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The insurance regulator aims to restrict this 'proportionate deduction' (Photo: iStock)
The insurance regulator aims to restrict this 'proportionate deduction' (Photo: iStock)

Health insurance policy: This new rule will reduce your out-of-pocket expenses

The Insurance Regulatory and Development Authority of India has recently modified guidelines on proportionate deductions under health insurance policies. Details here

Settling your health insurance claims will become more transparent and simple, starting from October. The Insurance Regulatory and Development Authority of India (Irdai) has recently modified the guidelines on proportionate deductions under health insurance policies. The changes are expected to benefit the policyholders.

How proportionate deduction works:

If a policyholder opts for a room that costs higher than the one mentioned in the insurance policy during hospitalisation, the insurers do not reimburse the full bill. The insurers charge the bill as 'proportionate deduction'. The insurance regulator aims to restrict this proportionate deduction to reduce out-of-pocket expenses of the policyholders. Many coverage benefits under a health plan have sub-limits. Sub-limit on room rent would mean that the insurer defines the maximum amount it will pay towards the room rent. Mostly, this limit is defined as a percentage of sum insured.

According to Irdai guidelines, as a part of product design, insurers propose proportionate deductions of the associated medical expenses when a policyholder chooses a higher room category than the category that is eligible as per terms and conditions of the policy, insurers shall define 'associate medical expenses' in the terms and conditions of policy contract.

The regulator also stated that the insurance companies shall not recover any expenses towards proportionate deductions other than the defined associated medical expenses from the policyholders.

The following expenses will not be part of the 'associate medical expenses'

-Cost of pharmacy

-Cost of implants and medical devices

-Cost of diagnostics

The insurers shall ensure that proportionate deductions are not applied in respect of the hospitals which do not follow differential billing based on the room category.

The insurers shall ensure that proportionate deductions are not applied in respect of the hospitals which do not follow differential billing or for those expenses in respect of which differential billing is not adopted based on the room category, the regulator said.

According to new guidelines, the insurers are not permitted to apply proportionate deduction for 'ICU charges' as different categories of ICU are not there.

How will this move benefit the customers?

"This move will benefit customers and will reduce their out of pocket expenses. Irdai has advised insurers to be specific about what these medical costs would entail and that pharmacy, diagnostic, consumables and other implants, would not be included under any circumstances," said Shanai Ghosh, executive director & CEO, Edelweiss General Insurance.

"Moreover, the regulator has also said that there will be no deduction for ICU admission, since it is a single category. For the insurers, this move will translate into higher claim size," Ghosh added.

These clauses should be incorporated in the new policies filed by insurers on or after October 1, 2020, and for existing products which are due for renewal from April 1, 2021, the regulator mentioned.

Irdai has also asked the insurer to standardize the exclusions — diseases or medical conditions that are not covered under a policy. The insurance regulator made it mandatory for the insurance companies to implement the changes in products with effect from October.

Commenting on the impact of health insurance premiums due to the changes in the policies, Sanjay Datta, Chief-Underwriting, Claims and Reinsurance, ICICI Lombard said, "The regulator has capped the impact of these changes on health insurance premiums. Whether insurers will be subsuming these charges or modifying premiums will completely depend on the performance of the product in question."

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