The best way to buy health insurance is to first choose an insurer who has a proven track record of stable claims practices. Then go through the fine print of the products that are suited to your needs.
A “healthy” health insurance coverage is the need of the hour. While buying a health policy, one needs to know and understand the conditions of the policy one has decided to purchase, otherwise, the disallowances during a claim might cause mild heart attacks of their own. Horror stories of customers incurring huge out of pocket expenses are the stuff of urban legend now and knowing your policy will help you avoid any bad experiences later.
To understand the common reasons for disallowances, you must first familiarize yourself with insurance terminology and the effect it would have at the claims stage.
Co-pay is a cost-sharing provision where a percentage of the claim is borne by the customer. Studies show that such cost-sharing provisions influence the way health services are consumed, on account of two primary reasons. Cost-sharing provisions have shown to control moral hazard by decreasing the consumption of unnecessary health services. Also, customers tend to sign the bills without checking in case the payment is to be made by insurers, but the same customers are likely to scrutinize the charges in case of co-pay.
A 10 per cent co-pay is usually manageable but a large co-pay in your policy could entail large out of pocket expenses in case of a major claim. If you have, say a 20 per cent co-pay in your policy, and you make a claim for 50,000 rupees, you will have to bear 10,000 rupees and the insurer would pay 40,000 rupees. However, in case of a claim for 5 lakhs, the out of pocket expenses would be 1 Lakh, a sum most middle-class families would find hard to pay. Check your policy for the level of co-pay and make sure that you are comfortable with it.
In some policies, the choice of room, the city of treatment, etc. trigger the quantum of co-pay, and it is wise to understand these provisions before making the decision of purchase.
Room Rent Restrictions:
The most common mistake customers make is not paying attention to the restrictions on room rent or room category mentioned in the policies. Depending on the sum you have insured for, and the hospital you choose, the out of pocket expenses could run very high because of the room rent/category restriction in your policy.
Generally, insurers limit the room rent to 1 per cent or 2 per cent of the sum insured, though this limit cannot be applied in case of admissions in the ICU as per IRDAI regulations. So, if you have a 3 lakh rupee sum insured, you are eligible for a room rent of 3000 rupees (assuming a 1 per cent limit) and if you get admitted in a room with daily room rent of 5000 rupees (the average rent of a single room in urban hospitals), you would end up paying 40 per cent of the bill out of your own pocket (excluding the cost of drugs, consumables, implants and similar items). This would be crushingly large in critical cases where treatment is taken in tertiary care hospitals. Therefore, it is not advisable to buy a plan with a very low limit on room rent.
There are two other types of room rent restrictions that have a slightly lesser effect on disallowances. The first type is similar to the 1 – 2 per cent restriction above, but there is no proportionate deduction. The insurer would disallow only the difference in the room rent. Insurers could also restrict the room category that can be chosen, such as a semi-private room, and if a higher room category is chosen, it could either lead to proportionate deduction or a co-pay. If you choose the room category that is allowed in the policy, there would be no disallowance on account of room rent.
Some policies have geography-based pricing with customers in metros paying a higher premium than those living in smaller cities and towns. If a customer buys a policy in a small town and seeks treatment in the metro, there would be a co-pay. This is not an issue for general illnesses like fever, diarrhea, etc where treatment can be taken in a small town. But in case of major illnesses, when customers are likely to travel to larger cities or metros seeking high-level complicated treatments, it would pose a double whammy as treatment costs are likely to be high and a co-pay would burden the customer.
Your policy could have sub-limits for specific benefits much lower than your sum insured. Check your policy for any sub-limits for specific benefits, for example, a 50,000-rupee limit for AYUSH treatments. In some policies, pre and post hospitalization expenses are capped at 10 per cent of inpatient claim.
In some cases, policies have specific limits for common surgical treatments like Cataract, hernia, etc much lower than the policy limit. So, if your bill is more than the procedure limit, you would have to bear the difference in expenses.
Limitation of Expenses:
Some restrictive policies place limits on the professional charges, room rent, and other medical expenses. This is not very common and is seen sporadically in some retail plans.
In an average hospital bill, 3-6 per cent of the charges are for Consumables – items such as gloves, dressing, cotton, disposables, etc. In the current COVID scenario, these charges have burgeoned to 15 – 20 per cent of the bill due to the heavy use of protective gear such as PPE kits, masks, gloves, shields, etc. If a policy does not cover these, the customer will have to bear the cost out-of-pocket.
There are other smaller reasons for disallowances that are good to understand but are unlikely to entail a major burden to customers.
The best way to buy health insurance is to first choose an insurer who has a proven track record of stable claims practices. Then go through the fine print of the products that are suited to your needs. Check the policy wordings, read up on the conditions of the policy, ask the insurer about sub-limits, co-pay, and restrictions, compare different policies available in the market, or ask an expert. A little attention to detail will go a long way in building a worry-free life.
by, Rajagopal Rudraraju, Senior VP and Product Head – Health and Health Claims, Tata AIG General Insurance