Govt extends undue financial benefits of over Rs 11 cr to Reliance insurance under MHIS: CAG

Shillong, Sep 23: The inability of the State Nodal Agency (SNA) to protect the interest of the government in efficient implementation of health scheme MHIS-IV and PMJAY has resulted in extension of undue financial benefit of Rs 11.38 crore to the Reliance insurance company.

This was revealed in the report of the CAG for March 31, 2022 tabled in Assembly on Friday.


Megha Health Insurance Scheme (MHIS) is a universal health insurance scheme introduced by Government of Meghalaya (GoM) in 2012. MHIS aims to provide free health insurance benefits to all residents of Meghalaya except for State and Central government employees. Phase-IV of the Scheme, designated as MHIS-IV, has been implemented in convergence with Pradhan Mantri Jan Arogya Yojana (PMJAY) for a policy period of three years covering the period from February 2019 to January 2022. Convergence of the scheme enabled enhanced insurance coverage of up to five lakh per family on a floater basis, with no restriction on size and age of the family/ family members. The scheme provides cashless treatment benefits for enrolled members. The premium charges applicable for the cover is to be shared between Government of India (Gol) and GoM.

During the time of treatment, the subscribed members produce their smart card to avail cashless treatment in empanelled hospitals in the State and identified health facilities/ hospitals across the country. The cashless treatment benefit is based on the predetermined package rates for specific health conditions.

In Meghalaya, the Director of Health Services (Medical Institutions) DHS (MI) is the Chief Executive Officer (CEO) of the State Nodal Agency (SNA) for implementation of MHIS-IV and PMJAY and M/s Reliance General Insurance Company Limited, Mumbai, selected through tendering process, was the insurer company. MHIS-IV and PMJAY targeted to cover 7,88,256 households (MHIS: 4,41,243 plus PMJAY: 3,47,013) during the policy period.

Scrutiny of records (June 2022) of the CEO, SNA pertaining to the implementation of MHIS-IV and PMJAY showed the following:

1. M/s Reliance General Insurance Company Limited was selected (December 2018) as insurer for the scheme at the agreed premium of 1,630.00 per beneficiary household per annum and accordingly contract agreement was executed on  December 3, 2018.

As per Clause 8B(c), the prescribed claim ratio and its corresponding percentage towards administrative cost are: i. Administrative cost @ 12 per cent if claim ratio is less than 60, per cent  ii. Administrative cost @ 15 per cent if claim ratio is between 60-70/ cent. per cent.

iii. Administrative cost @ 20 per cent if claim ratio is between 70-80 per cent.

Further, clause 21A (a) to (c) of the contract agreement provides that the insurer shall be responsible for beneficiary identification, registration, and to ensure availability of sufficient number of IT infrastructure/kits, at the designated location so as to complete the registration drive of 50 per cent of the targeted 7,88,256 households within four months starting from 23 January 2019 to 31 May 2019. The cost of registration was to be borne by the SNA.

In this regard Audit observed the following:

(A) Undue financial benefit of 3.86 crore to the insurer 

Scrutiny of records showed the following:

1. The SNA intimated (15 January 2019) the insurer to deploy 130 kits for registration drive and to complete the registration process by 31 May 2019. However, the CEO. SNA had expressed (February 2019) concerns over the slow pace of registration drive.

2. The insurer requested (18 March 2019) the CEO, SNA for immediate deployment of 100 to 150 additional kits to speed up the registration process. The SNA in a meeting” (29 March 2019), approved the deployment of 170 additional kits to speed up the registration process with the condition that the cost for deployment of the additional kits (3.69 crore) shall be adjusted out of the registration fee? collected by the insurer from the beneficiaries on behalf of the SNA

3. Despite deployment of additional 170 kits over and above the existing 130 kits, the insurer could achieve registration of only 28.28 per cent of the household as against the target of 50 per cent by May 2019.

In view of this, the SNA had extended the due date for completion of the registration drive up to 31 August 2019. The total registration fee collected from beneficiaries up to 31 August 2019 was 4.52 crore which was transferred (29 January 2020) in full to the SNA by the insurer in contravention of the decision taken by the SNA in the meeting dated 29 March 2019.

Audit further observed that the insurer added the deployment cost of the additional 170 kits amounting to Rs  3.69 crore to its claim ratio leading to inflation of claim ratio to 60.48 per cent from the actual 57.59 per cent which consequently paved the way for enhancement of the administrative cost to 15 per cent instead of the admissible 12 per cent. This resulted in short refund of surplus premium to the tune of Rs 7.55 crore.

The CAG said inclusion of cost of deployment of additional kits enhanced the administrative cost to 15 per cent and the insurer refunded (July 2020) 31.51 crore only in place of the admissible 39.06 crore which was not challenged by the SNA. Due to this, the SNA extended undue financial benefit of 23.86 crore (short refund of surplus premium of 7.55 crore reduced by 3.69 crore deposited by the insurer as Registration Fee) to the insurer.

Thus, SNA’s acceptance of the refund amount of 31.51 crore from the insurer as against the admissible refund of 39.06 crore was tantamount to extending undue favour to the insurer and has resulted in loss of 3.86 crore to the State exchequer.

On this being pointed, the Department forwarded (January 2023) the reply furnished by the insurer (August 2022) which stated that inclusion of deployment cost of additional kits in the claim ratio calculation was as per agreement mutually arrived at in the meeting dated 29 March 2019. The reply is a misrepresentation of facts as it was decided in the meeting  that deployment cost of additional kits has to be met from the registration fee collected by insurer on behalf of the SNA.

Delay in refund of surplus premium by the insurer within the prescribed time resulted in non-realisation of interest amounting to Rs 7.52 crore, which tantamount to extension of undue financial benefit to the insurer.

Clause 8B(c) & (e) of the contract agreement envisages that after adjustment of a defined per cent towards administrative cost and after settling all claims, remaining amount should be refunded by the insurer to the SNA within 60 days of the date of expiry of the policy cover period, failing which, the insurer shall be liable to pay interest @one per cent of the refund amount due and payable to SNA for every seven days of the delay beyond 60 days.

Scrutiny of records revealed that the insurer had refunded 31.51 crore (06 July 2020) and  12.44 crore (17 September 2021) being surplus premium for the policy years of February 2019 to January 2020 and February 2020 to January 2021 respectively. This. indicates that the refunds were made after a delay of 14 and 25 weeks of the due dates.

Due to delay in refund of the surplus premium a total amount of 7.52 crore was payable by the insurer being interest for the delay @ one per cent of the refunded amount which was not levied by the SNA. Non-realisation of interest amount to the tune of Rs 7.52 crore was tantamount to extension of undue financial benefit to the insurer.

Thus, the SNA did not enforce the provisions of the contract agreement entered for efficient implementation of MHIS-IV and PMJAY and extended undue financial benefit of 11.38 crore ( 3.86 crore plus 7.52 crore) to the insurer.

The matter was reported to the Government (February 2023); their reply is awaited (March 2023).

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