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News & Views

Tuesday, Jul 17, 2012

Your health insurance agent will not tell you this

[Source :]

It seems that the mindset of insurance consumer is subtly changing lately. People are much more aware of the earlier innocuous details in their health insurance policies. Maybe it's because health care costs have gone up, and since the number of claims hasn't reduced, people are feeling a harder pinch now if insurance companies don't reimburse claims to the full extent.

The bottom line is that increased awareness is the need of the hour, and this article aims to help that cause. While there are many things you need to be aware of regarding health insurance , there's one thing that you absolutely must know about your Mediclaim policy and we'll get right to it.

The Impact of Room Rent

The first and seemingly most harmless sub-limit (as they are called) in your health insurance policy is that of room rent. These days there are policies that don't have any sub-limits , in which case this doesn't apply, but most of us are still with our old policies that we have faithfully renewed every year, and so this clause very much applies to us.

Room rent is typically restricted to 1% of the Sum Assured in most cases and in some cases it is restricted to 2% of the Sum Assured. So if your policy is for Rs. 5 lakhs, allowing 1% room rent per day, your allowable room rent expense is Rs. 5,000. If you occupy a hospital room that costs more than Rs. 5,000 per day, the rest has to be paid from your own pocket because the policy will not allow it as an admissible cost to be reimbursed. This might seem like nothing. A lot of people think that this just means a few extra thousand rupees to be paid out of pocket, depending on the number of days stay in the hospital.

But that's not where it ends at all.

This clause has the single largest impact on your claim and all its other sub-limits. Let's see how it works.

Suppose Mr. X, who has a Rs. 3 lakh Mediclaim policy, has to undergo a surgery which requires him to stay in hospital for 5 days.

All expenses incurred in a hospital will be more expensive if you choose a more expensive room. This is how hospitals work. For the same sort of treatment, a general ward patient will pay much less than a deluxe room patient. Everything from the food to doctor visits is more expensive for a private room than for a twin shared room. Think of it as having a cup of coffee at your local Café Coffee Day, versus having a cup of coffee at the Taj. Same elemental product, very different pricing structure.

So if Mr. X chooses the most economical room option i.e. the general ward, all his expenses will be commensurately lower than if he were to choose say a deluxe room, even though he'd be getting the same surgery done.

If he were to choose the general ward, room rent is Rs. 2,000 per day, for example.

With the low room rent, all his other costs (for the same treatments) are also correspondingly low, and so his total hospital stay costs him Rs. 100,000 plus Rs. 2,000 per day for 5 days i.e. Rs. 1,10,000.

If he chooses a twin sharing room, having room rent of Rs. 4,000 per day, his expenses come to Rs. 20,000 for room rent for 5 days, and Rs. 2,00,000 for other expenses, bringing his total stay cost to Rs. 2,20,000.

For a deluxe private room, room rent is Rs. 6,000 per day, i.e. Rs. 30,000 for 5 days, and other costs are Rs. 3,00,000, bringing his total cost to Rs. 3,30,000.

Mr. X has a Rs. 3 lakh Mediclaim policy and he chooses the twin sharing room. His total stay cost comes to Rs. 2,20,000. What amount of claim do you think is going to be reimbursed by the company?

If you said Rs. 2,20,000, since this is within the sum assured of Rs. 3 lakhs, you would be wrong.

The room rent for the twin sharing room was Rs. 4,000 per day. This is higher than the 1% of Sum Assured sub limit imposed on room rent. So his claim for this amount is inadmissible. Accordingly, all other expenses (which are always dependent on room rent) become inadmissible to some extent as well.

The next lowest room available was for Rs. 2,000 i.e. the general ward.

Had he stayed here, his expenses would come to Rs. 1,10,000 totally. This is what the insurance company will pay, because the Rs. 2,000 room rent is the next lowest room rent that is within admissible limits based on the 1% room rent clause.

Do you see how it impacts him?

Admissible room rent was Rs. 3,000 (1% of SA).

Actual room rent was Rs. 4,000.

That's a difference of Rs. 1,000 per day, which for a 5 day stay would come to Rs. 5,000. Mr. X believes that he will simply pay Rs. 5,000 out of his own pocket. But instead of Rs. 5,000, he has to pay every correspondingly higher hospital expenses out of his own pocket as well.

Instead of simply incurring a Rs. 5,000 out of pocket expense, he incurs an out of pocket expense of Rs. 1,10,000.

There are policies available today that do away with sub-limits. There are also policies that do not impose a strict 1% clause, but do determine claim admissible on the basis of type or category of room, thus allowing the room rent to vary based on what different hospitals will charge for the same category.

Either way, you do not want to be stuck with a policy that limits you to 1% of your Sum Assured as room rent, as this is a very restrictive clause and can lead to a heavy out of pocket expense for you in the years to come. If you can, switch your policy to a better insurance company that does not restrict you in this way, and as always be sure to read the policy wordings very carefully before opting for a new policy.

Also remember, insurance planning, which also includes critical illness policies and personal accident policies, is part of your overall financial planning. Also remember, regardless of how ideal your insurance policy might be, it is still necessary to have a contingency fund set aside for emergencies, both medical and otherwise.

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