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8 Critical Checks while Buying Health Insurance

According to a few studies done in the past, the medical inflation in India is around 17 percent annually, much above the general inflation level.* Medical breakthroughs have made it possible to treat and cure many ailments, however, these benefits don’t come cheap as the cost of the new technologies is passed on to the patients. Thus, the case to buy health insurance coverage is very strong.

Yet, many of us hesitate to buy health insurance or keep on delaying the decision. One reason for this could be that there are so many products in the market today that choosing the best suitable product becomes an overwhelming task especially when you are not sure of what features to look for in a product.

Many of us also buy health insurance for tax benefits without giving a thought on whether the chosen plan covers us optimally. Let us discuss below the important features/checks to look out for while buying health insurance:

Before moving on to the checklist, it is important that we are convinced that we need to have separate health insurance coverage even if we are covered by our employers. Many of us may feel why to spend unnecessarily when an employer given insurance cover is already in place. If you think so, please ponder over the following points:

Reasons to Buy Health Insurance Even When Employer’s Insurance Cover is Present

  • Employer’s cover is a perk: The insurance cover provided by your employer is a perk given to you and they can withdraw/alter the terms of it anytime without any legal consequences whatsoever.
  • Co-pay: As premiums are rising steadily, employers are trying to rationalize the cover provided by adding restrictive features such as co-payment (payment of some % of the bill by the employee), partial payment of premium by the employee and not covering parents etc.
  • Inadequate coverage: Most of the employer-provided health insurance plans have modest coverage amounts ranging from Rs 1 lakh-Rs 3 lakhs. As healthcare costs are rapidly rising, you need to realistically assess whether your employer’s policy will be sufficient to cover costs of treating critical ailments, major surgeries, procedures such as angioplasty, dialysis, etc.
  • Employment status: If you are between jobs, you will be without cover. In current times, with job security being a concern, buying your own health plan and not relying only on your employer’s cover may be a smart move. Also, budding entrepreneurs, do buy your health insurance cover before embarking on your entrepreneurial venture.
  • Post-retirement: On retirement, be prepared to foot all medical expenses from your pocket. At this juncture, buying health insurance may be very costly due to your advanced age. Also, many of us may be suffering from some ailment by retirement. The pre-existing ailment clause will kick in and you will not be able to use the policy optimally in the initial years. You may even be denied cover in case of adverse health.

Trust the above points impress upon you the need to have your own health insurance cover. In fact, buying a health cover for yourself and your family is actually one of the first steps in financial planning.

To Buy Individual or Family Floater Plan?

In an individual policy, a single person is covered whereas in a family floater policy the spouse and children can be included. The coverage amount can be used for the hospitalization and treatment of any or all the family members who are included in the floater policy until the sum assured limit.

Family floater plans are more flexible and can help in the use of the policy by all members. Some companies even allow dependent parents and in-laws to be included in the floater policy. However, do note that the premium for floater policies is generally arrived at on the basis of the age of the oldest member. Hence, including elderly parents in the floater plan will mean paying a substantially higher premium. It may be better to opt for two separate floater plans—one for self, spouse and children and the other for elderly parents/in-laws. You can also get specific senior citizen plans for the elderly. 

Now, let’s move to the important checks to be made while buying a health policy:

  1. Buy adequate cover – The sum assured chosen should be well thought over considering your family history of illnesses and also your residential city. For people living in the metropolitan cities, the sum assured should be at least Rs 10 lakh given the high cost of living in these cities. Medical treatment is very high in metro cities as compared to the smaller towns. For people living in tier 2 and tier 3 cities, the sum assured insured should be at least Rs 4-5 lakh.* 
  2. Waiting Period: It is the period from policy issuance during which you cannot claim any benefit from the insurer for conditions/procedures/diseases which fall under the waiting period criteria.

The various types of waiting periods are:

  • Initial waiting period: Most plans have 30-90 day waiting period from policy issuance during which you cannot claim hospitalization expenses or other benefits payable under the policy. However, accidents are an exception to this rule and are covered from the inception of the policy.

  • Pre-existing ailment waiting Period: Any ailment (eg: Diabetes, Blood Pressure etc) which exists at the time of policy issuance is referred to as a pre-existing ailment. All insurance companies have a waiting period for pre-existing ailments. It is usually 48 months of continuous coverage. During the waiting period, no coverage is extended for the pre-existing ailment(s). Once the waiting period is over, the coverage begins for these ailments.

This also brings focus to an important aspect i.e to buy health insurance when you are young and healthy and free of ailments. You are exempted from the waiting period for pre-existing ailments and in case you get diagnosed with a specific ailment for the first time after policy issuance, you are covered for the same from day one.

Buying health insurance early also helps you accumulate no claim bonuses which increases your total sum assured amount as the chances of a claim in early life are much lesser.

  • Disease specific waiting period: Certain conditions like cataract, hernia, tonsillitis, piles, knee replacement, hysterectomy etc are covered only after a specific waiting period of 12-24 months. The list of such diseases is clearly mentioned in the policy brochures and contract.

  • Pregnancy – Pregnancy-related expenses are usually covered after a waiting period of 36-48 months though very few insurers cover pregnancy.

It is best to consider plans which have lower waiting periods and this should be an important factor as you compare various plans.

  1. No-claim bonus: To prevent policyholders from making frivolous and petty claims, insurers have come up with the concept of No-claim bonus. Under this, for every claim free year, a certain percentage of your initial sum assured is added to your policy up to a specified limit (varies across companies).

Illustration:

Murli has a health insurance policy for Rs 2 lakh. The insurer offers 5% no-claim bonus for every claim free year with a maximum limit set at 50% of the initial sum assured.

The total sum assured available at the end of every claim free year is as under:

Sum assured at the end of 1st claim free year = Rs 2 lakh 10 thousand

Sum assured at the end of 2nd claim free years = Rs 2 lakh 20 thousand

Sum assured at the end of 3rd claim free years = Rs 2 lakh 30 thousand

Thus, the maximum sum assured can go up to Rs 3 lakh (2 lakh + 50% of 2 lakh).

  1. Restoration of sum assured: As per this feature, in case the entire sum assured in exhausted in a policy year, and you fall ill with another illness the entire sum assured is restored for you to use at no extra cost.

Similarly, in a family floater policy, should a family member use up the entire sum assured and another member falls ill during the same policy year, the sum assured is restored for usage at no extra cost.

Illustration:

Sanjay has a family floater policy of Rs 3 lakhs. His wife meets with a major accident and the entire sum assured is used in her hospitalization. In the same policy year, Sanjay’s daughter is diagnosed with Dengue and is hospitalized. As per the restoration feature, the sum assured of Rs 3 lakh is restored at no extra cost and can be used for her hospitalization.

  1. Pre and post hospitalization coverage: Many health plans today provide coverage for pre and post hospitalization expenses.

Pre-hospitalization expenses: Except for accidents, hospitalization for a medical condition does not usually happen all of a sudden. We experience some symptoms, visit a doctor(s), undergo various investigative tests etc which result in a diagnosis and depending on the condition the doctor may recommend hospitalization.

The pre-hospitalization expenses usually include the following:

  • Doctors fees

  • Medicines

  • X-rays, scans, medical tests, etc

Many health plans cover pre-hospitalization expenses up to 30 – 90 days prior to the date of hospitalization.

Post-hospitalization expenses: After discharge from the hospital, during the recovery period, there are various expenses one incurs to ensure a complete recovery. These typically include the following:

  • Medicines

  • Medical tests, scans, X-rays

  • Doctor’s fees

  • Physiotherapy or other therapies related to the condition

Post-hospitalization expenses are usually covered for a period of 60-180 days post hospitalization.

  1. Not reading the fine print – Assuming that the insurer will clear all the hospitalization bills up till the sum assured limit is wrong. Do check for the following:

  • Co-pay – In a co-pay policy, for every claim, a certain percentage of the claim amount is paid by the policyholder and balance by the insurance company.

For eg: For a policy with 10% co-pay if the hospitalization expenses are Rs 1,00,000/- then 10% of this i.e. Rs 10,000/- will be payable by the insured and the balance Rs 90,000/- by the insurance company. Policies with co-pay feature have lesser premium than those without co-pay. You need to decide whether you wish to go with a co-pay or a without co-pay policy. While taking a decision please keep in mind that for certain critical illnesses the hospitalization expenses can be very high and a co-pay policy may put considerable strain on your finances.

  • Room rent limit – This is a very important clause which can become a major pain point during a claim. Many policies have a room rent limit (per day basis) which is a fixed amount or a percentage of the sum assured, say 1% of the sum assured.

For eg: If your policy has a room rent limit of Rs 4000/- per day then the company is liable to pay only this amount even if you get admitted to a room with higher rent. Here, please note that if you are thinking that this limit applies only to the room rent and all other charges will be borne at actuals till the sum assured amount, you are badly mistaken. All the other charges will be borne in the same proportion as the room rent.

Assuming that there was an emergency resulting in hospitalization and only a room with rent of Rs 8000/- was available, so you had no option but to go with this room.

Here the charges will be borne as under.

Hospital bill

How much insurance company will pay

Explanation for amount

No. of days hospitalized

5 days

Room charges

5*8000=Rs 40,000/-

5*4000=Rs 20,000/-

Room rent limit is Rs 4000/- per day, so 50% of actuals paid

Surgery charges

Rs 80,000/-

Rs 40,000/-

In proportion to room rent paid i.e. 50%

Doctor visits

Rs 5000/-

Rs 2,500/-

In proportion to room rent paid i.e. 50%

Medical tests

Rs 10,000/-

Rs 5000/-

In proportion to room rent paid i.e. 50%

Medicines

Rs 5000/-

Rs 5000/-

MRP product, hence no deduction

Total

Rs 1,40,000/-

Rs 72,500/-

Thus, the policyholder has to pay (1,40,000 – 72,500) i.e. Rs 67,500/- from his own pocket even if the expenses were within the sum assured limit as most charges are tied up to the room rent.

The best option is to choose a policy which does not have a room rent limit through the premium payable for this will be higher than one with rent limits or choose a policy which provides higher rent limit (consider costs of your residential city).

  • Sub-limits – In addition to the room rent limit, the insurer can impose sub-limits on specific treatments, doctor’s consultation fees, pre-planned surgeries such as cataract removal, knee replacements, etc. Be sure to check the list of diseases/surgeries which come under the sub-limit list along with the sub-limits so that you can make an informed decision.

For eg: You may have a sum assured of Rs 3 lakhs, however if the sub-limit for cataract removal surgery is Rs 50,000/- you cannot claim in excess to this amount even though it is well within the sum assured amount.

  1. Cashless network – Do review the list of network hospitals of the health insurance companies in India. Check whether reputed hospitals are on their network and also the ones where you are most likely to avail treatment. The cashless facility is available only with the network hospitals. If you are getting admitted in a non-network hospital you will have to settle the bills on your own and subsequently claim reimbursement for which all hospital bills, test reports, doctor’s prescriptions, discharge summary, etc need to collected carefully and submitted to the TPA (third party administrator). A cashless facility is much more convenient.

  2. Insurer’s claim settlement ratio – The zest to acquire new business is very high among all companies. However, does the same zeal exist at the time of claim settlement? The insurance regulator, IRDAI’s website provides the claim settlement statistics of all companies.

A claim related statistic shared in Economic Times Wealth (March 18-24, 2019) is reproduced below:

How much of the premium is paid out in claims? 

The ideal incurred claims ratio is 75-85%. A low ratio does not bode well for policyholders and a high ratio of 100% or more shows that the insurer has had to pay out the entire premium (or more) that it collected. 

Premium paid out in claims

Conclusion:

Buying health insurance is a necessity than a choice today. While choosing a health cover, one should ideally start by comparing plans from 2-3 preferred insurers. Trust the checklist provided above will help you as you review various health insurance plans. After all, when you or a dear one is hospitalized you don’t want the additional mental burden of someone pointing out why a claim cannot be paid. It is wise to make an informed decision beforehand!

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