This article was written 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.

What are the benefits of embedded finance in healthcare?

When it comes to healthcare, the integration of financial services and products can provide a range of benefits for different players including patients, healthcare providers, and insurers alike.

Benefits for Patients

• Improved Payment Options : Patients get more flexible payment options, making it easier for them to pay for healthcare services.

• Reduced Financial Stress : Easy and quick management helps reduce financial stress for patients by providing them with more transparency around the cost of healthcare services and enabling them to better manage their healthcare expenses.

• Improved Access to Care : Embedded finance in healthcare can also provide patients with access to financing options that can help them afford necessary healthcare services that may have otherwise been out of reach.

• Streamlined Billing : With simplified billing processes for patients, reducing the likelihood of errors and confusion in medical bills.

Benefits for Healthcare Providers

• Faster Payments : Healthcare providers can ensure faster and more efficient payment processing, reducing the time and cost associated with billing and collections, while also improving the cash flow.

• Increased Revenue : With embedded finance in healthcare, it’s easy for clinicians and other healthcare providers to offer new services and expand their patient base, leading to increased revenue and growth.

• Reduced Administrative Overhead : When invoicing and payments are done online, administrative overhead associated with healthcare services is significantly reduced.

Benefits for Insurers

• Improved Risk Management : Embedded finance in healthcare can help insurers better manage risk by providing them with more data and insights into patient financial behavior.

• Increased Efficiency : Insurers can also streamline the claims process, reducing the time and cost associated with it.

• Improved Patient Outcomes : With simplified and embedded finances, insurance providers can also encourage patients to seek necessary healthcare services. When patients adhere to treatment plans, improvement in outcomes is assured.

• Reduced Costs : Embedded finance in healthcare directly enables insurers to cut down costs associated with claims processing and fraud detection.

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 

Problems of Embedded Finance in Healthcare

Although embedded finance has the potential to disrupt healthcare, it also poses several challenges that must be carefully considered and addressed to ensure its successful implementation.

1. Regulatory challenges : The healthcare industry is heavily regulated, and there are several laws and regulations that govern the provision of financial services in healthcare. The integration of financial services into healthcare platforms raises several regulatory challenges, including compliance with data privacy laws and regulations.

2. Data security risks : Healthcare data is highly sensitive and valuable, and the integration of financial services into healthcare platforms can increase the risk of data breaches and identity theft. The security of patient data must be ensured to prevent unauthorized access and misuse.

3. Limited access : Embedded finance in healthcare may not be accessible to all patients, particularly those without access to the internet or mobile devices. This could further exacerbate healthcare disparities, particularly among low-income patients and those in rural areas.

4. Lack of transparency : The integration of financial services into healthcare platforms could create a lack of transparency in healthcare pricing and billing. Patients may not have access to information about the cost of medical services and procedures, making it difficult for them to make informed decisions about their healthcare.

5. Ethical concerns : The use of embedded finance in healthcare raises ethical concerns, particularly around the use of patient data for financial gain. There is a risk that patient data could be used to deny coverage or inflate prices, which could have negative consequences for patients' health and well-being.

Embedded finance in healthcare thus promises to be a transformational force - improving access through customized, installment-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 well-being.