The case for Embedded Finance in healthcare

This article was written by the FinBox team in collaboration with QubeHealth, a FinTech for health-tech company that is changing the way Indians pay for their healthcare. Follow them on LinkedIn here.

In India, out-of-pocket expenses account for about 62.6% of total health expenditure — one of the highest in the world. 3 out of 4 Indians do not have health insurance, and for those who do, the terms and conditions are often not clear. For most, it is simply a tax saving measure and nothing more. But when a medical emergency arises, patients are often in for a financial shock, and when the healthcare need is a non-emergency, lack of finance postpones the healthcare decision, often compounding the issue (e.g. knee replacement or cataract).

Indians are used to paying for healthcare from their pockets — from their savings or borrowings. Borrowing for healthcare is therefore common. What’s not common though is the simplicity of borrowing. The irony is that in India it is now commonplace to buy a washing machine or a cellphone on a ‘no-cost EMI’, buy now, pay later scheme, but impossible to transact the same way for any healthcare expense.

However, there is a solution that can be deployed in combination with insurance — one that’s beneficial to both patients and healthcare providers — a credit-line, on-tap, that you can use to pay for any healthcare expense for anyone in your family, via embedded finance.

There are plenty of reasons why health insurance has seen such little uptake in the country. One study has shown that private standalone health insurers appear to be overcharging its consumers. Between 2013 and 2016, the claims ratio of these insurers fell from 67% to 58%. Government insurers, on the other hand, are financially fragile. Government-funded health insurance schemes also raise concerns related to insolvency. The claims ratio for all these businesses is above 100%, indicating that these businesses are heading towards bankruptcy.

The lack of insurance coverage and awareness thus results in unexpected out-of-pocket expenditure for health emergencies.

Apart from the patients themselves being burdened by massive bills, hospitals too bear the financial brunt of invoices that go unpaid for long periods.

According to the World Health Organization, “The enjoyment of the highest attainable standard of health is one of the fundamental rights of every human”. The Indian Constitution too includes multiple references to public health and the role of the state in providing healthcare to citizens. It begs the question — at a time when Indians can get instant credit to purchase mobile phones and television sets, why is it that access to a basic human right remains a struggle?

The healthcare space in India is thus in dire need for financial disruption, and embedded finance could be the answer to its problems.

What is Embedded Finance?

Embedded finance, also known as embedded banking, is the seamless integration of financial services into a traditionally non-financial service. For example, making a purchase on Amazon and choosing a buy now, pay later option at checkout itself. Embedded finance infrastructure enables customer-facing digital platforms (the ‘anchor platforms’) to ‘embed’ financial services into themselves.

In healthcare, there are three major ways in which to embed finance and deliver credit products:

Through the employer (B2B2C): Employers can facilitate health care financing for their employees via HR tech platforms as their employee retention and acquisition strategy. They can take on some of the liability to increase the chances of their employees being approved for loans. Employers possess data on their employees which can be used to effectively underwrite and improve approval rates. Onboarding too is smoother in this case since it leverages data already with the employer. The lender is repaid on time with deductions at source, i.e. from the employee’s salary.

Through the healthcare provider: This refers to hospitals providing financing at the point of care. This is done through partnerships between hospitals and embedded finance providers. The latter pays hospitals upfront for patient invoices and offers patients minimal to zero interest instalment-based payment plans. However, it requires the sharing of patient data between hospitals and lenders — data that well-established hospitals may be unwilling to part with due to fear of leaks or misuse.

Through direct sales (retail/B2C platforms): Here, B2C apps that connect individuals with medical care providers are offered in-context credit as a buy now pay later solution. They leverage embedded finance to improve their user experience, improve customer retention, and encourage more transactions on their platform.

Benefits of embedded finance in healthcare:

Patients:

• Gain Improved access to healthcare services, especially emergency care
• Can choose to have more elective surgery (e.g. cosmetic or dental)
• Enjoy improved financial planning ability
• Have higher chances of loan approval — lenders have traditionally considered sick borrowers as risky
• Have cccess to credit in urgent circumstances at better terms

Hospitals :

• Gain additional revenue as patients increasingly opt for elective surgeries
• Improve patient loyalty by offering instalment-based financing
• Gets paid up-front for all out of pocket expenses (for reference, insurance reimbursements take 30–60 days)
• Build closer relationships with their patients
• Gain more control over their revenue streams
• Reduces effort of collecting payment

Employers:

• Improve morale as employees are secure even in case of an emergency
• Improve employee retention
• Increase employee productivity

Lenders:

• Acquire more customers to their lending portfolio
• Improve underwriting models by leveraging platform data such as salary, income, investments
• Up-sell and cross-sell other products

How embedded finance does this:

• Provides the technology infrastructure that connects healthcare providers with lenders for flow of capital and quick and seamless financial transactions
• Enables safe, consensual digital data sharing for underwriting
• Improves underwriting using platform data such as salaries and investments
• Tailors the loan journey across touchpoints and ensures relevant communication
• Facilitates quick disbursal of funds to the borrower
• Improves access to healthcare

Embedded finance thus promises to be a transformational force in healthcare — improving access through customized, instalment-based financing. In addition to increasing the number of important elective surgeries and promoting preventive healthcare management, for many in India, it could mean access to care that was previously out of reach. For hospitals, it could mean not having to turn away patients in need of life-saving care. Employers must therefore partner with embedded finance providers to give their team members access to healthcare financing that will tide them over any emergency and improve their morale and wellbeing.