Taking cover. Health insurance claim settlement to get simpler

Despite having a health insurance policy covering hospitalisation expenses, you may end up paying a certain portion of the costs. This is mostly due to sub-limits in your health policy.

Sub-limits in a health insurance policy limit the liability of an insurer to the extent specified in the policy. The sub-limits are applicable mostly in cases such as room rent for hospitalisation, ICU, OPD (out-patient department) and ambulance cover. So, if you exceed the limit prescribed, the extra amount has to be paid from your pocket and the insurer will also reduce the payment on other expenses proportionately.

Now, to reduce the burden of the policyholders, and to standardise the claim settlement, IRDAI, the insurance regulator, in its recent circular, had ordered that associate medical expenses ― cost of pharmacy, consumables, implants, medical devices and diagnostics ― cannot be subject to the proportionate clause. Insurers are not allowed to apply proportionate deductions on ICU charges as well.

Here is how policyholders of health insurance will benefit.

How does it work?

Associate medical expenses include operation theatre charges, nursing charges, cost of medicine, ICU charges, fees of medical practitioner or surgeon and diagnostic tests. Based on the type of room you occupy at the hospital, cost of associate medical expenses also change ― a room with greater sophistication and higher cost would mean the cost of associate medical expenses will also be higher.

So, if you opt for a room the cost of which is higher than that permitted by the insurer, when settling the hospital bill, the insurer will reduce the payout from his side proportionately.

Adarsh Agarwal, Appointed Actuary at Digit Insurance, says: “There will be a variable component in an insurance policy that increases/decreases depending on your room rent limit. If the variable component exceeds the room rent limit, say, by 20 per cent, then the insurer, at the time of claim, will reduce your claim to that extent and settle only 80 per cent. With this circular, new policies will have to define the variable component on which these proportionate deductions will apply.”

To better understand this concept, consider the case of a policyholder named Joe, with a room rent of ₹5,000 per day in his policy (with sum insured of ₹3 lakh). Due to an emergency, Joe had to be hospitalised in a room with a rent of ₹7,000 per day. This increase of ₹2,000 in room rent will be applicable proportionately on associate medical expenses as well, such as doctor’s fees and nursing charges (in the ratio of room rent eligible to actual room rent). So, if the proportionate increase in medical expenses work out to ₹80,000 and the total hospital bill works out to ₹3 lakh, then the insurer will settle ₹2.2 lakh.

While most of the health insurance policies in the market have done away with room rent limit, there still are some that follow the practice.

Benefits for policyholders

Now, IRDAI wants to ensure that there is uniformity in the way associate medical expenses are adjusted. According to its circular, associate medical expenses will exclude the cost of pharmacy, consumables, implants, medical devices and diagnostics. This would mean these expenses can’t be proportionately increased, depending on the room rent limit, to the policyholders. The insurer will have to fully compensate these costs to the policyholder at the time of claim (up to the limit of the SI).

Amit Chhabra, Head Health Insurance, Policybazaar.com, says: “While other costs such as doctor fees, surgery or other treatment will be proportionately charged, costs of pharmacy, implants, diagnostics and ICU will not be deducted proportionately; rather they would be covered fully by the insurer.”

So, for instance, if you take up a room rent limit of ₹7,000 as in the case of Joe. Then associated medical expenses (excluding the three mentioned above) such as doctor fees, nursing charges and surgeon fees would be charged proportionately.

S Prakash, MD , Star Health and Allied Insurance, says: “Proportionate deductions on associate medical expenses, other than those specified by IRDAI, would continue to apply. Similarly, sub-limits and co-pay clauses on other aspects of a health policy, too, will continue to apply. Insurers from here on are expected to define and list out the associate medical expenses for which proportionate deductions will be applied.”

These recent guidelines will be applicable to the health insurance products filed with the IRDAI on or after October 1, 2020. All policies from existing health insurers (that are not compliant with these provisions) shall have to be modified from April 1, 2021.

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