Should you top up your health cover?
Topping up health insurance is cheaper than buying a new one, but there are caveats to keep in mind
Even though medical costs are skyrocketing, the average ticket size of a health insurance policy is around 2 lakh—enough to fund small hospitalization costs, but not a serious case such as a heart attack. Therefore, you need to review your health insurance needs and then cover any shortfall.
As you grow older, health insurance becomes more expensive. So, to enhance the cover while keeping costs in check, individuals should consider a top-up health insurance plan. These are cheaper alternatives to regular policies.
A top-up health insurance plan is a regular indemnity plan that covers hospitalization costs but only after a threshold limit is crossed. In insurance parlance, this limit is called deductible—the portion of the claim amount that is not covered by the insurer and which the insured has to pay before the benefits of the insurance policy can kick in.
Here’s an example. If you have a top-up plan of 5 lakh with a deductible limit of, say, 2 lakh, it means that the first 2 lakh of the hospitalization bill will have to be borne by the insured person, and the balance by the insurer.
If you run up a bill of 5 lakh, you can use your individual health insurance policy from insurer A to pay 2 lakh and then use a top-up cover from insurer B to pay the remaining 3 lakh.
The deductible limit makes these plans cheaper. HDFC Ergo General Insurance Co. Ltd, for instance, has a top-up cover called Health Suraksha Top Up and a regular indemnity plan called Health Suraksha. For a 35-year-old under the top-up plan, a cover of 5 lakh with a deductible of 2 lakh would cost around 3,000 as annual premium while the regular indemnity product for 5 lakh cover would cost around 7,250.
Insurers are able to price top-up covers lower as the deductible protects them from minor hospitalization claims, which can be frequent. “We offer our health insurance product Hearbeat as a top-up plan as well. So, if a person opts for a deductible, the same Heartbeat plan would come at a discount. With a deductible of 1 lakh, we offer a 25% discount in premium, and for a deductible of 3 lakh, we offer 45% discount," said Manasije Mishra, chief executive officer, Max Bupa Health Insurance Co. Ltd.
Top-up policies come as individual and floater plans. A floater plan covers more than one individual in a family and considers the number of people covered as one unit.
Choosing a top-up plan
There are two kinds of top-up plans available. Be careful in choosing. The basic top-up plan covers only “single incidence hospitalization". In other words, if your hospital bill exceeds the deductible during a single incidence of hospitalization, only then is the top-up plan activated. “This does not give the full benefit of a top-up and is more like a high deductible plan," said Mishra. For example, if a person’s hospitalization bill is 5 lakh, a basic top-up plan of 3 lakh deductible will cover the difference of 2 lakh. But if the person gets hospitalized twice in the year, and the first time it costs her 2.5 lakh and the second time 2 lakh, the top-up plan will not get triggered at all. Even as the total bill overshoots the limit of 3 lakh, each instance of hospitalization is well within the deductible limit.
With a floater plan where two members get hospitalized with bills of 2.5 lakh each, the top-up plan will not get triggered at all. Even though the total amount is more than 3 lakh, individually they are within the deductible limit.
Plans such as those offered by Bajaj Allianz General Insurance Co. Ltd, Apollo Munich Health Insurance Co. Ltd and Star Health and Allied Insurance Co. Ltd come under this category.
The second and a more recent version of a top-up plan looks at the aggregate claim. This means it puts together several cases of hospitalization to calculate the deductible limit. In the example above, both the cases of hospitalization in a year would be put together and since the total bill crosses the deductible limit of 3 lakh, the top-up plan would pay 1.5 lakh.
“About 80% of the market offers only a basic top-up plan. The plans that look at the aggregate claim amount whether individually or through floater option to calculate the deductible limit are the perfect choice as these actually help individuals take an add-on cover at a lower cost," said Kapil Mehta, managing director, SecureNow Insurance Broker Pvt. Ltd.
Under the floater option, the deductible limit will be calculated by bunching together the two claims made by two individuals. In the example above for the floater policy, such a top-up plan would pay 2 lakh, after the base policy pays 3 lakh.
Many insurers offer this improved version of top-up health insurance—HDFC ERGO General Insurance Co. Ltd, L&T General Insurance Co. Ltd, Max Bupa Health Insurance Co. Ltd, the new entrant CignaTTK Health Insurance Co. Ltd and United India Insurance Co. Ltd are some.
Some of these plans, however, may insist on a base cover. For instance, the top-up plans offered by Max Bupa need you to submit details of a regular health insurance plan so that the insurer can top-up that plan. Some plans only look at your medical expenses, paid directly or through an insurance policy, to calculate if the deductible has been exhausted.
When to buy a top-up?
While top-up plans are a cost effective way to increase health cover, often, these may not be cashless. Even though insurers offer the cashless option in these plans, it is difficult to implement. “Top-up plans work largely as reimbursement plans because the insurer needs details of all the medical bills to assess whether the policyholder has paid the deductible limit herself or through a health insurance policy. Cashless is possible provided we get proof, but reimbursements are more prevalent practically," said Mukesh Kumar, head-member of executive management and head-human resource, strategic planning and marketing, HDFC Ergo.
If your health cover is negligible, you are better off buying a regular health insurance policy. “Given that most top-up plans would work on reimbursement basis, these plans don’t immediately solve the problem of paying medical bills. Customers, therefore, need to look at a top-up only when they have a decent base cover. Top-up should be used to increase the base cover to compensate for inflation," said Mehta. In fact, top-up plans are most cost-effective when the deductible is high. That’s because the premiums actually depend on the cover provided by the base plan. Typically, minor claims are more frequent than big claims, so a top-up plan that comes with a higher deductible is cheaper than one with a lower deductible.
Given the spiralling medical costs, simply having a health insurance policy is not enough. You have to ensure that the cover is adequate. A top-up plan is a good way to do this.
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