process. You should ideally not base your decision on which policy to buy on these two factors rather, you should buy health insurance as per your need and consider policy features, exclusions, waiting period, claim settlement ratio, etc. Not only this, one should always take advice from a financial adviser before buying health insurance.