How to buy health insurance? Generally how do we buy a health insurance policy?
Do we plan before buying one? In most cases the answer will be no.
People mainly buy health insurance policy to save income tax.
But the bigger purpose of this purchase is to handle (financially) the medical emergency when it arrives.
So does it mean that, buy any health insurance policy and that’s it? No further hassles in life?
I wish health insurance management were this simple. But in reality it is not so.
Where one can face the difficulty?
Imagine yourself struggling in a hospital for a family member who met a road accident.
You are expecting your health insurance policy to cover the majority portion of the hospitalisation bills.
But what happens is just the opposite. The insurance company rejects your claim.
Yes, claim rejection is an important issue of health insurance policies.
I am overstating the issue? May be.
So I though to do some fact checking to correct myself.
What IRDA says about the health insurance sector?
IRDA is an Indian Government body whose responsibility is to “Regulate & Develop” the insurance sector in India.
Insurance Regulatory and Development Authority (IRDA).
The fact checking was easy.
I downloaded the latest Annual Report published by IRDA in their website (Year 2016-17).
Following data was available in their annual report:
|SL||Company Providing Health Insurace||Premium Collected (Rs.Cr.)||Claim Paid (Rs.Cr.)||Incurred Claim Ratio (%)|
|TOTAL-A (24% of C)||5,762||4,304||75%|
|TOTAL-B (76% of C)||17,836||21,430||120%|
IRDA’s Annual Report confirmed the following:
- Public Sector Insurance Companies:
- They have 76%of the total market share in the health insurance business.
- Their claim settlement ratio is 120%. Means, they have paid more than the premiums collected.
- Private Sector Insurance Companies:
- They have 24%of the total market share in the health insurance business.
- Their claim settlement ratio is only 75%.
So what I concluded from this fact finding?
I always assumed that claim settlement ratio in India was very poor.
But I was wrong.
On one hand, government companies were settling claims in tune of 120%.
On the other hand, the private companies were also paying back 75% of all the premiums they have collected.
Though I would have liked to see a figure close to 95% when it comes to claim settlement for health insurance policies.
But the fact presented was not so bad.
Majority people in India, who carry a health insurance, and had filed a claim, gets their due money back.
This is impressive.
But to ensure that the claim does not get rejected, a proper plan must be built before you can buy health insurance policy.
Planning is necessary before buying health insurance policy
The best way to buy health insurance policy is what? Get it from the best insurer?
Sorry, it is not so simple.
The best way to buy is, to do few self analysis first, before approaching the insurance company.
Knowing ones requirement before reaching a seller is a strategy that we follow for all our purchases.
Then why we fail to implement it while buying health insurance policy?
May be because, we do not know how to plan a health insurance policy purchase.
So lets brush-up some basics.
These are few steps that we must implement to buy health insurance policy.
#1. Do not consider health insurance as an expense.
The premiums that one pays to hold a health insurance policy is a cost.
This money goes out from ones pocket every year.
So it is only obvious that people consider this as an expense.
But I prefer calling it as a “Protection” instead of expense. Why?
Suppose one pays Rs.20,000 as annual premium against a health insurance policy.
He paid this premium for 5 years. But has not claimed any expenses.
You are lucky.
The amount that has been paid in last 5 years was, Rs.20,000×5 = Rs.1.0Lakh.
Suppose in the 6th year he met with an accident and incurred serious injuries.
His medical bill was a whopping Rs.200,000.
[Please Note: I am not throwing here any random numbers. You can say that these are real figures]
His insurance company settled 80% of the total hospitalisation expenses.
See how within a matter of few days, the health insurance policy saved Rs.80,000 for him.
- Hospitalization Bill : Rs.200,000
- Insurance claim : Rs.180,000.
- Your total cost : Rs.120,000
- Premium Paid : Rs.100,000
- Hospital bill settled by you: Rs.20,000
- Saving : Rs.80,000.
Though it may seem that, in the first 5 years, he was paying the insurance premium needlessly.
But in a matter of time this impression changed for good.
He saved Rs.80,000 on total hospitalisation expenses.
This is why it is necessary that one must not consider health insurance cost as an expense.
They are protection.
They can save huge amounts of money for the policy holder.
#2. Quantify your health cover need.
It is necessary to predict a nearly accurate health cover required for a family.
Bigger health cover is good, but its premium may be unaffordable.
Smaller health cover may be easier for pocket, but it may fall short in value.
A policy holder must quantify the health cover required very judiciously.
As a rule of thumb, the health cover must be at least 3.5 times of ones monthly take home salary.
If the take home salary is Rs.1,00,000, health cover must be Rs.3,50,000 minimum.
#3. Keep your strategy ready for “pre-existing disease”.
Majority of health insurance claims get rejected due to the following reasons:
- Illness was classified as “pre-existing disease” or,
- The “pre-existing disease was not declared” while buying the policy.
What is a pre-existing disease?
At the time of filling the health insurance form, the applicant must declare the medical history of the members.
Suppose the applicant has faced the following medical conditions in the past:
- Major joint pain etc.
These days every third person suffers from either or all of the above medical issues.
But it does not mean that one can avoid mentioning them in the health insurance subscription form.
As per IRDA rules, insurance company can reject to offer insurance cover to people who pre-carry a chronic and serious disease.
If the disease is not so serious, the insurance company can issue the insurance policy after some premium loading.
Means, the person will get a policy but his/her premium will be higher than a normal person.
So, if a person has a pre-existing disease, following strategy can be followed:
– Disease is serious in nature : Insurance company will not cover this person.
It means, you must be ready to buy health insurance without this member being included in the policy.
– Pre-existing disease non-serious in nature : Insurance company will give a cover but with some premium loading.
It means, you must be ready to buy health insurance policy whose premium is higher than your initial estimate.
– Waiting period : Non serious pre-existing disease does not remain out of cover forever.
Suppose you had a problem of diabetes at the time of policy purchase.
You will not be able to claim any cover of the hospitalisation expense related to diabetes for the first 4 years.
From the fifth year onwards, even diabetes claims will come under the policy cover.
So what you must plan for pre-existing disease?
Keep a separate emergency fund for it which can be used in time of need.
#4. What are your preferred hospitals?
This is one question that you must put to yourself first.
Identify and note down list of at least 5 hospitals in your city where you prefer to get your family admitted in times of need.
While you are buying a health insurance policy, make sure to check if your hospitals are covered in the list.
Perform a double check.
Ask your insurance agent, to confirm if, in your preferred hospitals, you will get a cashless facility.
Having a cashless facility in your preferred hospital, is a key check point before one must buy health insurance policy.
In case of cashless facility, the insurer will reimburse the sanctioned claim amount directly to the hospital.
In case of non-cashless treatment, you will have to first settle the full hospital bill from your pocket.
Then after due diligence, the insurer will reimburse the due claim back to you.
#5. Get clarification about no-claim bonus.
One has to pay premium every year to get a health cover.
But it may not be necessary that one claims expenses every year.
In those years, where there has been no claims, the insurer rewards the policy holder by giving no-claim bonus.
Generally 5% no-claim bonus is given for each year of zero claims.
This no-claim bonus increases the health cover.
Suppose you bought a policy which had a cover of Rs.100,000 in the first year.
You paid the premium for 5 years, but claimed no expenses.
In this case, after the fifth year, your health cover will be as below:
- 1styear – Rs.100,000
- 2ndyear – Rs.105,000 (+5%)
- 3rdyear – Rs.110,250 (-do-)
- 4thyear – Rs.115,750 (-do-)
- 5thyear – Rs.121,550 (-do-)
But this health cover cannot increase forever. Generally the health cover can grow only by 1.5 times its original cover value.
It is important for the policy holder to know these numbers before buying health insurance policy.
#6. I have a policy cover, lets get admitted to Breach Candy Hospital?
Just to give you a feel of the point I am trying to make, allow me to share a data.
Room rent of Breach Candy Hospital located in south Mumbai can go as high as Rs.25,000 per day.
Suppose you have a health insurance policy which has a cover of Rs.500,000.
As a thumb rule, the allowable room rent that will be paid by the insurer should not be more than 2% of the cover value.
In your case, the maximum room rent can be Rs.10,000/day (500,000 X 2%).
If you intend to get hospitalised in a specific hospital having high per day rent, then you must plan your cover value accordingly.
#7. Be aware of ailments/conditions not covered under health insurance.
Generally a health insurance policy coverts all types of illness and medical conditions unless they are of “pre-existing” in nature.
But apart form these, there are few more which are not covered under health insurance policies:
Few typical ones are mentioned below:
- Ailments related to child Birth.
- Self physical harm.
- Ailments related to overdose of alcohol.
- Treatment for obesity.
- Non-allopathic treatments.
- Medical conditions as a result of war.
- Major critical ailments etc..
For such ailments/conditions what you must do?
Build a sufficiently big emergency fund.
These are few check points that one must check before buying health insurance policy.
It is always advisable to read the health insurance policy document (terms and conditions) from top to bottom.
Often the devil is hidden in the details.
So please go through the fine prints before issuing your first premium.
Take your time.
I will suggest you to read the policy document slowly.
Take a week and note down those points that come to your attention.
Also, check the above #7 check points mentioned in this article.
I am sure, after such deeper analysis, the purchased health insurance policy will prove more effective.