The cost of quality healthcare has risen sharply. By purchasing a health insurance plan, you can ensure quality healthcare for your family. As your family grows or as the healthcare costs rise, you may have to increase your health insurance coverage. You can either increase health cover/Sum Insured in the existing plan or purchase another health insurance plan. Enhancement of Sum Insured in the existing health plan is a pretty straight forward process. You request the insurer for enhancement. It will arrange a few medical tests to assess its risk for the enhanced cover and issue the plan for an additional premium. There will no difference in the claims process. However, if you opt for a second plan, the claims process can get a bit cumbersome.
In this post, I shall try to answers some of the common questions that you might have if you have multiple health plans.
How does IRDA, insurance regulator take view of the two separate plans? At the time of claim, do you have to make claim with both the insurers? Can the insurance company insist on sharing the claim amount with other insurers? What are your rights? How much is the insurance company’s discretion? What is the regulator view on multiple policies? Can you claim more than the hospitalization expenses incurred? Can you profit from the hospitalization by claiming full amounts from the two or more insurers?
There are two kinds of health insurance plans. Indemnity plans and Defined Benefit (or fixed benefit) Plans. I will first discuss the difference between the two kinds of health plans. The reason is that the treatment of multiple health insurance policies depends on the type of health insurance plan.
Indemnity Plans and Defined Benefit Plans
As the name suggests, under an indemnity plan, you are indemnified for the expenses incurred on hospitalization. Under Indemnity plans, you are reimbursed hospitalization expenses or provided cashless treatment subject to a maximum of Sum Insured per policy year.
On the other hand, in case of defined benefit plans, there is no relation to the actual treatment expenses incurred. On occurrence of a covered/insured event (diagnosis of a critical illness), the insurance company pays you the cover amount (for the illness). Critical Illness Plans and Personal Accident Plans are defined benefit plans where the benefit is not linked to medical treatment expenses.
No matter how many indemnity health insurance plans you purchase, you cannot claim more than the cost of treatment from all the plans combined. For instance, you have a hospitalization bill of Rs 2 lacs. If you claim Rs 1.5 lacs under your first plan, you cannot claim more than Rs 50,000 from the remaining health insurance indemnity plans.
Please understand the above condition does not apply to defined benefit plans. For instance, you have an indemnity health insurance plan of 5 lacs and a critical illness plan of Rs 10 lacs. Now suppose you get diagnosed with cancer and the treatment costs you Rs 3 lacs. Indemnity plan will pay you (or the hospital in case of cashless hospitalization) Rs 3 lacs. On the other hand, your critical illness plan will pay you Rs 10 lacs. It does not even matter if you go through any treatment or not. You will be paid the amount on cancer diagnosis. Even though the treatment cost was only Rs 3 lacs, you have been paid Rs 13 lacs by the insurance companies. If you had two indemnity plans (instead of one indemnity and one critical illness plan), you would have been paid a maximum of Rs 3 lacs.
This does not mean you should purchase critical illness plans. There are a number of caveats. Please go through this post for more on critical illness plans and whether you should purchase such plans.
What is Contribution Clause?
Following is the standard definition of Contribution as per IRDA, the insurance regulator.
Contribution means essentially the right of an insurer to call upon other insurers liable to the same insured to share the cost of an indemnity claim on a rateable proportion of Sum Insured.
So, essentially, if you have multiple plans, an insurer can ask other insurers to share the claim cost. Let’s look at the extract from IRDA regulations on multiple policies.
Extract on multiple policies from IRDA Health Insurance Regulations, 2013
- If two or more policies are taken by an insured during a period from one or more insurers, the contribution clause shall not be applicable where the cover / benefit offered:
- is fixed in nature;
- does not have any relation to the treatment costs;
- In case of multiple policies which provide fixed benefits, on the occurrence of the insured event in accordance with the terms and conditions of the policies, the insurer shall make the claim payments independent of payments received under other similar policies.
- If two or more policies are taken by an insured during a period from one or more insurers to indemnify treatment costs, the insurer shall not apply the contribution clause, but the policyholder shall have the right to require a settlement of his claim in terms of any of his policies
a. In all such cases the insurer who has issued the chosen policy shall be obliged to settle the claim without insisting on the contribution clause as long as the claim is within the limits of and according to the terms of the chosen policy
b. If the amount to be claimed exceeds the sum insured under a single policy after considering the deductibles or co-pay, the policyholder shall have the right to choose insurers by whom the claim to be settled. In such cases, the insurer may settle the claim with contribution clause.
c. Except in benefit policies, in cases where an insured has policies from more than one insurer to cover the same risk on indemnity basis, the insured shall only be indemnified the hospitalization costs in accordance with terms and conditions of the policy
I checked the policy wordings of a few plans from Apollo Munich and Max Bupa. Though the language used was slightly different, the message conveyed was the same. Insurer can invoke the contribution clause only if the plan is an indemnity plan and the claim amount is greater than the Sum Insured. Moreover, the contribution clause can be invoked only on an indemnity plan (and not defined benefit plan)
From the IRDA regulations, we can see that the insurer cannot always exercise this right. This means Contribution clause is not always applicable. Let’s consider various scenarios.
If you have purchased two Critical Illness Plans
As per IRDA, contribution clause shall not be applicable if the insurance plan benefit is fixed in nature or does not have any relation to treatment costs.
Hence, if you have purchased five critical insurance plans (there is no reason why you should purchase five) with Sum Insured of Rs 5 lacs and you get diagnosed with cancer, all the five policies will pay you Rs 5 lacs each. You will get Rs 25 lacs in total. This is because a Critical Illness Plan is a fixed benefit plan and contribution clause is not applicable.
Though I prefer using the keyword Sum Assured in case of defined benefit plans, I will use Sum Insured to avoid confusion.
If you have purchased one Indemnity and one Critical Illness plan
Contribution clause is not applicable for critical illness plans. If you have indemnity plan of Rs 5 lacs and critical illness plan of Rs 10 lacs and get hospitalized for cancer treatment. The treatment costs Rs 3 lacs.
Indemnity plan will pay Rs 3 lacs and critical illness plan will pay Rs 10 lacs. You will get Rs 13 lacs in total.
If you have purchased two Indemnity plans
This is where all the complications arise and the insurer has some discretion. Let’s assume you have two plans of Rs 5 lacs each from Apollo Munich and Max Bupa.
If the claim amount is Rs 3 lacs (less than Sum Insured)
You have the right to choose policy under which you want to claim. As long as the insurance claim amount is less than the Sum Insured, the insurer cannot insist on contribution clause. So, if you choose Apollo Munich to settle the claim, it will have to pay the entire Rs 3 lacs.
If the claim amount is Rs 6 lacs (more than Sum Insured)
In this case, the claim amount exceeds the Sum Insured under a single policy after considering the deductibles or co-pay. You still have the right to choose insurer to settle the claim. However, in this case, insurer CAN settle the claim with contribution clause. So, if you ask Apollo Munich to settle the claim, it can settle Rs 3 lacs and ask you to settle the remaining claim with Max Bupa (or settle with Max Bupa internally).
In this case, it is insurance company’s discretion to invoke the contribution clause. However, it may still choose not to invoke the clause. I talked to customer care teams of Max Bupa and Apollo Munich. From their responses, it appeared that they don’t invoke Contribution Clause too often. When I discussed exactly the same scenario with Max Bupa team, they told that they will settle Rs 5 lacs and I can claim the remaining Rs 1 lac from Apollo Munich.
You cannot profit from multiple indemnity policies
Even if you have two indemnity plans, the payout from such insurance companies combined cannot exceed total hospitalization costs. Hence, if you run up a hospital bill of Rs 3 lacs, the maximum payment from all the indemnity policies combined cannot exceed Rs 3 lacs.
Does purchase of multiple indemnity plans make sense?
We have discussed the IRDA regulations about making claims and the invocation of contribution clause. However, we are yet to discuss if you should purchase multiple health plans. Most people who want to purchase multiple plans had some grievance against their existing insurer or found the premium too high. Some of them thought if one of the insurers rejected the claim, they had chance with another insurer. Let’s discuss some of these issues.
You can port your existing health plan to another insurer
If you are unsatisfied with your existing health insurance plan, you can port your plan to another insurance company. The reason for dissatisfaction could be many including but not limited to high premium or scope of coverage offered. When you port your policy to other insurer, the waiting periods already serviced shall be deducted from the waiting period for the new plan. For instance, if you have already serviced waiting period of 2 years in an existing plan, your waiting period with the new insurer will be reduced by 2 years. So, if the new insurance plan has waiting period of 3 years, you will have to serve just one more year since you have already served two years in the old plan. This is as per IRDA guidelines. The insurance company has no discretion in this matter.
So, if you are not happy with your existing policy, you can shift to another insurer altogether rather than complimenting your existing cover with a new cover.
If one insurance company rejects the claim, the other company will honor it
A number of people purchase multiple health insurance plans to hedge the rejection risk i.e. they think if one insurer rejects their claim, they will be able to claim under the other policy. For this, you need to understand why and how insurance companies reject claims.
The insurer would want to prove that you didn’t make adequate medical disclosures at the time of purchase. If you have made adequate disclosures, it will find it difficult to prove that.
A number of rejections also happen because the policy holders have not understood the terms and conditions well. The insurance company may reject the claim if a certain procedure is not covered or there are sub-limits.
For instance, if the policy covers cataract treatment for only up to Rs 25,000 and you produce a bill of Rs 50,000 for cataract procedure, the insurance company will pay only Rs 25,000. And the insurance company is right in doing so. Caps on room rent can also throw up surprises at the time of claims.
So, do read the policy document carefully to understand the scope of coverage. This will save you hassles at the time of claims.
Don’t purchase multiple plans to hedge this risk. You just need to read the policy document well.
Marginal cost of health insurance keeps going down as you increased Sum Insured
Let’s consider the premium of family floater plans (for a couple, 30 years, 30 years) for Max Bupa HeartBeat Gold and Apollo Munich Optima Restore.
You can see that the amount that you pay for increasing sum insured from Rs 5 lacs to Rs 10 lacs is only Rs 3,439 in case of Apollo Munich and Rs 5,840 in case of Max Bupa.
This is because as you increase the cover, the likelihood of the insurer paying the entire amount as claim decreases. You are more likely to make a claim of Rs 5 lacs than a claim of Rs 10 lacs during a policy year.
Alternatively, if you had gone for two separate plans from Max Bupa and Apollo Munich of Rs 5 lacs each, you would have paid Rs 27,228. This is more than Rs 10 lacs plans from either Apollo Munich or Max Bupa.
You are likely to end up paying more premium if you purchase multiple small policies rather than a single large one.
Multiple plans may make sense in specific situations
In the previous sections, I have made the case against purchasing multiple plans. However, under certain specific situations more than one policy may make sense.
Let’s consider an example. Mr. Sharma has covered self, his wife and two children under a family floater plan of Rs 5 lacs. He wants to increase the cover to Rs 15 lacs. However, since the inception of his first plan, he has developed a heart condition. His current health insurer is loading the premium heavily (for the enhanced portion) to take care of increased risk.
In this case, Mr. Sharma can opt for a separate family floater for the other family members (his wife and children and exclude himself) and keep the existing cover for himself. For more on whether to go for family floater or an individual health insurance plan, please go through this post. Alternatively, Mr. Sharma can opt for a super top up health insurance plan. I will discuss top up and super top plans in a separate post.
You can argue that in case you have multiple plans and happen to claim under one of the plans, your no-claim bonus (or benefits) in the other plans will remain intact. However, I wouldn’t give too much weight to this argument.
Where to claim first?
A number of employers in the organized sector offer group health cover to their employees. Hence, it is not very uncommon to see people with multiple health covers i.e. one private (or personal) cover and one employer group health cover. Though I have discussed the pros and cons of multiple private plans in this post, I will consider a case you have group cover from employer and a private (personal) health cover. Similar logic will apply when you have two private indemnity plans (or individual plans).
If you have group health insurance and private health insurance both, use the group cover first. If there is no further hospitalization claim, your no-claim bonus will remain intact.
There is one scenario where you may keep your group cover intact and exhaust your private cover. In case when waiting period for pre-existing illnesses is not over in your private (individual) health insurance plan, you may be better off claiming under the private health plan.
For instance, you have to undergo a treatment for illness A and you can claim the amount under any of the two policies (group plan and private plan). There is another illness B for which the waiting period expires in another two years in your private health plan. There is no such restriction in your group plan. In such a case, you may be better off making a claim for illness A under your private health plan.
Consider a scenario where you make the claim under employer plan (for illness A) and it gets exhausted. Subsequently, during the same policy year, you have to get treatment for illness B. Employer health plan is already exhausted and private health plan does not cover the illness yet. In that case, you will have to pay from your pocket.
Basic rule: If any waiting period is pending, claim under the private health insurance plan first. After the waiting period is over, claim under the employer group plan first.
Follow the similar logic in case you have two private health plans. Claim first from the plan where waiting periods are pending.
Procedure to Claim under two policies
Suppose you have health insurance from Company X and Y.
First of all, inform both the insurers at the time of hospitalization.
In case you go for Reimbursement
- Collect all the original documents from the hospital at the time of discharge. The list of documents will include original bills, consultation papers, investigation reports etc. Take attested copies of these documents for the second insurer.
- Fill up the claim form and submit to X. Submit original bills with X. Disclose your insurance arrangement with Y in the claim form.
- Company X will settle part claim and issue a claim settlement letter.
- File for claim with insurer Y with the attested copies of the documents and claim settlement letter from company X.
- Company Y will settle the claim.
In case you go for Cashless treatment
Under cashless treatment, insurer X will settle the bill directly with the hospital. You can settle the process with the company Y through the steps mentioned in the previous section.
Thinks to keep in mind
- When you purchase a policy, disclose to the new insurers about your existing health insurance policy details. Non-disclosure of such information can be construed as misrepresentation. Insurers need to be aware of your existing health covers so that they can invoke the contribution clause if required. The IRDA guidelines are extremely customer-friendly. There is no need for you to worry. Be Honest.
- Inform both the insurers at the time of hospitalization.
For most people, there is no need to have two different private health insurance plans. Purchase a plan that meets all your insurance requirements/expectations and that should be it. Go for a sufficient cover.
If you want to increase the Sum Insured, you can increase coverage under the same plan. You do not need to purchase a fresh plan for higher coverage.
If you are unhappy with existing insurer, you can port your plan to another insurer while retaining the continuity benefits.
Do not think that if one insurer rejects the claim, the other insurance company will honor it.
The premium for two plans with small covers will be higher than a single plan with large cover. Therefore, multiple plans do not make any economical sense either.
Add to it the hassles at the time of making claims. You will have to manage two claims. Double trouble. You can go cashless with just one policy. With the other, you will have to go for reimbursement.
In most cases, a single large health insurance cover will be better than multiple small health covers. However, in special situations (as in one of the examples discussed above), you might be forced or may find it beneficial to hold multiple health plans. So, there can be merit in purchasing multiple plans in specific cases.
If you choose to go with multiple plans, disclose details of your existing plans at the time of purchase of new plan. Similarly, at the time of making claims, disclose all you health insurance arrangements.
And yes, know your rights. Your health insurer can insist on contribution clause only in case of indemnity plans and only if the claim amount is greater than the Sum Insured.
Deepesh is a SEBI registered Investment Adviser and Founder, PersonalFinancePlan.in