The out-of-pocket expense for health insurance policyholders is set to get lower. A the time of claim settlement, sometimes the health insurance gets paid only partially by the insurance company or the third-party administrator (TPA). This is primarily on account of a feature called ‘Sub-Limit’ in health insurance policies. Some times, the claim is proportionately reduced or deducted based on the sub-limit of the room rent used by the policyholder. The Insurance Regulatory and Development Authority of India (IRDAI) has decided to ensure uniformity at the time when the insurers apply proportionate deductions in health insurance claims when policyholders opt for a room with a higher rent than the eligible limit under the policy.
In the case of hospitalization, several times, the health insurance policyholders have to bear a certain portion of the hospital cost even though they hold a cashless Mediclaim policy. This could be because of the ‘Sub-limit’ in the policy which is generally 1 per cent of the sum insured for the room rent. The Sub-limit defines the various hospital cost heads as per the policy terms and conditions. Now, if the policyholder chooses to take a room higher than what is allowed as per sub-limit, the insurer proportionality reduces the claim amount on other cost heads.
In the health insurance contracts where there is a sub-limit for room rent, in the event policyholder occupying a room with the higher tariff, than the one that he is eligible, health insurance products, subject to product design, may stipulate recovery of proportionate deductions in respect of various associated medical expenses. IRDAI wants to ensure that there is uniformity in the way the other cost heads are adjusted.
To bring in the uniformity, the provisions of Clause (4) of Chapter II of Guidelines on Product filing in Health Insurance Business specifying norms on designing of health insurance products need to be modified.
This is what the regulator has stated – Whereas part of product design insurers propose proportionate deductions of the associated medical expenses when a policyholder chooses a higher room category than the category that is eligible as per terms and conditions of the policy, insurers shall define ‘associate medical expenses’ in the terms and conditions of the policy contract.
The following expenses are not allowed to be part of the definition of ‘associate medical expenses’.
a. Cost of pharmacy;
b. Cost of implants and medical devices
c. Cost of diagnostics
Also, insurers shall not recover any expenses towards proportionate deductions other than the defined ‘associate medical expenses’ while processing claims.
At the same time, the insurers shall ensure that proportionate deductions are not applied in respect of the hospitals which do not follow differential billing based on the room category. Towards this, the policy conditions shall be specified that the proportionate deduction would be applied only in case of a hospital that follows differential billing practice based on the room category occupied by a patient.
Further, insurers are also not permitted to apply proportionate deduction for ‘ICU charges’ as different categories of ICU are not there.