22 Oct 2016

What You Should Look for When Buying Medical Insurance

Deciding which medical insurance policy to buy is complex. There are sub-limits, exclusions, waiting periods, co-pays, deductibles, TPAs, and so on.

This mess is artificially created by insurance companies to avoid paying claims. No customer has asked the insurance company for exclusions or sub-limits. Insurance companies put in tons of fine print to cheat their customers.

Given this complexity, what should you look for in a policy? This post cuts through the bullshit and tells you what features to look for. (This is based on an excellent primer my financial advisor, Vipin Khandelwal, wrote.)

No deductible or co-pay

A 30% co-pay means that each time you make a claim, the insurance company will reimburse only 70% [1] [2]. When I was offered such a policy, my answer was that I'll go for a 100% co-pay, and not pay the insurance company any money by buying such a stupid policy.

Opt for a policy that doesn't have a deductible or co-pay.


Private room

Public sector insurance companies are especially prone to this: they limit your daily room rent [3] to 1% of the sum insured. For a 1.5 lac policy, that's 1.5K, which is a joke given that you can end up paying ₹8000 for the cheapest private room in a good hospital. So, you have to pay the remaining ₹6500 out of your own pocket [4].

In this case, you're paying 80% out of pocket. Why then have insurance at all? If you can pay 80%, you can pay 100% as well.

Go for an insurance policy that covers the cost of the cheapest private room, no matter what that may be [5]. Don't accept a rupee-based limit like ₹7000 per day [6].

Most insurance policies (excluding the public-sector clowns) entitle you to a private room.


No sub-limits based on specific diseases or geography

A sub-limit based on diseases means that even if your sum insured is 10 lac, in case of cancer, the company will reimburse only 3.5 lac, for example. Why then are you buying insurance for 10 lac?! It defeats the purpose. This is not a hypothetical example — I saw this in a policy. Given that a cancer treatment can cost 30 lac, this insurance policy is a joke. Even 10 lac isn't enough, to say nothing of 3.5.

A sub-limit based on geography means that you can avail of the entire sum insured only in some parts of India. In others, you have less coverage. This is like a bank account that lets you withdraw all your money only from some ATMs.

You don't want a sub-limit, whether based on specific diseases or geography.


Shortest waiting period for pre-existing diseases

If you have a disease when you apply for insurance, you have to wait a number of years before you can make a claim if you're hospitalised for treatment for that disease. This is usually four years, but other insurance companies offer waiting periods of three or two years.

If you have a pre-existing disease, buy a policy with as short a waiting period as you can get. If you don't, this doesn't matter.

This clause is unfair — if I pay the insurance company this year, I expect to be covered completely this year. If phone companies worked like this, when you get a new connection, you won't be able to make STD calls till the fourth year.


Few time-bound exclusions

Most policies have a list of diseases that are excluded for the first two years. I'm told these are diseases that develop gradually, with plenty of advance notice and visits to the doctor before it's finally diagnosed.

In addition, some policies exclude other diseases, like hypertension for a year and half. This is different from the pre-existing diseases clause in the above section. Here, we're talking about being diagnosed with the disease after you buy the policy. If the hospitalisation happens in the first year and half, your claim will be denied.

Opt for a policy that has as little of this bullshit as possible.


No TPA

TPAs, or third-party administrators, are outsourced companies that process claims. They add a whole new layer of bureaucracy and incompetence on top of the bureaucracy of the insurance company and that of the hospital. Recently, when a claim was denied, I made two calls to the TPA, and was given two different reasons why the claim was denied. And a third by the hospital.

TPAs do nothing for you, and only anger you. Both TPAs I had to deal with, UHCP India and Good Health, sucked.

Go for an insurance company that directly deals with you. Any company I pay I expect service from. If they can't serve me directly, I wouldn't want to pay them.


If possible, restore / recharge

Suppose you have insurance for 10 lac, and you're hospitalised. You recover and go home, but the bill comes to 10 lac, exhausting the cover. Then, later the same year, you're hospitalised again. Normally, you'd have to pay everything out of pocket. But if your policy offers restoration, the policy gets restored to its full value, for use the second time. It's as if you'd bought insurance for 20 lac.

There are some limitations, though: the second hospitalisation has to be for a different disease. Or, if it's a family floater, for a different person in the family. Recharge doesn't help if the same person is hospitalised twice for the same reason. Recharge also doesn't help if you get a single bill for 20 lac rather than two bills for 10 lac each. Recharge can also happen only once: it doesn't help with a third hospitalisation the same year.

Still, recharge is an extra benefit. You don't have to pay extra for it, which is great [7]. For once, insurance companies have come up with something useful, rather than yet another way to avoid honoring a claim.

If possible, opt for a policy that offers restore / recharge.

Summary

Opt for a medical policy that has no deductible or co-pay. No sub-limits, whether based on diseases or geography. It should entitle you to a private room no matter the cost. It should have the shortest possible waiting period for pre-existing diseases (if you have any), and few time-bound exclusions. It shouldn't have a TPA. If possible, it should offer the restore/recharge benefit.

Further Reading

If you want to dig in more about what various policies offer, you should read Vipin's primer. I haven't come across a better resource.

If you want to know how much medical insurance to buy, read this post. Insurance for higher amounts is a great deal, counter-intuitively.



[1] A deductible is similar in principle, but different in details. A deductible of 1 lac means that the company won't reimburse the 1st lac of claims made during the year. If you claim 3 lac, you'll get 2 lac. Once your hospitalisation expenses cross the deductible, the company will reimburse the whole amount you claim. Unlike a co-pay, where you always have to pay some amount out of your pocket.

As you can see, they're different. And measured in different ways: a co-pay is measured a percentage, while a deductible is measured as a rupee amount.

[2] Medical companies, and the IRDA that's in cahoots with them, have deceitfully classified many medical expenses as non-medical, like dietician's charges, surgical sloves and gauze, and so on. These can easily turn out to be many thousands of rupees. You always pay 100% of these.

Worse, I think the insurance company pays 70% of only the remaining items, not the entire bill. If the total bill is one lac of which these "non-medical" expenses are 5K, the insurance company pays 70% of 95K, not 70% of 1 lac.

[3] There are also nursing charges. The hospital may quote the room rent including or excluding nursing charges. For example, one hospital in Bangalore has a room rent of ₹4000 and a nursing charge of ₹3900. They sometimes quote their rent as ₹7900, adding up both, and sometimes quote them separately. Similarly, some insurance companies place a limit on the room rent excluding the nursing charge, and some including the nursing charge. Make sure you're comparing apples to apples.

[4] Worse, hospitals cheat us by jacking up prices of surgery and doctors' fees depending on what class of room you're staying in. A 1.something lac procedure can end up costing 2.something lac if you stay in a higher class of room. So, you're paying extra twice: once as higher room rent, and then again as higher surgical expenses and doctors' fees.

If you're staying in a higher class of room than you're eligible for, you also have to pay a proportional share of surgical expenses and doctors' fees. In other words, if you're paying half the room rent, you also have to pay half the surgical expenses and doctors' fees. Which can be lacs.

[5] Some insurance policies also let you stay in suites, like Apollo Munich. You can splurge. But that means you may not have insurance left over if you fall ill again in the same year. I heard of someone who had Apollo Munich insurance and went to Apollo Hospital, stayed in a ₹40K suite, and everything was good. But he fell ill again the same year, and had to pay the entire amount out of pocket.

When you're sick, it's not the time for opulence. Insurance policies that let you stay in suites are no benefit, and only a risk that you'll make the wrong decision. Besides, other customers will waste money staying in suites, which reflects in higher premiums for everyone.

[6] If you think that's high enough today, it won't be for long, as prices increase.

[7] Yes, it all comes out of the premium we pay, but the last time I checked, the cheapest policy offered restore. It's not as if I had to pay extra for it.

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