Deductibles in health insurance are options that allow the customer to voluntarily bear a nominal portion of the healthcare costs in return for a reduction in premiums. The option is a standard feature in developed economies but in India, with still nascent health insurance markets, deductible is yet to be a standard feature.
Deductible does seem counterintuitive to the basic premise of insurance that is transfer of risk. But in certain circumstances, if the tradeoff provided (between deductible and discount) is valuable and bearing the deductible is a reasonable assumption, then deductible can lower the cost of premiums. We look at the need for deductibles, the different forms of availability and ideal cases of application.
For a health insurance cover of ₹5 lakh to ₹1 crore, deductibles offered can be in the range of ₹10,000 to ₹25,000. That is, to cover a claim made of ₹1 lakh, the policyholder has to first make the deductible payment (₹25,000) and only then will the rest of claim (₹75,000) be considered for processing.
For the insurer, more than the savings on claims, the advantage is from genuine claims and lower processing costs. The nominal amount can address all the smaller claims, which would have been made by the policyholder sans a deductible plan which saves on costs for processing the smaller claims. Also, deductible lowers any slippage to fraudulent activity as upfront commitment of money will deter claims from policyholders who are not acting in good faith.
The policyholder should consider deductible insurance, if the savings on premiums are in the range of 15-25 per cent, which they generally are. This makes it ideal for policyholders who find premiums on the higher side of affordability and are willing to make an out-of-pocket deductible payment if the need arises.
Siddharth Singhal of Policybazaar.com heading Health Insurance division feels that deductible is a reasonable option to manage premiums cost if one is willing to front the agreed upon amount for healthcare claims. In case of health insurance for the elderly, where by virtue of age alone health premiums exceed ₹75,000 to ₹1 lakh a year, a ₹25,000 deductible plan lowering the cost of insurance premium by 20 per cent would be a welcome option. This can be extended to family health covers, floaters or any large cost premiums.
There can be aggregate deductible and a per claim deductible option. An aggregate option would require one deductible before accepting the claim against a per claim deductible which needs a deductible payment for every claim made. Between the two, an aggregated deductible would imply a lower outgo and should be the preferred mode.
Similar to deductible is Co-pay option. Similar in all manner, but the upfront payment by the policyholder is calculated as a percentage of claim rather than as a standard amount in a deductible. While deductible is a passive way of reducing premiums, a co-pay can distort the nature of protection. If the policyholder is to bear a portion of costs, which can range 10-25 per cent for claims, any claim above ₹3-5 lakh would imply a considerable outflow of cash, making insurance ineffective. Between deductible and co-pay (without an upper limit) a deductible is a sound option.
A top-up plan also involves a deductible, which is an extension of concept of deductible. Top-up plans (covers range from ₹10 lakh to ₹50 lakh) are plans separate from base health insurance, which are triggered after exceeding a pre-set deductible limit, generally ranging at ₹3-5 lakh and met from the base insurance. As can be seen, top-up linked deductible limits are generally met from the base plans and hence range in lakhs and are a blown-up version of the base plan deductibles.
For policyholders, a manageable amount for deductible upon incidence of a health risk is a better option to lower premium costs, which are a constant. The insurer, in a bid to attract a better clientele with lower processing costs, lower level of frauds and marginally lower claim outgo, is willing to let go a portion of premiums, favouring the policyholder. This can be utilised to plan insurance costs optimally.
On the flip side, policyholders must consider that, with or without a deductible option, consumables and non-medical costs are being borne by the policyholders and any other costs that are subject to sub-limits and hence not fully covered. The policyholder will have to bear deductible cost and consumables cost in such cases.