Things to consider while purchasing health insurance

No one plans to fall sick or get hurt in a road accident. Well, life throws surprises and sometimes bad ones. Such unfortunate incidents entail a lot of physical and emotional trauma. The last thing you want to worry about at the time is the cost of treatment. Quality healthcare is quite expensive. Add to that high medical inflation which is often quoted to be in excess of 15%. Thus, a prolonged hospitalization can dent your finances severely and put your financial plans off track. Not only that, in extreme cases, you may even have to compromise on the quality of healthcare services. Would you ever want to put your family through this? This is where a health insurance plan figures in overall financial planning.

By purchasing a health insurance plan, you can not only ensure quality treatment for your family but also save you from financial distress. Health insurance plans do not cover all kinds of medical expenses. For instance, you monthly visits to the family doctors or regular dental checkups won’t be covered under most policies. But these plans do cover the most expensive ones such as hospitalization, surgery, transplant, intensive care unit charges etc. These are the medical expenses that are likely to burn the biggest hole in your pocket. Therefore, it makes sense to purchase health insurance plan to secure quality healthcare for your family.

Which health insurance plan to buy?

Now that you have decided to buy a health insurance plan, which one should you buy? There are more than 15 companies each offering multiple plans. Finalizing a health insurance plan is not as simple as finalizing a life insurance plan (term plan). This is because in life insurance, insured event is clearly defined i.e. the death of the insured person. Barring preference for a particular insurance provider, you can simply go with the one that charges the lowest premium. However, in health insurance, there are multiple insured events (hospitalization, day care procedures, organ donor, maternity etc) and these events vary across policies. For the same sum insured, Plan X may cover domiciliary treatment (treatment at home) while Plan Y may not. Even if both the plans cover such treatment, the extent of coverage under the head may be different. A certain procedure may be covered under plan X but not under plan Y. Since all such terms and conditions have to be put into the policy document, it is no surprise that a pure life insurance policy is merely a two page document (policy wordings) while a health insurance policy runs into tens of pages. So, in a health insurance plan, going for a low cost plan may not be that good an idea. You have to understand your requirements and purchase the plan that meets your requirements, not necessarily the cheapest one.

Comparable features in a health insurance plan

In this article, we will explain certain important features of a health insurance plan. You can use compare various health insurance plans based on these parameters and select the policy which suits your requirements and budget the best. The key lies in finding out what features/services you expect from your health insurance plan and finding out the plan which provides all those features at the lowest cost. For example, if you have a pre-existing illness, you may prefer a policy where your pre-existing conditions are covered at the earliest. However, if you are planning to start a family soon, you may prefer a plan with maternity benefits and in-built new born baby cover. Needless to say, the more you expect from your policy, the more you shall be willing to shell out in terms of annual premium.

Insurance Regulatory and Development Authority (IRDA), regulator for insurance sector in India, came out Health Insurance Regulations in 2013 and clearly laid the guidelines for insurance companies. Additionally IRDA, in order to reduce ambiguity and variable interpretation of policy terms, mandated all the insurers to stick to standardized definitions (stipulated by IRDA) for defining 46 core policy terms. The definition for these 46 policy terms shall be same across all policies. This should also reduce the effort in understanding and comparing different policies. For example, definition of domiciliary hospitalization has to be same across policies. Hence, while comparing the two plans, you merely need to see if domiciliary hospitalization is covered and if there are any sub-limits on coverage for such treatment. We have picked up definition for some of the terms/features directly from the standardized definitions as stipulated by IRDA. Following is the list of parameters that you must consider along with the premium amount to finalize the best health insurance plan for you and your family.

1. Waiting period for pre-existing diseases: As per IRDA, a pre-existing disease refers to any condition, ailment or injury or related condition(s) for which you had signs or symptoms, and / or were diagnosed, and / or received medical advice / treatment within 48 months to prior to the first policy issued by the insurer. For example, you may be suffering from a liver or a heart ailment at the time of purchase of the policy. Insurance providers cover such ailments only post the lapse of the waiting period. The waiting period varies across policies. Lower the waiting period, the better the policy is for you. Hence, it would not be unreasonable for the insurance company to charge a higher premium if their waiting period is lower compared to rivals.

2. Sub-limits: A policy may put sub-limit on various expenses covered under the policy. There may be a sub-limit on ambulance charges, accommodation charges, domiciliary treatment etc. It is better to go for a policy with lesser number of sub-limits. However, such policies may be slightly more expensive.

3. Hospital accommodation: A policy may cover only shared accommodation or may have sub-limits on the total expense/daily expense incurred over hospital accommodation. If you prefer a single private room during hospitalization, you might just have to shell out a little bit more.

4. Pre-hospitalization/post-hospitalization expenses: are those medical expenses incurred before/after the insured person is hospitalized. You can claim only those medical expenses which were incurred for the same condition for which the person was hospitalized. You can make claim for such medical expenses only if such hospitalization is covered under the policy. A policy may have restrictions on number of days or have a sub-limit. For example, the policy may cover such expenses incurred 30 days prior to hospitalization and 60 days post hospitalization to the extent of 20% of sum insured.

5. Co-payment/annual deductible: Co-payment is a cost-sharing arrangement between the insurer and the policyholder that requires the insured to bear a certain percentage of the admissible costs. Similarly, annual deductible is a cost sharing arrangement that provides that the insurer will not be liable for a specified rupee amount of the covered expenses, which will apply before any benefits are payable by the insurer. Co-payment and deductible feature do not reduce the sum insured.

For example, if your policy has a 20% co-payment clause, in the medical bill of Rs 1,00,000 (covered under the policy), you would have to pay Rs 20,000 and the rest amount will be settled by the insurance company. Under the annual deductible clause, if any, the policy holder will have to bear the medical expense to the extent of the deductible amount and only the excess amount shall be borne by the insurance provider. For example, if you have opted for annual deductible of Rs 1,00,000, in admissible (under the policy) medical expense of Rs 3,00,000, you will have to pay Rs 1,00,000 and the remaining Rs 2,00,000 will have to be settled by the insurance company. Expectedly, for the policies which do not have co-payment or annual deductible clauses, the premium is likely to be higher. Some policies even give you an option to opt for these features. The premium goes down if you opt for co-payment or annual deductible.

6. Renewal benefits: are the benefits that the insurance company provides you when you renew the policy. These may be in term of gift vouchers or additional sum insured (at no extra cost). For example, if you had sum insured of Rs 5,00,000 for the previous year and you did not make any claim under the policy, the insurance provider can increase your sum insured by, say 10%, to Rs 5,50,000 at no extra cost. Under most of the policies, you get these benefits only if you have not made any claim during the previous policy year. If given the option of choosing between additional sum insured or gift vouchers, it is advisable to go for additional sum insured option.

7. Day care procedures covered: Insurance policies generally cover the expenses for hospitalization for continuous period of more than 24 hours. However, there are certain procedures such as haemodialysis, chemotherapy etc which do not require hospitalization of more than 24 hours. As per standardized definition by IRDA, day care treatment refers to medical treatment, and/or surgical procedure which is:
   1. undertaken under general or local anesthesia in a hospital/day care centre in less than 24 hours because of technological advancement, and
   2. which would have otherwise required a hospitalization of more than 24 hours.

The type of day care procedures covered varies across policies. You may want to check the entire list before making the decision. Greater the number of day care procedures covered, the better it is for you.

8. Domiciliary treatment/hospitalization: Domiciliary hospitalization (medical treatment at home) means medical treatment for an illness/disease/injury which in the normal course would require care and treatment at a hospital but is actually taken while confined at home either because the patient is not in a condition to be moved to a hospital or due to non availability of room in a hospital. Not all insurance plans cover domiciliary treatment and there may be sub-limit on the expense covered under this head.

9. Organ donor expense: A plan may cover expenses for harvesting of an organ (kidney, liver etc) from the donor in case an organ transplant is required. There may be a cap of the expense covered under this head. The health insurance plans that provide for such expense are likely to cost more.

10. Maternity benefits/New born baby cover: Most insurance plans don’t provide coverage for new born baby (age 1 day to 90 days). However, a few plans may provide such coverage. An insurance plan may also cover the maternity/delivery related expenses and even cover the new born baby from day one (at no extra cost) till the expiry of the policy year. This coverage may be contingent upon meeting certain conditions. For example, there may be a waiting period or requirement of both husband and wife to be covered under the same policy. You may need to read policy document to understand the exact nature of maternity benefits provided and the eligibility criteria. Interestingly, insurance works on the concept of insurable interest i.e. occurrence of an insured event affects the insured/policy holder/premium payer adversely. For example, death in life insurance, accident in vehicle or health insurance. Maternity benefit is an exception. Hence, presence of maternity benefit feature is likely to make your policy expensive. However, if you are a young couple planning to start a family soon, you may go for a policy with maternity benefits and new born baby cover. Plans with maternity benefits/new born baby cover are likely to cost more.
    

11. Premium Loading: Previously, the insurance provider could increase your renewal premium in case you made a claim under the policy the previous year. This is called claims based premium loading. Fortunately, under the Health Insurance Regulations 2013, claims based loading is no longer allowed. Therefore, an insurance provider cannot charge you a higher premium in the event you made a claim under the policy the previous year. However, an insurer can charge you a higher premium while issuing the policy for the first time based on your medical history. If the insurer assesses (at the time of inception of the policy and based on your medical history) that you are more likely to make claim than an average person, it may charge you a higher premium.

12. Network reach: It is advisable to go with policies which offer cashless hospitalization at major hospitals in your city. So, do check the list of network hospitals at the websites of insurance providers. In case the hospital you get treatment at is not part of the network, you will have pay at the hospital first and then file for claim with the insurer.
13. Hospital/Daily cash: Hospitalization can lead to loss of income, especially to the self employed or small business owners. Certain policies may require the insurer to pay a fixed amount (per day of hospitalization subject to a maximum) to the insured for each day of hospitalization. Generally, the number of days for such payouts is capped. This feature may be extremely relevant for people who are self-employed or own small businesses.

14. Coverage of Alternative treatments: Alternative treatments are forms of treatments other than Allopathy and include ayurveda, unani, sidha and homeopathy. Most policies don’t cover alternative treatments. There are a few which cover subject to certain sub-limits and conditions. If you have preference for such treatments, you may look for a plan which covers such treatment.

15. Health check up: This is more of a marketing gimmick. A few plans may offer you free health checkups at renewal based on your age and gender. However, the scope of such tests is quite limited and won’t give much idea about your overall health. Though a free (limited) health check up is better than no check up, we do not recommend basing your decision on this parameter.

16. Claim settlement record: Though insurance companies have to pay up for everything that is covered under the policy, disagreement during claim settlement may arise due to variable interpretation of terms (about the nature and extent of coverage) or due to false representation (hiding medical details) from the customer at time of purchase of policy. This is why it may be prudent to read fine details atleast once (preferably before you buy the policy). We recommend full medical disclosure at the time of purchasing the policy. If a health insurance company rejects invalid claims (not covered under the policy), you can’t count it against them. However, high/low claim settlement ratio does tell you something about the transparency followed by the insurance company (in terms of explaining product inclusions and exclusions to the potential customers). Hence, it is better to go with a company with a good claim settlement record.

PersonalFinancePlan Take:

We have covered some of the most important features of any health insurance. You can read about these features in the policy or ask your insurance agent to point to clauses in the policy document which refers to such features. You should not base your purchase decision solely on the basis of premium. Consider your (or your family’s) medical history and treatment preferences. Then, go with the plan that meets those requirements.

Premium is important too. However, there are ways to lower the premium amount. For instance, you can opt for co-payment or annual deductible feature to reduce your premium outgo. If you opt for plan features, which increase the risk to the insurance company (of making the payment for your treatment), you will be charged a higher premium.

In one of our subsequent posts, we will randomly pick up five health insurance plans and compare those plans on these features. We will also establish how presence (or absence) of certain features can increase (or decrease) the health insurance premium. We will also discuss tax benefits, employer provided health insurance and how to start researching health insurance plans.

Deepesh is a fee-only financial planner and Founder, PersonalFinancePlan.in

Photo Credit: Darko Stojanovic. Original image and information about usage rights can be downloaded from Pixabay.com