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Irdai betters covid health plan but it still falls short

  • Insurance regulator’s benefit-based plan doesn’t address high treatment costs
  • Clarity is awaited on its pricing and the waiting period. Also, experts say the sum assured may be inadequate

The Insurance Regulatory and Development Authority of India (Irdai) is said to have withdrawn the draft guidelines it issued on a standard covid-19 health insurance product earlier in June and has instead proposed a benefit-based product. Mint has a copy of the new draft guidelines.

The earlier product was a one-year indemnity policy with the option of two add-ons. The draft was sent to all general and stand-alone health insurers, who were asked to offer the product from 15 June. Mint reviewed the draft guidelines and found that it was of little use. Read more at bit.ly/3fgyARp and bit.ly/37pDJDW.

We review the new product for you to understand what it is and whether you should go for it.

What is the product?

The proposed product shall be called “Covid-19 standard individual benefit-based health policy" followed by the name of the insurance company.

It is a one-year benefit-based product. In other words, it will pay a lump sum benefit equal to 100% of the sum insured to the policyholder if he or she tests positive for covid-19 and is advised hospitalization. The minimum sum insured will be 50,000. You can opt for the sum insured in multiples of 50,000, up to 5 lakh.

So if you opt for a sum insured of 3 lakh, on hospitalization for covid-19, you will get a lump sum of 3 lakh. If your hospital bill is higher, you’ll have to bear the spillover. The diagnosis has to be confirmed by a centre authorized by the ministry of health and family welfare.

The policy can be bought for an individual or on a family-floater basis. The minimum entry age shall be 18 years and the maximum 65. Dependant children shall be covered from the age of three months to 25 years.

It provides one add-on: a quarantine cover. If the insured person is quarantined due to suspected infection, then 50% of the base sum insured shall be payable. However, if the policyholder is diagnosed with covid-19 after the settlement of the add-on benefit, then he or she will be eligible only for the balance amount of the total policy benefit.

Will it benefit you?

Insurers we spoke with believe that since the number of covid-19 infections is spiking, a benefit-based policy could come at a high cost. Also, the question posed on the earlier draft still remains unsolved: if a regular health policy is covering the costs for covid-19, why is there a need for a separate one?

“The guidelines have been rolled out due to the fear around covid-19 but my view is that this product still does not address the real issues around the cost of treatment," said Prasun Sikdar, managing director and CEO, ManipalCigna Health Insurance Co. Ltd.

Insurers said the reason why disease-specific policies haven’t done well in the past is because most illnesses are covered under a regular indemnity policy.

However, Sikdar said this product is still better compared with the covid-19-specific indemnity policy that was proposed earlier. Bhabatosh Mishra, director, underwriting, products and claims, Max Bupa Health Insurance Co. Ltd, said, if necessary, Irdai should’ve just asked insurers to offer a covid-19 benefit-based rider with regular health insurance policies and the recently launched Arogya Sanjeevani product.

“From a policyholder’s perspective, I don’t think this product caters to the problem of high treatment costs. Arogya Sanjeevani is a better product because it caters to all the problems at large. It is affordable and will also ensure that health insurance penetration increases because unlike a benefit-based policy, people will want to renew it every year," he said.

Insurers said since the community spread of covid-19 is already happening, launching such a policy now will only push the pricing upwards (the government is maintaining that India is still not in community transmission stage).

Note that Irdai has left the pricing to the insurers. “Unless insurers are able to ride on large numbers, you will not see a benefit in premiums," said Sikdar.

Insurers also worry about covering individuals with co-morbid conditions because they have higher chances of getting infected. Sikdar said some amount of underwriting will be required to deal with this.

“The other concern is about someone who has recovered from covid-19. The clarification has been sought from the regulator on the applicability of pre-existing disease waiting period," added Sikdar. Insurers said it is still unclear if there is a 48-month waiting period.

The cap on sum insured, too, could become a problem, said Mishra. “If the cost of treatment continues to be as high as it is right now, a 5 lakh cover may not really help. The minimum of 50,000 sum insured doesn’t do anything because the average cost of treatment is 2 lakh-2.5 lakh."

Mint take

The product will be helpful compared to the earlier draft policy, as it removes confusion in terms of what is covered and what isn’t. Right now, policyholders are suffering because of inflated hospital bills and insurers not covering costs of consumables such as PPE kits. A defined benefit will remove the problem of different costs.

However, individuals with co-morbidity should wait and watch to understand how insurers will underwrite the product. The pricing will also play a big role in understanding whether the policy makes sense or not.

For now, if you have adequate health insurance, there’s not too much to worry because it will cover covid-19 treatment.

Insurers have been asked to compulsorily offer this product starting 30 June. But experts said that it may not work given that they have another deadline to meet by the end of September—for standardization of exclusions in health policies. Watch this space!

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