Health Insurance Benefits that could turn into a curse!

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I love the line in the George Clooney movie The Descendants: "you give your children enough money to do something but not enough to do nothing"

I think we all will agree with this: "Too many benefits can spoil, more than they can help."

So yes...in short...Benefits can hurt you, specially when they are extravagant, and open-ended.

This applies to Health Insurance too.

While you are happy when you finalize a product without any cappings, the happiness could be short-lived, once you know the long term price that you need to pay for it. Read on to know more. 

Let's first understand that Health Insurance like any other Insurance is a community fund. A community fund, where you are one of the large no. of people who make a small contribution into a fund, and spread the risk amongst each other. Healthy pay for the sick. One year you could be healthy, another you could be sick. 

The contribution each member pays is based on of how many people are expected to enroll into the scheme vis-a-vis what amounts of claims are expected in the same period 

Claims are a function of benefits provided under the scheme or plan and hence periodic contributions in the fund, would be a function of how this fund is spent. If the members are prudent, the contributions would be predictable year on year, spend extravagantly and the contributions of next year are bound to increase. 

Let's look at a simple example:

Let's say a group of 10 friends decide to create a Birthday Party fund. All the birthday parties will be funded from this fund. Looking at the costs earlier, every member makes a payment of Rs. 5000 a year into the fund. Now, this group had no restrictions on which restaurant the party can be given. It could be a 5 star or a local restaurant. Looking at the no restriction, most members go for expensive restaurants, so much so that the fund is exhausted in 9 months instead of completing a year!

How could they have avoided this situation: Yes, by simply setting up some basic rules on the type of place or the amount that could be spent per party. 

We all need certain guidelines or thresholds against which we can spend. Without such thresholds, we tend to go extravangant.

So you see, open-ended benefits are not long term benefits, and not all restrictions/limits are long term "restrictions". It is in the interest of the entire group of members, the community to be covered, to be prudent when making claims. It is in the interest of each member, that there are certain guidelines/restrictions to spending. 

Coming back to Health Insurance, the benefit that immediately comes to my mind is restrictions or cappings on choice of Hospital Rooms.

A very large number of customers (understandably) do not want any kind of capping in their health insurance cover. They are OK paying a high premium, but they want a plan which does not restrict them when their family members are being hospitalized. Fair! But you should know how how the choice of rooms have a tremendous impact on the total hospital bill, since Hospitals charge differentially for all non MRP based services/products, depending on the type of room you have selected. Read more on how Room Rent limits in Health Insurance can impact your Claims. Moreover, you could end up paying more than the difference in price that you are calculating. Read on: 

Health Insurance Benefits - Are Limits/Cappings bad for you? 

Imagine a person, from a decent upper middle class family in Delhi, with an annual family income of Rs .10 Lakhs. His father is not well and requires to be hospitalized.

What is the hospital type and hospital room he would book if he does not have Health Insurance?

Now compare this with the type of hospital and room he would go for when he has health insurance.

The normal mentality is to go for a higher category room, and "extract the best" out of the "investment" in Health Insurance.

Yes, some of us may be prudent, but let's face it, a good number of us would do just that. 

Now look at the entire population of the people covered under a plan without any room rent limits. What if a large number of these people go extravagant, while spending claims. What if the person who pays a Rs. 3000 premium for a 1 Lakh plan chooses a super deluxe room, and a person who paid Rs. 15000 for a Rs. 15 Lakh plan goes for a simple private room.

What happens to the profitability or worse viability on the plan? Would the shareholders of the Insurance company suffer on the loss? Or would they increase the premiums in the coming years, to make good the loss? Or worse, would they introduce room rent restrictions at the time of renewal of the policy?

No wonder the premiums for plans with low or no cappings zooms at older age groups, than the ones which have cappings. Have a look at this premium graph in my earlier post.

Conclusion is simple, the more fancy and open the plan.

  • the more the premium would rise, specially in the higher age groups
  • the more the chances of upward revision in the premium rates. 

Worse!: You would pay through your nose, irrespective of you being prudent, when you spend. You could end up paying for someone else's extravagance in the long run.

Other extravagant benefits, which could trouble you:

The same logic applies to other extravagant benefits like immediate coverage on Pre-existing diseases, Maternity Expenses, even in Health Group Insurance. If one analyzes, the high increase of premium, year on year in Group Mediclaim premiums can be attributed to all such open-ended covers. The premium may remain low, only if you are part of a large (more than 1000) homogenous group of employees. 

What you should do?

  • If you have an existing mediclaim policy, check on the room rent restrictions - if there are "No Limits" - check the premium for above 46 and above 61 years in this policy, and get a flavor of what you would pay. Take actions based on whether you find these premiums affordable or not .
  • In case you are set to buy a fresh health insurance plan, look for a policy which allows you to get a basic Private Room in a hospital, nothing more, nothing less. Here are the Room Rents for Private Rooms of some select hospitals in Mumbai, Delhi and Bengaluru. Do not forget to apply inflation againt monetary limits on Hospital Room Selection. 

Room Rents/Charges in Leading Hospitals in India?

Moral of the Story: 

  • We are all in this together. Extravagance of a few will not only result in loss for the Insurance Company, but for all of us. 
  • Don't get charmed by the no cappings, no limits. Go for a balanced plan, than an open-ended plan. 
  • The more open-ended the benefits, the more the premiums would rise and get revised. 

 

Views expressed above are Personal

About the Author:

 Mahavir Chopra is the Head - Personal Lines & eBusiness at Medimanage.com, a specialist health insurance advisory service for Individuals, Families and Corporates. Know more about Medimanage's free advisory services here

If you want to speak to Mahavir's team of expert advisors for a one-to-one discussion on your requirements, post your inquiry here

So what's your reaction to this article? Was it helpful? You agree? You dont agree? Let's discuss in the comments section right down here...!

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