Health insurance needs PROPER DIAGNOSIS

IN ORDER TO ENSURE UNIVERSAL access to quality healthcare, the government has been making efforts for increasing health insurance penetration. The Insurance Regulatory and Development Authority (IRDA) recently relaxed norms for health insurance companies and reduced the reserve requirements. The IRDA has already licensed many third party administrators (TPAs) for faster and easier claim settlements and for providing cashless hospitalisation facility. Further, the FDI cap in the insurance sector is also set to be increased from 26% to 49% through the second insurance bill.

Insurers are looking forward to tap the vast and fast-growing Indian healthcare market. In fact, many insurance companies have begun to offer health insurance. However, the path ahead is not so smooth for health insurers in a country like India. The health insurance industry in India at present is a loss-making one. Though the private sector health insurance is growing at 40% annually, the level of coverage is still very low and has not penetrated rural and semi-urban areas significantly.

One of the biggest challenges — and an opportunity too — for insurance companies is to convert the huge out-of-pocket health spending (72% of the total health expenditure and 98% of the total private health expenditure) into a formal risk pooling mechanism which people have never been exposed to before. Such a conversion process is constrained due to several factors, among them the absence of reliable morbidity and health expenditure data. Also important, from a demand-side perspective, is the low level of insurance awareness, poor trust in insurance companies over reimbursement, and absence of regular and adequate income to make regular premium payment.

The process also involves tackling two important forms of market failures that are making insurers reluctant to sell health insurance — overutilisation of healthcare due to insurance coverage, and mostly the relatively unhealthy people buying insurance. One may wonder if these are not the common problems faced by insurers all over the world. However, the magnitude of these problems may be severe in India.

Perhaps, both the insured clients and healthcare providers have an incentive for over-utilisation and overprovision of healthcare, adding to the bill of insurance company. Further, at present, the healthcare insurance schemes in India are mainly limited to hospitalisation, forcing the insured persons to be admitted to hospitals even for those illness requiring only out-patient care. One solution can be including the out-patient treatment as well in the insurance package, but the resulting premium will not be affordable for majority of the Indians.

On the supply side, there are hardly any pricing criteria for healthcare services and no benchmark as to how much care is required by patients for each category of illness. Further, healthcare cost inflation is sure to rise further, All these will force insurance company to increase the premium, thus making health insurance a costlier proposition.

One possible way of controlling the over-utilisation of healthcare due to insurance coverage could be the use of co-insurance and deductibles so that insured clients also have to bear a part of his total incurred health expenditure. But this will be very hard to introduce as already the present insurance schemes cover only a part of the health expenditure and, therefore, any attempt to increase the out-of-pocket healthcare burden of insured clients would make health insurance a less attractive health-financing strategy.

In India, a majority of those buying insurance do it for investment purposes and not as an insurance product. But the health insurance schemes are without the saving component (being purely of risk pooling). This could dissuade many from getting insured. In such a situation, it is obvious that only those likely to require healthcare are interested in buying health insurance.

It is time insurance companies applied appropriate and innovative marketing strategies to overcome all these hurdles by taking the Indian reality into account.

SUKUMAR VELLAKKAL, is fellow at ICRIER, New Delhi

Furniture retailer Z Gallerie in Chapter 11.

GARDENA, Calif. — Top 100 company Z Gallerie has filed for Chapter 11 bankruptcy protection to strengthen its balance sheet and get out from lease obligations associated with 21 closed stores and an Atlanta distribution center, the company said.

The privately held retailer of home furnishings and decorative accessories said all of its remaining stores will stay open and that “it has sufficient cash to operate all aspects of its business, including custom furniture orders through its stores and Web site, and is seeking Court approval to do so.”

“In light of current economic conditions, our company has had to make some difficult decisions,” Chief Financial Officer Mike Zeiden said in a news release.

The filing and restructuring “will allow us to eliminate certain lease liabilities from discontinued stores, and to continue to operate and serve our customers well,” he said.

The retailer’s list of its largest 20 unsecured creditors appears to include a number of landlords, but no furniture suppliers.

The company said it will ask the court, among other things, for permission to pay any pre-petition wages and benefits, as well as to allow the company to honor existing customer programs and deposits, maintain Z Gallerie’s cash management system.

Vendors who do business with the company going forward will be paid on an administrative priority basis for all goods and services the company receives after today, it said.

Earlier this year, Z. Gallerie closed 21 of its 78 stores in various markets, culling out the poorest performers in hopes of strengthening its operations.

Zeiden said the economic climate had taken a toll on the Gardena, Calif.-based company. The retailer closed all four of its stores in Ohio, along with single stores in New York, Michigan, Minnesota and Tyson’s Corner, Va. It also closed two stores in Colorado and its Coconut Point, Fla., store among others.

“Our hope is that it’s going to make us stronger,” Zeiden said. “We’ll be able to focus on the stores we have, narrow the inventory we have to carry and better focus on our customers. We’re more or less going back to our core competency – the way we were back in 2002 and 2003.

By that, Zeiden said he means a more manageable store base that carries the right products.

Last year, the lifestyle specialty retailer did about $190 million in total revenue, down about 12% from the year before, he said, adding that the company struggled through the fourth quarter and early this year, too.

But more recently, he said, Z Gallerie has seen sales increases on its daily business reports despite having fewer overall stores now.

U.S. consumers still struggle, companies say

NEW YORK (Reuters) – Life is not getting easier for the American consumer, according to three big companies whose wares range from fast food to consumer goods to credit cards.

Despite government data on Wednesday showing that parts of the economy are stabilizing, Capital One, Wal-Mart and Burger King indicated that consumers are still buckling under the weight of the recession.

Capital One Financial Corp, a leading issuer of MasterCard and Visa credit cards, said U.S. credit card defaults rose in March as unemployment soared. On a brighter note, American Express Co, saw defaults rise only slightly, a sign that higher-end cardholders can pay their bills. But Burger King Holdings Inc saw a surprise drop in customer visits to its hamburger restaurants in March. And the head of Wal-Mart Stores Inc, the world’s biggest retailer, said he does not anticipate a quick end to the recession as consumers face mounting job losses.

“There’s still a lot of stress,” Wal-Mart CEO Mike Duke said on a taped interview on NBC’s

“Today Show.”

“It’s not a ‘V’ recession, where we’re just going to bounce out and come back,” he said.

The latest comments come a day after a government report showed that sales at U.S. retailers unexpectedly fell 1.1 percent last month. On Wednesday, the Labor Department said U.S. consumer prices posted a surprise drop in March, recording their first 12-month decline in nearly 54 years.

However, the Federal Reserve said economic activity in some parts of the economy appeared to be stabilizing, and other data showed a decline in factory activity in New York state eased this month and that national homebuilder sentiment jumped, suggesting the economy’s steep descent may be slowing.

But consumers, whose spending accounts for two-thirds of U.S. economic activity, are keeping a tight grip on their wallets as rising unemployment shakes their confidence.

Duke said that by month’s end, just before traditional paydays, customers are left with only a few dollars to spend. To compensate, he said shoppers are buying bigger boxes of diapers at the beginning of the month, when they get paid, but buying smaller boxes when cash is tight later in the month.

He said clothes for infants and children are selling better than adult apparel, as parents forsake the latest styles to keep their growing children clothed. Shoppers are also buying more vitamins, hoping to keep themselves healthy and avoid having to miss a day at work. The downturn will lead to a “sustained change” in the way that families live, he said.

CHARGE-OFF RATES RISE, FEWER FREQUENT BURGER KING

Capital One said the annualized net charge-off rate for U.S. credit cards — debts the company believes it will never collect — rose to 9.33 percent in March from 8.06 percent in February. The rate for loans delinquent at least 30 days dipped slightly, to 5.08 percent from 5.1 percent.

At American Express, the net charge-off rate rose to 8.8 percent from 8.6 percent and the rate for loans at least 30 days delinquent fell to 5.1 percent from 5.3 percent.

Capital One, due to report its first-quarter results next week, forecast more credit losses this year as debt-burdened American consumers struggle with unemployment, which hit a 25-year high in March. Capital One shares closed up 1.5 percent while American Express jumped 12 percent.

The latest Blue Chip Economic Indicators survey of private economists, released last week, showed that 86 percent of economists surveyed thought the recession would end in the second half of this year.

Much of the anticipated turnaround in the U.S. economy, now in its 16th month of recession, would be driven by some improvement in consumer spending, housing, business inventories and exports. Yet above-trend growth was not expected until the second half of 2010.

“We … remain concerned that further gains in unemployment and housing market pressures will delay a consumer recovery until 2010 at the earliest,” Andrew Wessel and Daniel Kim, analysts at JPMorgan, wrote in a report.

Burger King, best known for its Whopper hamburgers, said it faced an “unanticipated traffic slowdown” in March across most company-owned restaurants, which hurt its quarterly margins.

Stifel Nicolaus analyst Steve West said Burger King has no company-owned eateries west of the Mississippi River and the U.S. traffic declines were likely due to weakness in the Southeast or mid-Atlantic regions.

So far in April, the hamburger chain said same-store sales have improved, due in part to efforts to attract diners in Germany and Mexico. Its shares dropped almost 18 percent, while competitor McDonald’s Corp closed down 1.6 percent.

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