Fraud in Insurance is an Act or omission intended to gain dishonest or unlawful advantage for a party committing the fraud or for other related parties. Similarly in Abuse, people indulge in activities that are inconsistent with business ethics and medical practices which results in unnecessary rise in claim costs.

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What is a Health Insurance Fraud?

Health insurance fraud can be clarified as a circumstance where an insured or medical service provider furnishes fraud, false or misleading information to the insurer with the intention to achieve out of line profits from a policy for the policyholder or service providing source.

Types of Frauds under Insurance Sector:

The Insurance Regulator IRDA has categorized Frauds under Insurance Sector under the following three heads:

  1. Policyholder Fraud or Claim Fraud: Fraud against the Insurance Companies in the purchase and/or execution of an insurance product, including fraud at the time of making a claim.
  2. Intermediary Frauds: Fraud perpetuated by an insurance agent/Corporate Agent/intermediary/Third Party Administrators (TPAs) against the insurer and/or policyholders
  3. Internal Fraud of Insurance Company: Fraud/ mis-appropriation against the insurer by its Director, Manager and/or any other officer or staff member (by whatever name called).

Fraud in insurance can take any form and can be committed in a variety of ways. It is wilful and deliberate, and done for illegal financial gain. It can be committed by any party involved in insurance related activities. Fraud is an increasingly serious matter as insurance business depends on trusts and keeping promises. The ultimate objective of the Insurance is to provide protection for all. Where fraud occurs, both Insurance Company and Policyholders bear the losses. Fraud goes against all the basic principles of insurance such as insurable interest, utmost good faith, proximate cause and indemnity.  Therefore, Fraud will hit back at the customers with unaffordability of premiums and consequently affect their protection levels.

Abuse describes practices that, either directly or indirectly, results in raising the costs. It refers to practices not consistent with providing patients with services that are medically necessary, or that fail to keep the relevant professional standard, or where prices are charged unfairly. In Health Insurance, Abuse can be excessive diagnostic tests, extended and unnecessary stay in Hospital. Conversion of an outpatient or day care procedure into Hospital Admission, admission in Hospitals limited to diagnostic investigations.

Types of Health Insurance Fraud and Abuse:

Both fraud and Abuse are indulged in for illegal or unethical financial gain. The possible types of Frauds and Abuse are given as under:

  1. Treatment of uninsured persons, but billing for insured persons covered in the health policies.
  2. Billing for Doctor Fees for his unnecessary visits to the patients in the Hospital.
  3. Billing for services not rendered.
  4. Unwarranted procedures, excessive investigations, expensive medicines.
  5. Extended length of stay keeping in view the high sum insured in the policy.
  6. Documents submitted are of doubtful nature.
  7. Claims for disease or injury which seems to be pre-existing.
  8. Collecting treatment cost from the innocent patients with misrepresentation that all amounts will not be admissible in an insurance policy.
  9. Filing claims for treatments that are not medically necessary.
  10. Intermediary takes the premium but does not pass it to the Insurance Company.
  11. Intermediary inflates the premium and passes the correct premium to the insurance company and keeps the difference.

The remedies for Frauds across the insurance value chain includes Compliance of procedure of KYC, Pre-Medical checkups, Timely Renewals and better services by the insurance industry. The IRDA has also issued guidelines that all insurance companies registered in India are required to have in place an Anti-Fraud Policy duly approved by their respective Boards.

How to prevent Fraud in the Health Insurance?

The following corrective measures to be taken to have control on Fraudulent Health Claims.

  • Identification of Hospitals committing frauds.
  • Identification of Intermediaries indulged in fraudulent activities.
  • Recovery from the Hospitals, insured’s in case of excess payment.
  • Compliance of procedure of KYC for premium and settlement of claims.

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