Many of us have more than one health insurance policies. And I receive a number of queries over e-mail and as comments in my blog post about discontent with claim settlements for two policies. Many have grievance that the insurers did not settle as they expected and they had to pay the balance from their pockets.
I had done a post on pros and cons of having multiple health insurance plans. However, the post did not specify how the claims are settled in case you have multiple policies. In this post, I will demonstrate calculations involved when you make a claim for the same bill with two insurers.
What is Contribution Clause?
This clause may be applicable when you have multiple health insurance policies.
Contribution means the right of an insurer to share cost of an indemnity claim with other insurers in proportion of Sum Insured. This is applicable only in case of multiple policies. So, if you had two policies and the claim amount exceeds the Sum Insured, the insurance company can ask the second insurer to share the cost in proportion of Sum Insured.
My reading of IRDA Health Regulations, 2016 suggests that the Contribution clause has been done away with. I could not find anything about contribution clause in the aforesaid regulations. This is a departure from Health Insurance Regulations, 2013, which made explicit mention of Contribution.
Even when contribution clause was permitted (before 2016), the insurance companies were not too keen to invoke contribution clause. This is based on my interaction with insurance executives and reading of various online resources.
Then, how are the claims settled in case of multiple health insurance policies? Let’s find out.
How claim is settled across multiple health insurance policies?
I assume that the insurance companies won’t invoke contribution clause. As I understand, insurance companies no longer have this option.
Let’s say you have two health insurance plans with Sum Insured of Rs 3 lacs each.
In case the claim amount is less than Rs 3 lacs, you have the choice to approach any insurer and ask it to settle the claim. The insurance company has no say in this matter. The choice of insurer is entirely your discretion. Of course, the insurance company will pay as per terms and conditions of the plan.
If the claim amount is greater than Rs 3 lacs (after considering deductibles and co-payment), you can still choose the insurer to settle the claim. After settlement, you can approach the other insurer to settle the balance amount.
The second insurer calculates the insurance liability as per the policy terms. Subsequently, it deducts the amount settled by the first insurer and pays the remaining amount.
This is better understood with the help of an example. However, before jumping to the illustration, let’s try to understand what co-payment means.
What is co-payment clause?
If you have a co-payment clause under your health insurance plan, you have to share hospital expenses with the insurance company.
Let’s assume your insurance plan has co-payment of 20% i.e. you must share 20% of the hospitalization cost (or rather admissible claim).
Suppose you run a hospital bill of Rs 1 lacs and Rs 90,000 is admissible as per policy terms and condition. The difference can be due to expense items not covered under the insurance plan.
The insurance company will settle only 80% of Rs 90,000. This means insurance company will settle bill for only Rs 72,000. You have to pay the remaining amount from your own pocket.
Can the order of claim affect the claim settlement amount?
Yes, it can.
Let’s assume you have purchased two health insurance plans A and B.
- Plan A with Sum Assured of Rs 3 lacs and no co-payment clause
- Plan B with Sum Assured of Rs 3 lacs with a co-payment of 20%
For the purpose of this exercise, let’s assume that the entire hospitalization expense is admissible under the insurance policy.
Let’s say you get hospitalized and run a hospital bill of Rs 4 lacs.
Claim from A first and B later
As per plan A, the admissible claim is Rs 4 lacs. Since the Sum Insured is Rs 3 lacs, the insurance company A pays Rs 3 lacs to you.
Subsequently, you approach Insurer B. According to B too, the admissible claim is Rs 4 lacs. 80% of Rs 4 lacs is Rs 3.2 lacs. Out of Rs 3.2 lacs, Rs 3 lacs has already been settled by insurer A. Hence, B pays the remaining Rs 20,000 to you.
You get Rs 3 lacs (from A) and Rs 20,000 (from B). The total amount you got is Rs 3.2 lacs.
You will have to pay Rs 80,000 from your pocket.
Claim from B first and A later
As per plan B, the admissible claim is Rs 4 lacs. 80% of Rs 4 lacs is Rs 3.2 lacs. Since liability of B is capped at Rs 3 lacs, B will pay you Rs 3 lacs.
Subsequently, you approach insurer A. As per A, the admissible expenses total Rs 4 lacs. Rs 3 lacs has already been paid by insurer B. Hence, A will pay Rs 1 lac from own pocket.
You get Rs 3 lacs from insurer B and Rs 1 lac from insurer A. Total Rs 4 lacs.
Let’s make this example a bit complex. In the earlier example, we had only co-payment clause. In this example, we will include cap on room rent too. Under plan B, let’s assume there is room rent cap of 1% of Sum Insured (1% of Rs 3 lacs = Rs 3,000 per day.
Room rent cap can be quite tricky. If you stay in a room which costs more Rs 3,000 per day, all your other expenses (apart from medicines) will be settled proportionately by the insurance company.
For more on how room rent sublimit can affect your health insurance claim, go through the following post.
Let’s see how your claim settlement gets affected because of this additional room rent sub-limit.
You can see the order of claim is important.
If you have multiple health insurance plans, you must first claim from the plan with co-payment clause or sub-limits.
If both the plans were without sub-limits and co-payment, then you would have got the entire amount of Rs 4 lacs irrespective of the order. However, most of us do not focus on such terms at the time of purchase and realize the impact only at the time of claim.
There is a caveat
To explain the issue, I am copying excerpt about multiple health insurance plans from IRDA Health Insurance Regulations, 2016.
1. 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, each insurer shall make the claim payments independent of payments received under other similar polices.
2. If two or more policies are taken by an insured during a period from one or more insurers to indemnify treatment costs, the policyholder shall have the right to require a settlement of his/her claim in terms of any of his/her policies.
In all such cases the insurer who has issued the chosen policy shall be obliged to settle the claim as long as the claim is within the limits of and according to the terms of the chosen policy.
Claims under other policy/ies may be made after exhaustion of Sum Insured in the earlier chosen policy / policies
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 from whom he/she wants to claim the balance amount.
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 the terms and conditions of the chosen policy.
Refer to Point 2(II) and 2 (III). These can be interpreted as: You can make claim with second insurer only when your claim amount after considering co-payment and deductible exceeds Sum Insured. If it does not, the second insurer may decline to honor your claim.
In one of the comments on my other post on multiple health policies, a reader pointed out that his insurance company has taken this stance and refused to honor claim (for the balance amount).
Let’s say you have two policies of Rs 3 lacs each. Policy A has co-payment of 20% while Policy B does not have any co-payment.
You run a bill of Rs 3 lacs and make claim under Policy A first. Policy A settles Rs 2.4 lacs (considering 20% co-payment). Subsequently, you approach insurer for Policy B to settle remaining 60,000. Insurer B declines to settle the claim because Sum Insured under Policy A has not been exhausted.
If you had approached insurer B first, it would have settled entire Rs 3 lacs.
If you see, this runs counter to what I have said earlier in this post. In this case, you are better off claiming from insurance policy without co-payment clause first.
Hence, the order of claim may depend on the claim amount too.
If you are going for cashless treatment, you have to pick up the insurer before knowing the final amount. So, it gets more and more complex.
In my opinion, a health insurance plan of Rs 6 lacs is far better than two plans of Rs 3 lacs each for the following reasons:
- You just have to claim once. You are spared the hassles of claiming from two plans.
- With a single plan, you can go for cashless treatment up to Rs 6 lacs. With two plans of Rs 3 lacs each, you can claim cashless treatment (of up to Rs 3 lacs) from one insurer. You will have to apply for reimbursement from second insurer.
- You avoid this confusion regarding claim calculation. Believe me this can be complex.
You may be better off enhancing the Sum Insured in one of the plans and surrendering the second plan.
However, I can foresee scenarios where it is better to continue with two plans. For instance, you were diagnosed with an illness after purchase of two plans. You try to enhance cover in one of the plans subsequently. Insurer will load the premium for the enhanced Sum Insured. Since claims based loading is not permitted, insurer cannot increase the premium for the existing plans (based solely on claims experience).
For such cases, you must know how these calculations are done. Claim first from policies with sub-limits and co-payment clauses. However, there is a minor caveat (explained earlier in the post).
You have a group health insurance plan provided by your employer. You have a personal health cover too. Many choose super top plans with employer cover as deductible value to augment their health insurance coverage.
In such a case, twin covers become unavoidable. It is wise to have a personal cover even if you have health coverage from employer. In this case, dynamics are a bit different. In most cases, it is smarter to claim under your employer plan otherwise you may lose no-claim bonus Sum Assured. However, do not jump to any conclusion. You know the math.
Disclaimer: These calculations are based on my understanding of how claims are settled. Before making any decision, you are advised to verify calculation methodology from the insurance company.
The post was first published on August 12, 2016.
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