Basics of Medical Insurance

I have tried so many times to convince people to take a medical insurance cover and the biggest resistance I face is to convince people that what seems hunky dory today may not be the same in future. Every one swears by the saying ‘Health is Wealth‘ and most of the people also proactively try to ensure that they remain healthy. While these efforts can reduce the probability of ending being in a hospital, it can not eliminate a person falling sick or being seriously ill, requiring hospitalisation.

Medical bills start mounting from the time a person enter into the hospital the medical bills. And if a person needs an Intensive Care Unit, then the bills can easily start mounting over 10 lakhs rupees. COVID has shaken all assumptions and I firmly believe that Medical Insurance should no longer be considered as Optional in one’s financial planning. This post talks about basics of a Medical Insurance (MI) policy.

How does Medical Insurance (MI) Work ?

MI can help a person to bear the financial brunt of hospitalisation bills.  However, in order to get this benefit, a person needs to subscribe to a MI insurance policy. The amount of cover which an insurance company shall bear will depend upon the sum assured on the policy. The subscription amount is to be paid generally on an annual basis and is call insurance premium. This premium amount is based upon multiple factors associated with the lifestyle of the people being covered. Some of these factors are :

• Age of a person / family being covered– higher the age, more is the premium considering the likelihood of ending up in a hospital increases with ageing life.
• Any existing diseases – if you have any existing disease or illness, be prepared for a higher premium.
• Smoking history – can end up with higher premiums
• Profession – if you are in an occupation which may result in hazards to your health (such as mining), your premiums may be higher.
• Amount of cover – if you need larger hospitalisation cover, then you would have to pay higher premiums. However, with increasing cover, the premium doesn’t increase dispropriationately.

Cashless versus Reimbursement Claims

If an event of an hospitalisation, an insured person he has two options :

• Cashless settlement – Many insurance providers provide the facility whereby the hospital shall settle the bills directly with the insurance company. This is the most preferred option as the insured person would not be required to pay material hospitalisation expenses upfront.
• Re-imbursement option – This is less prefered option whereby the insured person first needs to pay all medical expenses at the hospital. Post hospitalisation, a reimbursement claim is filed with the Insurance Company with supporting documentation. This can be paper intensive and should be covered generally within 30 days of hospitalisation.

I have Critical Illness & Term Insurance – Do I still need Medical Insurance ?

Definitely yes ! Medical insurance is a breed of insurance which aims to cover cost of hospitalisation by reimbursement. To understand it better, you may want to read our other blog which cover Term Insurance (TI) and Critical Illness Insurance (CI). After reading them you would realise that TI and CI have a different objective to suit and MI doesn’t fulfil those objectives.

Term insurance (TI) provides a lumpsum to the nominee if the policy holder dies. Critical Illness (CI) cover provides a lump sum amount to the policy holder if he / she is diagnosed with a covered Critical Illness. However, Medical insurance does not provide an insured person with any fixed amount. The amount provided by the insurance company is a reimbursement of medical expenses. The closest resemblance to Medical Insurance is a vehicle’s comprehensive insurance policy which can be used to pay for the repair bills of a car. MI along with the other two insurances form an important part of financial planning which aim at mitigating the risk of financial issues associated with the life of a person.

Lets take an illustration whereby a person has a TI & CI insurance but does not end up taking a MI cover. If such person needs to be hospitalised for a surgery which is not critical (such as cancer, etc.) and he doesn’t dies, any hospitalisation bills associated with curing the person shall not be borne by CI (as the illness is not a critical insurance) or TI (as the person is still alive). Such a person may be left with a gaping hole in his finances caused by daunting hospitalisation bills.

Medical Insurance For The Entire Family

Generally people want to take insurance policies only for the earning member of the family. It is some what okay if it it relates to Term Insurance considering if the dependent dies, the earning member still continues to maintain the financial stability of the family. However, in case of Medical Insurance, the situation is different. If a dependent ends up in a hospital, the associated hospital bills still needs to be paid by the earning member. A family policy is hence the best way to cover all dependents in a single policy.

Things to look out for while buying Medical Insurance (MI)

If you are on a shopping trip to buy MI for your family, the pointers which you may want to consider are :

1. Cashless settlement – your insurance company should support cashless settlement of hospital bills with all reputable hospitals in your city and potential cities where you may intend to access medical facilities. Each insurance company has a list of network hospital where it offers cash less claims facility.

2. Exclusions – each insurance company has a list of medical conditions which they don’t cover. Some of them are very obvious and fair. For example, suicide or pre existing conditions for x number of months / years. However, other conditions may be quite restrictive. You should go through the list of exclusions to avoid unreasonable insurance companies.

3. Deductable : Many insurance policies impose restrictions on the amount of claim it would bear for specific hospitalisation procedures. Some impose a flat co-payment of say 20% to 50%. This means that for all claims, the insurance company will bear only a part. In other cases, it may have an annual or per claim deductable ranging from a few thousands to a few lakhs. A scan through the terms and conditions of the policy is hence vital to know the restrictions.

4. Room Rent Capping – It is a common insurance practise to levy a cap on the maximum category of hospital room type which can be taken by an insured for hospitalisation. This range from a percentage of the overall policy, e.g. 1% of the sum assured or a shared room or a single room or no room capping. If one ends up breaching the room rent category, the insurance claim will only be accepted (proportionately) upto to the allowed room rent category.

5. No Claim Bonus (NCB) – are awared by insurance companies to incentivise people for not filing claims. For every claim free year, an insurance company may award the policy holder with an extra insurance coverage by adding it to the existing insurance coverage. This could range from a petty 5-10% to a whopping 50% per year. This extra coverage is added free of cost without charging extra premium. You should look out for such insurance policies which promote NCB as it would help in reducing your long term insurance premiums payouts.

6. Pre & Post Hospitalisation – Bills associated with a hospitalisation start piling up several weeks prior to the surgery date owing to diagnostics and costly medical opinions. They continue to be incur several months post surgery with repeat doctor visits, physiotherapy, medications, diagnostic tests etc. Generally insurance policies cover expenses associated with hospitalisation 30 days prior and 60 days post hospitalisation. A few good ones stretch this period of coverage to 60 days prior and 180 days post hospitalisation.

7. Preventive Medical Checkups – Premium medical insurance policies provide complimentary medical checkup for the adult family members. This is a welcome addon as it helps in detecting any brooding medical issue before it becomes a major issue.

Family Floater

A floater cover is a pool cover for a family. Generally most insurances would limit the definition of family to include husband, wife and dependent children. Some policies would cover parents within the floater but this comes with increased cost. A floater policy covering a family of say 4 people is different to individual policies covering 4 people. In case of a floater, the insurance cover amount is shared amongst all family members and this limits the overall liability of the Insurance Company upto the insurance amount. Hence, floater policies end up being cheaper versus individual policies.

The basic assumption taken by families opting for a floater policy is > not all members of the family would need to be hospitalised in one go or within a year. Hence, lets take a floater policy of say Rs. 5 lakh instead of individual policy of 5 lakh per family member. But what if this assumption went wrong. COVID has questioned many such assumptions whereby the entire family got hospitalised in a go exhausting the insurance cover.

While floater policies are definitely a good idea, one must take sufficiently high amount of floater cover to safeguard against multiple hospitalisation claims in a year.

Super Topup

Another innovative and a pocket friendly insurance addon is a ‘Super Topup’ plan. This is a bolt on to an existing cover whereby an Insurance Company will not pay the first ‘x’ amount of a claim in a year, also called as ‘deductable’. The deductable amount could range from 50K to even 10 lakhs per year. If one has sufficient resources or an existing medical insurance plan which covers the deductable amount, then a Super Topup plan which covers the expenses over the deductable amount can be handy. Such covers are available at a very reasonable premium considering the Insurance Company does not need to bear the smaller size claim whose probability of occurance is higher than a larger size claim. Higher the deductable, the cheaper is the premium.

India does not provide free medical facility or where it does – not every one would like to avail such an option. We would not like our readers to be in a situation where their hard earned saving goes down the drain in case of an unforeseen hospitalisation situation. I have heard depressing stories where COVID treatment in many cases forced families to sell their entire life savings.

If you can insure your vehicle, you can definitely insure your life !

Related Posts:

• How To Prevent Rejection of Medical Insurance Claims
• Corona Specific Medical Insurance Policy