Health Insurance actions to survive through the COVID-19 crisis

• Introduction
• Reasons for Deductions
• Insurance Industry has standardized the charges it will pay
• Reasonable & customary clause can be applied to policies with no room rent limit?
• Need for a supplement cover
• You still need long term health insurance
• What’s the immediate actionable for the pandemic
• Comparison of Online Plans
• FAQs

Regular health insurance may not be enough.

I have been talking about this for a while now.

While your regular health insurance policy does cover COVID-19 hospitalization expenses, it may be grossly inadequate.

Here’s is a ballpark estimate of hospital bills and deductions if you have a 5L health insurance with room rent limits. The table should help you understand the magnitude of the problem we are facing.

Yes, as per our estimates the deductions can range from Rs. 75000 to Rs. 13 Lakhs depending on your age and your medical condition.

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1. Deductions on special Costs for COVID 19

A COVID-19 treatment requires special hygiene, PPE, isolation, separate dedicated staff, waste management. Hospitals are charging for these separately in their bill. A health insurance policy, however, considers these charges to be a part of the room charges, and do not account or pay for it separately.

As you would have read in various media reports, the cost of PPE and other similar charges to manage COVID-19 patients can be as big as Rs. 5000-8000 a day. Such non-payables can cause a serious dent in your savings

2. Deductions on account of Room Rent Limits.

As you would have already heard on social media, Hospitals are charging a bomb for room rent. Many health insurance policies have a cap for per day room charges. Such caps will result in a significant deduction in your claim amount.

What’s worse, these claims will also attract something called “proportionate deduction”. This means not only will the customer bear the difference amount between paid room rent and eligible room rent, but also bear proportionately on all other associated expenses.

For instance, if you are hospitalized for ten days, the room rent limit in the policy is Rs. 5000, and the actual room rent charged is Rs. 10000. In this case, not only will the insurer deduct Rs. 5000 X 10 days = Rs. 50000, but also deduct 50% for expenses that are linked to the room charge structure in the hospital like doctor visits, surgery costs, diagnostic tests, etc. (called associated expenses)

3. Deductions based on the “Reasonable & Customary Charges” clause.

In the absence of a robust healthcare regulation that standardizes healthcare costs, Insurers are invoking the “Reasonable & Customary Charges” clause in the health insurance policy contract that protects themselves from unreasonable billing from the hospital. But what is this clause?

As per this clause, an insurer is only liable to reimburse for charges that are reasonable and customary for a hospital of a similar grade/certification in the same geographical location.

So if a Grade A hospital certified by NABH or similar certification body charges say Rs. 10000 per room per day and your hospital which is of similar grade and in the same geo-location charges Rs. 18000. The insurer can invoke the reasonable and customary charge clause and deduct Rs. 8000 per day from room rent.

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Since what is reasonable can be a subjective interpretation of each insurer, very recently, the general insurance industry got together to standardized the costs it will pay for various line items in a hospital bill. This standardization will be implemented under the reasonable and customary clause we discussed above.

Now, if hospitals too agree for these standardized costs, then life would have been easy. But hey this is 2020 remember, so while Insurers have been working to enforce these standard charges with hospitals, hospitals have been actively resisting these standard rates. This situation will, for sure, result in disputes—no prizes for guessing who will bear the remainder of what the insurer does not pay.

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While people with room rent limits will have to bear with significant deductions, the rest of you with a policy without room rent limit does not get to breathe easy, either. Here’s where I break the bad news, and please don’t hate me for this. Insurers are expected to apply standardized rates despite your policy having no limits or caps on room rent. So if the hospital does not agree with these standard rates, then you bear deductions in the claim, despite having a comprehensive no room rent cover.

Not convinced yet?

Let me throw some numbers. Here is a recent report in The Times of India that details the staggering numbers around COVID claims registered and settled.

From this table, if we compare the average claim reported (1.64 Lakhs) vs the average claim settled (0.80 Lakhs), the average value of deduction in every claim is close to 50%. Yes, the average deduction in claims is a scary 50%.

While there could be other reasons why the % is high – for instance, if large claims are pending for approval, then the % of claims settled (in value) could be low. Yet, even after such numbers are factored, the deduction % will remain alarming! Hence, the need for a supplement cover.

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That’s where I come to my point around the need for an additional short term cover over your regular health insurance. An insurance policy that can help you cover the high out-of-pocket expenses expected.

IRDAI introduced two short term plans (maximum term of 9.5 months) that need your attention:

Corona Rakshak:

Corona Rakshak is a short term supplementary policy designed by IRDAI that pays you a fixed cash benefit of up to Rs. 2.50 Lakhs per person on the occurrence of the following events

• You are COVID-19 positive
• You are hospitalized for more than 72 hours

The fixed cash from Corona Rakshak can help provide some relief to survive through large deductions in claim amount as well as be a source of replacement income.

Corona Kavach

Corona Kavach is not a fixed benefit policy – it is another short term insurance that reimburses actual hospitalization expenses (more than 24 hours) – just like your regular health insurance, but this policy is specialized for and dedicated to COVID-19 treatments. It solves for many of the deductions we spoke about earlier in the article. The benefits of this policy are:

• it does not have any room rent limit.
• The policy will overs PPE, mask, and other charges separately.
• The policy wordings do not have the mention of the “reasonable and customary clause” I talked about earlier. (I really hope this is not out of oversight)
• Most importantly, it covers hospitalization for co-morbidities even in case of pre-existing diseases. Only after prior approval from the Insurer.

Every insurer is supposed to offer this policy without exception.

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There are health risks beyond 2020 and the pandemic.

As you are aware, Corona Kavach and Rakshak are short term policies that cover only COVID 19 hospitalization. You still need to invest in regular health insurance that provides you a lifelong comprehensive cover for hospitalization expenses against all kinds of diseases & injuries. The key is to invest in such a policy when you don’t need it – when you are hail and hearty – that’s when you can get the best health insurance plan.

Get adequate health insurance before you need it.

As you grow older and suffer from a chronic lifestyle disease you become less and less insurable for a health insurance company. They start putting price barriers, additional restrictions, and limits on benefits.

Also, reports suggest multiple health complications can arise once you have recovered from COVID-19. Here’s an article that says COVID19 recovered are returning to hospitals with heart and lung problems. It will get challenging for people who have a history of COVID19 to get new health insurance or an upgrade later.

Hence, it is very important to invest in a long-term health insurance policy while you are healthy. Here’s the minimum configuration we recommend.

• Buy health insurance for your old age. So factoring inflation a coverage of at least 7-10L per adult is necessary. If there are 2 adults, then go for a 15-20 L health insurance floater.
• As far as possible, buy a policy without any room rent limit, or other financial limits like a copay.

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After interacting with many experts, people who have bought plans, and some who haven’t, here’s what looks like should be our final take. The single focus of recommendation we have published below is to reduce the probable deductions in a health insurance claim.

Important:

1. Ensure you buy Individual Plans and not Family Floater. Use Family Floater to only cover kids (since kids are not eligible for individual plans)
2. This is applicable even if you are covered under a Corporate Health Insurance cover, unless the cover is adequate enough to take care of the hospital bills estimated and cover PPE, don’t have room rent limits.
3. People above 65 – unfortunately – there is no plan available. Looking at the estimated hospitalization expenses – request you to take utmost care, ensure you accumulate health insurance cover of Rs. 20 Lakhs if possible, and maintain your emergency fund.

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Here is a comparison of plans we were able to find from various insurance company websites. The idea here is to give you an idea of the range of plans available at various prices.

Corona Kavach plans available online - Premiums (INR) for a Sum Insured of INR 5 Lakhs, with Policy Duration of 9.5 months (Last updated on April 20, 2021)

Disclaimers:

• All premiums were calculated for individual policies, for a male buyer.
• Premiums mentioned are only for the base-plan, and do not include the hospital cash rider
• All premiums for calculated for a Sum Insured of INR 5 Lakhs (maximum available cover) and a policy duration of 9.5 months (maximum available duration)
• All premiums mentioned above are in INR and inclusive of taxes
• Date of calculation: April 20, 2021

Corona Rakshak plans available online - Premiums (INR) for a Sum Insured of INR 2.5 Lakhs, and a Policy Duration of 9.5months (Last updated on April 20, 2021)

Disclaimers:

• All premiums were calculated for individual policies, for a male buyer.
• All premiums for calculated for a Sum Insured of INR 2.5 Lakhs (maximum available cover) and a policy duration of 9.5 months (maximum available duration)
• All premiums mentioned above are in INR and inclusive of taxes
• Date of calculation: April 20, 2021

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1. Why are the prices so different across Insurance Companies

These are unprecedented times. Without enough data, every Insurer is judging and acting on the risk and the regulator’s mandate differently. The pricing, proposal form, as well as the assessment of the risk, is likely to be dynamic and evolve out of learnings that pan out in the next 6-9 months. Thankfully, the product benefits being standardized and mandatory, won’t undergo changes.

2. Will the cover for Rakshak be inadequate for many? In many cases, it is observed that hospital bills can be very high, resulting in even more substantial deductions than Rs. 2.50 Lakhs.

If you foresee more than 2.50 lakh deduction, then you may need to buy both Rakshak and Kavach. For the young, who are less than 50 years old – we don’t foresee a deduction of more than 2.50 lakhs on their claim amounts. Yes, for people between 50 and 65 years, and who have pre-existing diseases – the Rakshak cover would be inadequate to cover the probable deductions. They may have to buy both Kavach and Rakshak to minimize the deductions from PPE kits and other expenses.

3. Insurers who are covering people with Pre-existing diseases, at low premiums – would they actually pay the claims?
Just ensure you fill the proposal form yourself carefully. It is unlikely that your claim will suffer if you buy the plan with the cheapest or cheaper premium. Remember that the product benefits, the limits, the conditions, and exclusions are common across all products. The difference, of course, will be around the experience – at the time of buying as well as claims.

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