Mental Health Insurance: A Case Of Legislative Wrong That Insurers Cannot Fix

In 2007, India signed and ratified the Convention on Rights of Persons with Disabilities and its Optional Protocol which recognised mental illness as a form of disability. Thereafter, the Indian Parliament also passed Mental Healthcare Act, 2017 ("Act") which focused on the rights of a mentally ill person and repealed the Mental Health Act, 1987.

The Act excludes illness caused due to mental retardation from the definition of "mental illness". With the intention of promoting mental well-being in the country, the policy makers had provided for a non-discrimination clause in the Act, which mandated each stakeholder in the healthcare system to provide fair and equal treatment to mental illness as compared to physical illness. This clause also provided that each insurer shall cover 'treatment of mental illness' in the same manner as it would cover 'treatment of physical illness' in its medical insurance policies.

In 2018, the Insurance Regulatory and Development Authority of India ("IRDA") directed all insurance companies to comply with this provision. This much needed push had unintended consequences. In 2019, the IRDA issued guidelines on standardization of exclusions in health insurance contracts. In Chapter II of the guidelines, the authority specifically stated that treatment of mental illness shall not be excluded in any health insurance contract in India. Recently, in a Public Interest Litigation, the Supreme Court has issued notices to the Central Government and the IRDA to explain the steps it has taken to enforce the provisions of the Act. IRDA's reply had not been filed as of the date of this writing.

After IRDA's direction, insurers have amended their policies either by covering treatment of mental illness within the framework of their general health insurance policy (and not introducing a specific product catering to mental health insurance) or have removed it from the list of exclusions (without specifically recognising it in the coverage clause) to comply with the non-discrimination requirement.

The effective use and deployment of mental health insurance faces several challenges, such as lack of data for risk calculation (resulting in difficulty for insurers to decide the premium), stigma associated with mental illnesses (disincentivizing insurers to offer a separate product solely focused on mental health), problems faced in verification of claims, and lack of registered mental health professionals.

Section 23 of the Act mandates all health professionals to keep the information of the patient confidential and they are not permitted to transfer such information to any third party except in following cases: (i) to a nominated representative of the patient; (ii) to any other health professional for treatment of the patient; (iii) to protect any third person from harm; (iv) on an order passed by the court having jurisdiction or any other regulatory body; and (v) in the interest of public safety and security. This provision unintentionally acts as a hindrance for the health professionals to provide any information to insurers or to verify any claims made by the patient to an insurer. Section 23 of the Act requires a legislative amendment to include all insurers registered with IRDA within the scope of carved out exception. Further, a strict interpretation of the non-discriminatory insurance clause i.e. Section 21(4) of the Act is an obstacle to effective implementation of the intention of this clause. The clause reads as follows:

"Every insurer shall make provision for medical insurance for treatment of mental illness on the same basis as is available for treatment of physical illness."

The policy makers have, perhaps, failed to take into account the differences involved in the treatment of a mental illness vis-a-vis physical illness. Treatment of major physical illnesses in most cases requires hospitalisation of the patient for continuous days and is covered in general medical insurance policies. On the contrary, treatment of mental illness may not require hospitalisation in most cases, and instead it may require multiple sessions with the health professional which are categorised as outpatient services in the insurance sector.

This (difference in the methodology of treatment) creates unintended consequences from an insurer/ insured's perspective. Firstly, outpatient services are either not covered in a medical insurance policy or have an upper monetary limit (for claim) imposed on such services. With developments in the understanding and treatment of mental health illnesses, a large majority of patients receive care through out-patient interventions. Therefore, in light of the exclusion/ cap for out-patient treatments, it is difficult to afford the complete treatment under the current insurance policies. Secondly, keeping in mind the uncertain and non-continuous nature of the treatment, the claim processing cost for the insurers is high which disincentives them to promote mental health insurance as an independent product. Further, the treatment of mental illness is not completely medicinal in nature. The scope of current medical insurance policies does not necessarily cover usage of non-medicinal mechanisms for treatment of mental illnesses.

For the above reasons, to make insurance viable for mental illnesses, changes are required in the Act, besides a distinct approach towards creating medical insurance policies for mental illnesses as opposed to other forms of illnesses. This may enable the insurers to have a separate category risk coverage for treatment of mental illnesses (apart from current outpatient and hospitalization services). Concepts, such as waiting periods in health insurance policies, need to be treated differently for mental illnesses as it is often difficult to provide proof of the time when a mental injury actually began, unlike a physical injury. The insurers may need to empanel registered mental health professionals to institutionalize the mental health insurance in their product portfolios. It is only when these issues are addressed that universalization of mental health can begin to be achieved.