Proportionate deductions in health policies to get standardised

In a bid to further standardise and simplify health insurance, the Insurance Regulatory and Development Authority of India (Irdai) has put out a draft exposure that aims to stipulate recovery of proportionate deductions in respect of various associated medical expenses in health insurance policies.

The regulator said if there is a sub-limit on rooms and the policyholder occupies a room with a tariff that’s more than what he is eligible for, the proportionate deduction on ‘associated medical expenses’ cannot include cost of pharmacy, cost of implants and medical devices, and cost of diagnostics. Proportionate deduction comes into force when you pick a room with tariff which is above the allowed room rent cap in your policy. It means that the insurer will cover you for the associated medical expenses in proportion of rent sub limit to actual rent paid.

“Pharmacy cannot be an associated expense because it’s based on maximum selling price. Hospitals cannot charge medicines differentially for two different categories of rooms. Diagnostics which includes scans and doctor’s fees is where there’s always been differential pricing. Irdai is now saying that diagnostics cannot have differential pricing and must not qualify as an ‘associated medical expense’,” said Mahavir Chopra, a health insurance expert. This is however only an exposure draft and Chopra believes that the clause (for diagnostics) will go away once insurers present to the regulator that hospitals charge differentially for diagnostics. “This can only happen if hospitals stop charging differentially for diagnostics,” added Chopra. Implants, typically, are not charged differentially.

The regulator has also asked insurers to list expenses which classify as associated and non-associated. Basically, wherever the hospital is not charging differentially it will all qualify as non-associated expenses. Further, for expenses that are non-associated, there shall not be any proportionate deduction on them. Also, the draft guidelines state that insurers are not permitted to apply proportional deduction on ICU charges because no hospital has different categories of ICU and hence, does not attract differential pricing.

Impact on policyholders

“Standardisation will make it easy for policyholders to understand how much they’ll get paid and for what kind of expenses. This will improve overall transparency in health policies and reduce grievances which are very high currently,” said Chopra. “These guidelines will stop any deductions that were happening on non-associated expenses. Proportionate deduction will now be applicable only for associated expenses which will enhance claim amount.”

The move is expected to have negligible impact on premiums because most insurers are now moving towards either having an eligibility capping (type of room) or removing the room rent limits altogether. "Policyholders should, in fact, opt out of policies that have room rent cap because it creates complications and as inflation goes up, the claim amount will keep reducing," said Chopra.