Uncovering Room Rent Limits in Health Insurance and their implications on Claims

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Many health insurance policies, specially the policies from PSU/Govt. Health Insurance Companies, and most of the Group Policies (The health insurance through your employer or Bank Policies) have limits on room rent. The limit basically puts a cap on the per day room rent you can claim, linked mostly to the sum insured (total coverage) you are entitled to. 

A recent article in Economic Times had many health insurance seekers and existing customers, taken aback. The story talked about how insurance companies would pay attrociously low claims, by aligning the nearest eligible room to the the room rent limit set in your Mediclaim policy.

In our experience of managing thousands of health insurance claims for the last 6 years, we don’t find the example true in most cases. Read further to understand our take on this matter.

What did the article say?

First, the scenario, You have a policy of Rs. 3 Lakhs sum insured, with a room rent limit of Rs. 3000/-. You undergo treatment for angioplasty, and need to be hospitalized for 2 days.

The tariff of the package at the hospital is as follows:

General Ward : Rs. 75000 (Including Room Charges Rs. 1000 per day)

Shared Room : Rs. 250000 (Including Room Charges Rs. 3500 per day)

Private Room : Rs. 400000 (Including Room Charges Rs. 6000 per day)

As per the article, here's how the claim will be paid.

Charge Billed Eligible Total for 2 Days Calculation
Room Rent Rs. 3500 Rs. 3000 Rs. 6000 As per limit
Package Rs. 243000 Rs. 208286 Rs. 73000 Nearest Eligible Room Charge
    Rs. 211286 Rs. 79000  

Medimanage Take:

In our opinion, here's how your health insurance company will pay claims, when you choose a hospital room, with rent higher than eligible under your health insurance policy.

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1.   Where the Insurance Company or TPA has access to your hospital's tariff:

Most Hospitals have fixed tariffs or rate charts for all rooms. Bills generated are according to these tariffs. If the Insurance Company has access to the tariff chart, it will pay all charges as per the tariff for the eligible room rent category. In the above case, if there was a room of Rs. 3000 available, all charges would be paid as per the tariff. If there is no such eligible room in the limit available, the claim would be computed and paid proportionately (calculation below). So for instance, if in the above example, a room was available for Rs. 3000, the entire claim would be paid as per the tariff of the Rs. 3000 room. In case, where a Rs. 3000 room is unavailable, the charges under the claim would be paid proportionately as explained below.

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2.   <!--[endif]-->Where the Insurance Company or TPA does not have access to your hospital's tariff:

If Insurance companies do not have access to the hospital tariff, the insurance company would pay all other charges proportionate to the room rent eligible, as mentioned above. So if your room eligibility is Rs. 2000 and you opt for a Rs. 4000 room, you will pay 50% of all expenses. 

In short, if you look at it, in most cases, the claim would be paid proportionately, and not as per the nearest but lower available room rent tariff, which is fair for both parties (Insurance Companies and Customers)

To explain in the same example, here's how, in our opinion, the claim would actually be paid.

Charge Billed Eligible Total for 2 days Calculation
Room Rent Rs. 3500 Rs. 3000 Rs. 7000 As per limit
Package Rs. 243000 Rs. 208286 Rs. 208286 Rs. 243000 X 3000 / 3500
    Rs. 211286 Rs. 215286  

An Exception

Now, there is an exception to this calculation only if it is explicitly mentioned in the policy wordings (terms and conditions) that the payment of claim for Room and other charges would be made as per the nearest eligible room. We have observed this clause only in the case of New India's Mediclaim 2007 policy.

Why do Insurance Companies make such proportionate deductions?

There are primarily 2 reasons why Insurance companies make such deductions..

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1.   <!--[endif]-->Hospital Billing:

We need to understand how Hospital's bill system works to understand such deductions.  

If you have ever made payment for an inpatient bill in the Hospital, you should be aware, how Hospitals have a peculiar way of pricing. The charges for standard costs like a diagnostic test or a doctor visit are billed as per the room you choose. For instance, an X-Ray could cost Rs. 150 in a Semi-Private room, and Rs. 300 in a Private Room. Similarly, a doctor visiting a General ward may charge Rs. 300 per visit, and Rs. 700 per visit in a Private ward. This is not the case with only Private Hospitals, even Govt. hospitals like AIIMS or a Cooper would charge in this manner. 

Pricing at hospitals is linked to paying capacity of the patient. Rich pay more.

Health Insurance companies, who have limits on room rent hence, have no choice but to pay expenses proportionate to the room rent eligibility.

Imagine a scenario, where there are no such proportionate deductions in the situation. A person seeking a higher room, than what is eligible under his policy would only pay for Room Rent X No. of days hospitalized, while the Insurance Company would foot bills for all other charges proportionately puffed up in the bill, which is not fair. Remember anything which is not fair to the buyer or seller, would either have a higher price, or the product/service will not survive.

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2.   <!--[endif]-->Lower premium, lower eligibility:

Room Rent limit policies advocate a simple rule. Pay lower premium and get a lower cover.

Imagine a case, where Mr. Sharma paid a premium of Rs. 10000 for a Rs. 5 Lakh policy, and his neighbor Mr. Verma has paid Rs. 2500 for a Rs. 1 Lakh policy. Both are diagnosed with similar type of Hernia. Mr. Sharma gets him hospitalized at a neighborhood good quality nursing home and pays Rs. 50000, whereas Mr. Verma gets hospitalized at a posh corporate hospital in the private room that bills him Rs. 75000. If you look at this example, you will see that with the same treatment, a person who has paid Rs. 10000 of premium is making a smaller claim than a person paying Rs. 2500.

Health Insurance has seen a lot of such abuse, where people buy lower sum insured in no room rent limit policies, and exhause the entire cover in a trivial treatment. The introduction of Room Rent limits, and the proportionate rule is a measure to curb such abuse. 

What should you do?

But what about the general public, who are not looking at abusing such benefits, what should they do about this

  • Go through the policy wordings of your health insurance policy, to check whether it has such a clause. Ask your health insurance advisor. If you have such a policy, you can look at porting the same to a better product. 
  • If you are young family, and looking for a policy, go for a policy, which does not have room rent limits.
  • If you have an existing policy, or don’t have a choice of a no room rent limit policy, go for a High Sum Insured. In the long term with Room Rents increasing and Room Rent limits remaining the same, one would witness deduction in claims due to the proportionate clause.
  • If upgrade is not possible, create building a fund to bridge this gap in the cover you perceived and you really have.
  • Finally, before deciding a room, in the hospital:  
    • Go for packages, which are as per your room eligibility.
    • If there are no suitable packages, negotiate with the hospital or treating doctor, explaining them how you would get proportionate deductions. In most cases, there would be a solution available.

Follow the steps above, and stop worrying. 

If you have questions, please feel free to use the comments section below. We will ensure you are responded in 1 working day. If you need advise on your specific requirement - go here: http://www.medimanage.com/health-insurance-inquiry.aspx

 

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