Identifying the best health insurance plan for you & your family is important. In this article, we present 5 steps on variables you must consider while buying medical insurance. We also look at some mistakes made by consumers which you should avoid in the process.
Checklists are everywhere but we don’t give it much thought.
Like that piece of paper you see behind the washroom door in your office where the housekeeping staff ticks their shift activities.
Or the airline co-pilot who checks off his chart and gives the “let’s fly” thumbs up to his crew.
Health Insurance is a big decision with a number of variables to consider. So we started work on building our own checklist.
This checklist will identify the top variables that you need to consider when planning to enroll in a medical insurance plan.
Sometimes People Buy Health Insurance for the Wrong Reasons
Health insurance buyers are not a happy lot.
A recent online survey conducted by the Economic Times revealed some shocking statistics.
Per the survey, 48% of health insurance buyers were not satisfied with the policy features and benefits.
There can be many reasons for this. But the heaviest incidence of dissatisfaction was directed at policies which were bought on the basis of –
- an agent’s advice,
- basing decision on not-that-important frills and
- policies whose premium were on the lower side.
Process I used to get tons of information on health insurance habits
A large portion of the requirements came after me having spoken to hundreds of prospects and policyholders. This gave me a definitive understanding of the consumers look for in a health insurance policy.
Surprisingly, a large number of consumers used the word mediclaim or medical insurance instead of health insurance. They spoke about no claim bonus, Ayushman Bharat health insurance, wellness, mediclaim for family, government health insurance etc.
Just interviews aren’t enough though
We then matched this information with data from some health insurance companies. This helped us understand what is really going on – and if what looks good on paper is really utilized by consumers.
For example – most health insurance companies offer a free health checkup which sways some users dramatically towards a particular plan.
However when we enquired on the % of users who actually use this facility, the number came to only 1 in 6 actually used this feature.
Lets look at the 5 primary considerations you need to check for before purchasing a health plan
1. Your best health insurance plan is the one that fits your top requirements
Health insurance has evolved dramatically over the last 10 years in India.
Today, insurance companies offer a range of products aimed at different types of consumers. There are health insurance products suitable for many segments. There is health insurance for students, family health insurance, health insurance for senior citizens etc. Heck, there are also medical insurance plans for people with existing heart diseases, health insurance for diabetics and even plans for people who have already been diagnosed with cancer.
Your aim should be to identify your number 1 need.
Is it coverage for any existing illness that you already have? Or is it coverage for maternity and child birth as you are planning to have a child? Or is it the availability of treatment abroad? etc.
You might also have to plan a little ahead in time, say 3 to 4 years. Like you are about to get married which means you might start a family in the next 4 years. This is where having a plan with a maternity cover might be your primary requirement.
Once you are clear about this, you can then decide about the coverage or sum insured as it is called.
How much health insurance coverage or sum insured should I have?
While there is no established thumb-rule, a good practice is to go for atleast 6-9 times of your monthly salary. So if your salary is 50,000 rupees – you should consider a health insurance plan of atleast 3 lacs rupees and can go upto 5 lacs of coverage.
While this is not an exact science, I use a thumb-rule like this to remind myself that as my income increases, I should buy more health insurance. This is more important now because –
- the cost of medical procedures is going up and
- unlike Benjamin Button, my age too is on the rise which means I am more likely to get medical complications
So, that’s point number 1 – buy your health insurance policy considering your own health, family status and age.
You may have a specific need or situation for health insurance. If yes, then spell it out to narrow your policy search.
And if you don’t have any specific need, you don’t need to sweat it. You can move to step number 2 directly.
2. A cashless hospitalization network which covers the top hospitals in your city
Point blank. You cannot opt for a health insurance plan which does not offer a cashless service.
Cashless service means you can have your medical treatment done without having to pay the bills yourself. This means your bills are directly settled by the insurance company with the hospital.
And while all insurers offer cashless service, not all hospitals are part of the insurer’s cashless networks.
In fact, of the 50,000 odd private hospitals in India, insurers offer cashless service in anywhere from 4,000 to 8,000 hospitals
Since cashless is a pretty good thing to have and the cashless network varies from insurer to insurer – do ensure that you look through the insurer’s cashless hospital list. And ensure that your city’s most popular hospitals are available in that list.
Remember. Look for the best hospitals in the city and not merely the total number of hospitals in your city.
I say so because 90% of all hospitalization is planned in nature. This means you want to go for the hospital that offers the best healthcare and not necessarily the one that is closest to your house.
So in a city like Delhi, you will want to search for Indraprastha Apollo, All India Institute of Medical Sciences, Max Super Specialty, Sir Ganga Ram, BLK Super Specialty etc.
3. Read the fine print and seek out the exact coverage offered
Finding the right coverage for you means being prepared to look beyond the premium.
Pricing of insurance policies is a science with decades of data to support what is offered and at what price.
Make no mistake – a cheap plan is more likely to give you a cheap coverage. And as a result, it is suggested you suspend looking at premiums just yet.
Now a lot of what you need to know in terms of coverage will be available in two documents –
- the sales brochure and
- the policy wordings which have detailed terms and conditions.
5 Core Components of a Health Insurance Policy Coverage
In-patient hospitalization coverage which is pretty much the reason for buying a health insurance plan. This is the maximum amount upto which you can claim against expenses incurred at the hospital upon admittance. This will be a 3 lacs cover, 5 lacs cover, 10 lacs, 20 lacs, 1 crore or even more.
Day Care Procedures
Day care treatments are procedures that take less than 24 hours at a hospital. This includes cataract, tonsils, chemotherapy, liver biopsy, kidney stone removal etc. Here, look for a plan which covers all day-care treatments without restrictions or atleast covers a high number of day care treatments.
Room Rent is the cost or type of room that shall be allocated to you as per the plan chosen. Now, some plans offer a single private room or a shared room. And some plans allow upto 1 or 2% of your sum insured. So on a 5 lac cover, a 1% allowance on room rent gives you a maximum room eligibility of 5,000 rupees. It is important to know which type of room or what is the maximum allowance on a hospital room. This way you can plan your insurance needs better.
Pre and Post Hospitalization
Pre and post hospitalization refers to the reimbursement of any expenses prior to and post discharge. Ofcourse, the expenses have to be directly attributable to the illness or injury for which the policyholder was admitted into the hospital.
You might typically see a pre and post hospitalization eligibility of 30 and 60 days respectively. But some plans also put some limitations on the amount with restrictions like your post-hospitalization limit is 10% of your sum insured. You might want to check that and stick with plans that offers you the most coverage on this.
And finally, your coverage might have some sub-limits. A sub-limit is a cap on how much a policyholder can claim. For example – we saw a sum-limit of 1% on room rent. Similarly, some plans have sub-limits on certain procedures like cataract might have 10,000 rupees per eye. Maternity expenses always have a sub-limit with a cap for normal deliveries and a separate cap for caesarean deliveries.
So, these 5 elements i.e. In-patient hospitalization, day care, room rent, pre/post hospitalisation and sub-limits of certain procedures form the core of your coverage which you should certainly examine while considering any health insurance plan. A good understanding of these will take you close to finding your best health insurance plan.
Generally health insurance companies offer a lot of features. This maybe a dozen or more features. But when looked at the data, in true Pareto principle effect, we see that the above five components form over 80% of the claim amount.
The coverage elements who can choose to keep aside for now are things like daily allowance, domiciliary hospitalization, companion benefit, physiotherapy allowance etc. These are definitely not need-to-have coverages.
4. Examine the medical insurance’s waiting period, co-payment and exclusions
Waiting period is a sort of a hibernation period during which any claims made will not be admissible.
So, when you take a policy for the first time, there is a 30 day waiting period. Look for it because some plans even have a 90 day waiting period. And there is even a maternity specific plan, which has a 9 month waiting period.
Another waiting period is related to pre-existing diseases.
If you have no pre-existing illness then this waiting period is not applicable to you. But if you have an existing illness and your application for health insurance has been accepted post your disclosure, then you can file claims on these post your waiting period. Such consumers should find out if the waiting period on pre-existing conditions is 2 or 3 or 4 years. Different plans have different waiting periods.
Also look for if you need to pay anything from your pocket towards the claim as a co-payment. Co-payments (or copay) are generally triggered in senior citizens or specific need plans. It is important to read the policy wordings before buying a health plan. It is also a good idea to read the policy documents carefully once you receive the policy.
Understanding co-payments, sub-limits and policy exclusions are a must. This ensures you are claiming for the right procedures as contracted under your health insurance contract.
5. Identify mediclaim benefits that enhancement your sum insured
Inflation cannot be avoided and we see general prices increase by 5 to 6% every year. This means your household expenses which is 10,000 rupees today would have jumped up to 21,000 rupees in the next 15 years.
Now compare this 5% to medical inflation which is growing at 15% per year.
So a procedure which would cost 10,000 rupees today will be over 80,000 rupees in the next 15 years.
This rising medical inflation is the reason why I have warmth towards health insurance plans which enhance my coverage over time.
This is done in two ways –
1. No Claim Bonus
No Claims Bonus (or NCB as it is popularly called) is how insurers reward policyholders for having a claim-free year. This is done with an increase in sum insured ranging from 5 to 50%. And there is no increase in premium. This way you can accumulate enough no claim bonus to increase your sum insured by upto 100%. This means a 5 lac policy would become a 10 lac mediclaim policy if you don’t have any claims.
Remember – different insurers have different rules on applying NCB.
However this is quite a good incentive for young, healthy individuals & families to enhance their sum insured which can be used if any major medical emergency comes along
Restoration is another way by which insurers enhance sum insured.
Restore, Reload, Recharge – these are some names by which this benefit is named. Under this restore benefit, if you were to consume your entire sum insured then the insurer would add some more coverage without taking any additional premium. Important to note that this restore coverage can be used for any claims which are for an unrelated illness.
Like NCB, there are different rules for different insurance companies so do read the policy wordings for a more in-depth understanding of this concept.
Net net, go for policies which have a good NCB and restoration benefit. But don’t be swayed by 50%, 100% or 200% NCB or restoration.
To identify your best medical insurance plan, make sure you follow the sequence of considerations I have given –
- Identify your top health insurance requirement
- Check out the Cashless Hospital network service
- Measure the 5 core components of coverage i.e. inpatient hospitalization, day care procedures, room rent, pre & post hospitalization and sub limits
- Waiting period, co-payment and exclusions
- And finally, NCB and restoration i.e. benefits that enhance your coverage
These five considerations are where you have to spend most time in finding your most suitable and best health insurance plan.
Factors we did not consider in determining best health insurance
At this point, it is also important to understand some considerations which have been omitted from the top 5 list.
These considerations may be important in individual circumstances but do not cover general lives.
These include –
1. OPD expenses
I kept OPD out because you can certainly afford to pay OPD with or without a health insurance policy. Your decision making should be focussed on major medical expenses like surgery, ICU, organ transplant etc. rather than the reimbursement of a general practitioner’s visitation fees at a clinic.
2. Health Insurance Premium
I kept premium out as well so that it does not muddle your thinking. Your objective is to go for a quality health insurance plan and not an inexpensive one. If you do your research well per the plan I have laid out, there is a good likelihood that your final decision will also be the best value-for-money health insurance plan there is to choose.
3. Treatment abroad or Worldwide cover for health insurance
This feature is being pitched as a world-wide cover option which is available in more expensive plans. Again, this is clearly an uncommon requirement and if you need it then you might consider it. Don’t forget to read the terms and conditions surrounding treatment abroad, it might not be very straightforward.
4. Wellness services
Wellness services are being offered by a number of companies beyond insurers. There are credit card companies, ecommerce websites, pharmacy chains, food & fitness companies etc. Health insurance plans offer wellness in the form of discounts to gyms, yoga sessions, tele consultation, free health checkup etc. These are good-to-have but may not be a need-to-have.
5. Claim Settlement directly done by an insurer versus a third party administrator
A third party administrator or TPA is basically a middle man who facilitates the settlement of a health insurance claim. The TPA is appointed by the insurer and the TPA follows the rule book of the insurer in evaluating claims.
Our study of an in-house claims team versus TPA shows that the major advantage of an in-house claims process is the turnaround time for resolving a query. This benefits customers by reducing the claims processing time for consumers.
However when we looked at actual data, we could not find any appreciable advantage to having this in our consideration set.
Having said this, we find that more and more insurers are going for their in-house claims team which gives them more control over the process.
6. Claim settlement ratio
I thought long and hard about claim settlement ratio. But after due research I came to the conclusion that this claim settlement ratio in health insurance is too muddled for our consideration.
Claim settlement ratio or Incurred Claim Ratio as it is called is the total value of claims disbursed against the premium collected. This means, if an insurer has a ratio of 95% then he is settling 95 out of every 100 claims registered.
Now, we are very impressed that this insurer is paying 95 paise for every 1 rupee it collects as premium.
But for a consumer like you and me, this ratio has no meaning.
That’s because what I really want to know is if I were to incur a medical expense of 1 lac rupees – what proportion of that 1 lac will be paid by the insurer and what proportion will be paid by me.
Unfortunately the Incurred Claim Ratio or Claim Settlement Ratio does not give me that and we have to rely on our top 5 considerations which we discussed earlier for a better idea.
A second reason, I didn’t consider claim settlement ratio is because – come to think of it, if an insurer has a ratio of 110% it means that for every 100 rupees of premium it collects, it is paying 110 rupees of claims. Now how long can the insurer keep doing that? Which means very soon the insurer might increase the premiums which means your renewal premiums might shoot up dramatically.
These two reasons –
- the lack of relevance for us as consumers and
- the negative impact of high incurred claim ratio on renewals
– is what kept me away from looking at this metric in our 5 essential checks.
So we have now gone through 5 of the most important considerations that will help you find the most suitable and best health insurance plan for you and your family.
Additionally, we looked at 6 other variables which might bias your decision making. These should only be considered by you once you have checked off the 5 most essential checks.
I reckon an hour of research on websites like ETMONEY or Policybazaar or an Insurer’s website should be good enough to arrive at which is the best health insurance plan for you. And the one that will save you a lot of heartburn, metaphorically speaking, in the future.
And remember – Safety First