Advantages and Disadvantages of Health Insurance

A study by PHFI (Public Health Foundation of India) revealed a startling fact - high out-of-pocket (OOP) medical expenses pushed an astonishing 55 million Indians into poverty in 2017 . This is more than the population of some countries like Spain and South Korea!The above statistic represents the saying: "Many in the middle class are one hospitalisation bill away from poverty".And yet, only about 11.5 crore Indians have private Health Insurance, while another 14 crore are covered by social Health Insurance schemes, such as ESIS (Employee State Insurance Scheme).

In September 2018, the government launched an ambitious subsidised health insurance scheme for specific segments of the population (through its Pradhan Mantri Jan Arogya Yojana or PM-JAY scheme under Ayushman Bharat). But even then, out of an eligible population of 70 crores, about 15 crore e-cards have been issued, according to a Niti Aayog report .This means that nearly 100 crore people in India do not currently have Health Insurance . And this is despite medical inflation often running in double-digit percentages in India.The conclusion: buying Health Insurance is a no-brainer. But if you do not have a Health Insurance policy and are still unconvinced, or would like to know more, allow us to make the case.

Imagine that you or a family member is suffering from diabetes. The condition could likely create recurring or periodic medical costs at some point in the future. A disease like diabetes is also the source of other health complications that could lead to hospitalisations down the line.Surely, you do not want to keep paying significant amounts that will drain your savings. Here's where Health Insurance comes in.Health Insurance is a financial product that can help you meet healthcare expenses (including medical and surgical) arising from various ailments. Basically, it is a contract between you (the insured) and the insurance provider (or the insurer) wherein your insurer promises to cover your future medical expenses in exchange for regular premium payments that you make.Health Insurance plans differ based on various parameters, such as the compensation method, the claim process and the corresponding exclusions from the policy. For example, your insurer will either compensate you for medical expenses or directly pay the healthcare provider for the cost incurred during treatment. In some cases, such as permanent disability, the claim can also be in the form of periodic payments, which act as an income for the benefactor. Now let's dive a little further into the details.

Each individual's health concerns are unique, which is why not all Health Insurance policies are the same. You need to pick one that suits your needs best. Health Insurance can be split into two main categories – Indemnity Plans and Definite Benefit Plans. Each has its own set of plans with key features.

1. Individual plans As the name suggests, this plan covers individuals, including yourself, your parents, spouse, and children. Under this cover, each individual is insured for a specific amount. For example, if you have individual policies for you, your spouse, and your parents for a sum of ₹10 lakhs, it means each of you can claim a maximum sum of ₹10 lakhs per year against this Health Insurance policy.
2. Family Floater plans As indicated by the name, this insurance plan covers your family. Unlike the individual plan, wherein each member is separately insured, this plan covers the whole family under a single policy. Thus, the total insurance amount is shared among the members included in the plan.Let's say you have a Family Floater plan of ₹30 lakhs covering you, your spouse and two children. You undergo surgery costing ₹10 lakhs. You can claim the ₹10 lakhs as per the policy norms, and the remaining ₹20 lakhs will be left available for contingencies. Hence, the sum is not equally split among all members but is 'equally claimable' by all members of the plan. The insurance premium in this plan is lower than in the individual plan.
3. Senior citizen plans These policies are specifically designed to cater to the needs of senior citizens as their medical needs differ from the other age groups. Some plans go one step beyond hospitalisation, offering benefits for psychiatric treatment. Senior citizen plans normally carry higher premiums as elderly people are more prone to medical conditions. It is also why these policies require a full-body check-up before they can be purchased.
4. Mediclaim We often confuse the word Mediclaim with Health Insurance, but they are not the same. While a standard Health Insurance policy offers comprehensive coverage for healthcare expenses, including hospitalisation, pre-and post-hospitalisation expenses, diagnostic tests and other benefits, a Mediclaim policy only provides hospitalisation expenses.

A Definite Benefit Plan is typically funded by your employer and designed to provide specific benefits upon retirement. It also specifies the retirement benefits well in advance. Since this information is available beforehand, a Definite Benefit Plan helps you plan your future finances.

1. Critical illness plans Ailments stemming from the current lifestyles have become rampant. You are more susceptible to cardiac arrests, cancer, organ failure, stroke, etc. These specific illnesses are critical and life-threatening, which is why their treatment is commensurately more expensive. You can buy a Critical Illness plan as an add-on (or rider) with the existing Health Insurance plan or as a standalone policy. Since the coverage of this policy is illness-specific, the claim is also generally made as a lump sum upon diagnosis.For instance, the Aditya Birla Critical Illness Plan is offered in three tiers, so you do not pay for more than what you need and covers up to 64 critical illnesses with an insurance cover of up to ₹1 crore.
2. Personal Accident plans This plan only offers coverage in the event of an accident. The treatment after such mishaps can result in a financial burden for yourself and your family. It offers financial protection if your accident results in partial or complete disability or death. The frequency of compensation is determined by the norms of the chosen plan. With the Aditya Birla Personal Accident Insurance , you can claim up to 100% of the insured amount and even choose to receive it as monthly income if you cannot work after the incident.
3. Hospitalisation cash benefit plan This plan is more tailor-made and aims to ease your financial burden when you incur a daily expense during hospitalisation. For example, let's say you are admitted to an ICU where daily expenses are to the tune of ₹5,000. Your insurer will help you with a daily lumpsum of ₹5,000 for the corresponding hospitalisation period. This plan generally helps when the duration of hospitalisation is long.Plans like the Aditya Birla Hospital Cash Insurance plan compensate you with between ₹500 to ₹10,000 per day (of 24 hours) with no restrictions on use. Additionally, recovery during hospitalisation that lasts longer than seven days is also covered under this plan.

Health Insurance works in a few easy-to-understand steps. Let's check these out:

1. Choose your plan: You can choose an insurance plan depending on your needs, be it for yourself or your family. In India, there are several insurance providers from whom you can choose to avail of their services. If you are already ailing from a critical illness, you should pick your Health Insurance plan accordingly.
2. Premium calculation: Once you have finalised your Health Insurance plan, the insurer calculates the premium for the insured. This is based on your health, age, income, and ailments, if any. Many plans (but not all) require a full-body check-up before the insurance plan is issued. The annual premium payments kick off only after this step is completed.
3. Insurance claim: If you face substantial medical expenses, you can claim your insurance amount in cashless or reimbursement. In the cashless method, you will have to pick a hospital that is partnered with your insurer. The insurer then directly clears your medical bills with the hospital. In the latter case, you will have to initially settle all dues with the hospital, for which your insurance provider will then compensate or reimburse you.

• Your needs You should ideally plan for eventualities that are likely to occur based on your situation, including unforeseen ones that may follow in case you are already suffering from a chronic disease. You should also deep dive into the offered policy to check which ailments it covers. Thorough research is your best friend here.
• Insured sum Once you have decided what coverage you require, assess the medical expenses you may incur if your condition worsens or you meet with an accident (depending on the coverage chosen). It is best to pick an insurance amount that sufficiently covers most expenses without putting you in financial distress.
• Financial capacity The insured sum is only one part of the financial assessment. You must be mindful of your financial situation and choose a Health Insurance plan that offers the required insurance coverage at the least possible premium. If you plan to take Health Insurance at an advanced age, delve into the details of the daily hospitalisation coverage plan as it may suit you better.
• Hospital network The insurer publicly displays a list of partner hospitals on the official website. If you are looking for specialised care, you need to take this step seriously and find out if such hospitals are on the insurer partner list.
• Claim benefits You should also read the minute details and ascertain whether you are getting a substantial benefit from the no-claim bonus. This is the added coverage you get when you do not claim any insurance benefit in a year. The bonus typically gets carried forward and added to the previous coverage and can be accrued to a pre-defined maximum amount.
• Claim Settlement Ratio (CSR) This is one of the most crucial considerations when deciding your Health Insurance plan. CSR is the percentage of claims settled out of the total claims made. So, if an insurer has an 85% CSR, it means the insurer has settled 85 out of 100 claims. A high CSR indicates the insurer's propensity to settle claims in favour of the patients.

Since every Health Insurance plan has a specific purpose and is designed to suit people of different ages and vulnerabilities, each policy has some inclusions and exclusions.

Exclusions

Here are some commonly excluded situations wherein your Health Insurance cannot help you:

1. Hearing and dental treatment (excluded because they typically do not require hospitalisation)
2. Suicide attempt or self-sustained injury (including that from substance abuse)
3. Pre-existing diseases (if you suffer from these before buying the insurance cover, you will have to go through a waiting period before the plan can cover it)
4. Cosmetic surgery (except those required after an accident since they are otherwise not healthcare concerns)
5. Diagnostic charges
6. Specific diseases (read the fine print of the policy document to identify what is not covered).

Also Read : List of diseases covered in Health Insurance

Inclusions

1. Annual health check-ups
2. Daycare treatment (includes procedures that do not require prolonged hospitalisation, such as chemotherapy, cataract surgery, dialysis, etc.)
3. In-patient hospitalisation
4. Pre- and post-hospitalisation
5. No Claim Bonus (NCB)

Also Read : Does Health insurance include total knee-replacement surgery?

1. Financial security As mentioned in the beginning, medical inflation in India is the highest in Asia. Keeping up with the exorbitant costs is not generally feasible. Health Insurance provides you with much wider coverage at relatively affordable premiums so that it does not turn out to be a hindering factor during times of emergency. Another advantage is that this plan protects your savings from being depleted quickly.
2. Tailored for various situations A single Health Insurance plan cannot cover all possible situations, nor can it cater to the varying needs of different individuals. Insurers have ensured you get the benefits by customising the premiums, sum assured, and inclusions and exclusions of different policies. Moreover, add-ons are available, so you can add specific benefits to your existing plan.
3. Cashless claims This is one of the most significant advantages of a Health Insurance policy. It is understandable that times of emergency are distressing, which is why insurers directly take up the task of settling your medical expenses with the hospital directly. Should you be admitted to a hospital not included in your insurer's network, you will have to go through the traditional reimbursement process.
4. Tax saving Tax saving is a vital part of financial planning and is, therefore, yet another key advantage of a Health Insurance plan. The premium you pay for your health plan is exempted from tax under section 80D of the Income Tax Act . The exempted premium can be up to ₹25,000 for individuals under 60 years of age and up to ₹50,000 after that. When you purchase additional cover for your parents, you can claim further deductions as well.

Also read: What is The Convalescence Benefit in Health Insurance?

1. Increasing premium Although the benefits offered by Health Insurance plans against the premium payment are significantly higher, an increasing premium with advancing age could be an issue. This is because as you age, purchasing a Health Insurance policy becomes harder, and full-body check-ups become mandatory.
2. Waiting period As stated earlier, pre-existing ailments are not covered right from the start of the insurance period, which is perhaps the biggest disadvantage of Health Insurance. The waiting period ranges from two to four years, during which you will have to bear all costs despite owning a Health Insurance plan. This is why experts advise you to get insured at an early age.
3. Co-payment Some policies explicitly mention a certain percentage of expenses you must bear, with the insurer paying the rest. For instance, if the co-pay clause in your policy mentions 25%, you will have to bear 25% of the medical expenses, while your insurer will bear the other 75%.

Also read : looking for Health Insurance? Know the advantages and disadvantages before making a decision.

• Medical inflation is highest in India, and having a Health Insurance plan is becoming increasingly necessary.
• Health Insurance is an agreement between the insured and the insurer, wherein the former pays an annual premium, and the latter offers insurance coverage based on the policy chosen.
• With Health Insurance, you have the option of cashless hospitalisation or claim reimbursement, depending on whether the hospital is a part of the insurer's network.
• Health Insurance helps you save tax under Section 80D of the Income Tax Act.
• Every insurance plan has some inclusions and exclusions that you must read before purchasing a Health Insurance plan.
• Health Insurance has advantages and disadvantages. Make sure you understand both before purchasing one.