Why are special covers necessary?
I have been recommending a fixed benefit cover for Covid 19 treatment for some time now.
The reasons for the recommendation are simple.
While IRDAI did make sure that all health insurance policies cover Covid 19 treatments, there was yet another problem. People still reported large out-of-pocket expenses amounting to 25-40% of the bill ranging from 75K to 200K!!
These out of pocket expenses or deductions are attributed to
- Proportionate deductions on account of low room rent limits in policies as compared to high room charges levied by hospitals.
- Special charges for isolated zones, that are considered part of room rent and hence not paid separately by insurers.
- PPE/Hygiene charges that are excluded in health insurance contracts.
- Ad hoc charges levied by hospitals, that insurers won’t pay.
So having a cover that pays a fixed benefit on diagnosis can really help to keep your such out of pocket expenses minimal.
What are the special plans that can help cover out of pocket expenses?
Honestly, none. There is no cover available today that adequately covers these deductions. There were certain insurance plans but they are no longer available on those apps/websites. A couple of insurers still provide fixed benefit covers, but then the cover available is meager (Rs. 25K to Rs. 50K)
Apart from these, there are reimbursement plans that provide a hospitalization cover. However, these are nothing but cheap substitutes for a comprehensive long term health insurance policy.
Here’s a summary of the leading special Covid 19 insurance covers available through various apps (as on 28-06-2020)
What does the “Corona Kavach” policy cover?
After considerable discussions, the IRDAI recently released a circular that requires Insurers to compulsorily offer special Covid 19 health insurance. The circular comes with pre-defined benefits, terms, and conditions. Here are the details.
Corona Kavach Insurance
The product is a regular health insurance policy providing hospitalization cover for Covid 19 treatment with a 15 day waiting period. The policy is available with sum insured options ranging from 50K to 500K.
The policy comes with additional benefits that help solve many gaps in the traditional policy, hence reducing the deductions we spoke about at the beginning of this post.
Corona Rakshak – The Fixed Benefit Policy
Then there is another policy construct”encouraged” by IRDAI. This offers fixed benefit coverage of up to Rs. 2.50 Lakhs. It requires a minimum 72-hour continuous hospitalization on a positive diagnosis of Covid 19. However, this one being encouraged not mandatory, may not be offered by insurers considering that a few of them withdrew fixed benefit insurance in the recent past
What’s the flipside?
Both these policies are short-term (available for 3.5, 6.5, and 9.5 months) and not renewable. All policies last till their fixed tenure. All of them terminate not later than 31st March 2021. Since there is no clear sight of a Covid 19 vaccine, we may require coverage beyond this period. Also, a new health insurance buyer cannot port out from this policy later with continuity benefits.
How easy would it be to get this cover?
Apart from the above negatives, here are some areas where customers may have to wait and watch:
Availability: The guideline does not mandate the channels through which these products would be made available. Hence whether Insurers will be able to make these products available online by 10th July is a big question mark. For your information, the mandatory Arogya Sanjeevani Health Insurance is still unavailable on the websites of some leading insurers.
Underwriting: Cover for comorbidities in pre-existing conditions sounds excellent. However, on the ground, it may prove difficult for insurers to price and cover high-risk individuals with pre-existing diseases. Be prepared for some stringent underwriting, especially for senior citizens and people suffering from chronic lifestyle diseases.
Pricing: Insurers do not have clarity on details regarding the treatment, prognosis around Covid 19. There is a lack of data around patient profiles, cost of treatment, morbidity. This makes it difficult to price insurance plans. My guess is insurers will most likely err on the side of caution and overprice these products.
Why did IRDAI get into product design?
Of course, the regulator should let market forces play out, leave product design to the manufacturer.
That’s what it did.
The regulator did issue circular requesting insurers to “design products covering the costs of treatment for Corona Virus“
Did insurers abide?
Apart from the sachet products, there have been no special products launched. What’s more many of these sachet products have weird exclusions. Here are some exclusions: “If Insured beneficiary having infections in last 30 days. O r this one “If Insured beneficiary has travelled to domestic location having outbreak of Coronavirus Disease.” Such wordings end up puzzling insurance folks like us, leave alone the customers. I wrote about this here.
In the absence of any Covid 19 product, IRDAI (maybe under Govt. pressure) seems to have had no choice. They hence decided to push insurers to offer a pre-defined, pre-named Covid 19 health insurance policy.
But, Insurers have their own constraints.
On the other hand, insurance companies have their own valid reasons.
- Insurers do not have a clear view of the long term impact of Covid 19 on their P&L. Remember, even the current health insurance is not priced for the additional burden of Covid 19 claims.
- It is tricky for an insurer to price for comorbid conditions, especially for people with pre-existing diseases. The same is the case with providing no room rent limit in the absence of any regulations on hospitals.
- Insurers have appealed to the Government, early April, to standardize protocols, treatments, and pricing for Covid19 at hospitals. There seems to have been no significant movement here.
- General insurers, especially the private ones, are affected by the loss of revenue from the drop in Car Insurance sales.
- Finally, insurers are private businesses. They are responsible to their shareholders. Some are even listed, and face pressure from institutional investors, analysts. Every private business is conserving cash in these times. Why would a private business risk introducing a product, where there is no sight on the financial feasibility
What is the probable solution?
There are conflicting interests playing out.
a) People want better insurance cover for Covid 19 treatments. IRDAI wants to serve people’s interests.
b) Insurers are nervous, want to survive first, protect shareholders’ interests. What is the solution?
How do you solve this puzzle?
Here’s my take:
Leave Private insurers alone: Unless the government funds the scheme, no privately-owned enterprise should be forced to offer products. Private businesses are here to create wealth for their investors, value for their customers.
Better regulation on policy wordings: While insurers cannot be forced into offering policies, there should be some accountability on the wordings for sure. They cannot go scot-free with random wordings. Policies, including Group insurance marketed to individuals/SMEs, should be proactively regulated.
Finally, the Government should step in:
Get Public healthcare in order: The government needs to make a roadmap to create better healthcare infrastructure. One that provides affordable quality healthcare to individuals. Would any member of parliament admit their family into a Government hospital, say a Kasturba for treatment. Why does everyone dread going to Government-owned hospitals?
Effective healthcare regulations: The urgent need to effectively implement healthcare regulations does not need to be explained. Regulations need to ensure transparency, curbs on prohibitive pricing, unnecessary investigations, surgeries. The Clinical Establishment Act 2010 was a good initiative but is implemented only a few states. Read more why we need medical tribunals
Pradhan Mantri Corona Kavach Yojana: The Government of India should offer the special Covid 19 policy through their PSU Insurers. It might as well fund the scheme, fix the pricing, underwriting, and call it the Pradhan Mantri Corona Kavach Yojana. After all, the Government retains ownership of these companies, to ensure insurance is fair and accessible to every citizen in the country. This could probably be the best available solution for all products the government wants in order to address socio-political issues.
What does this mean to an insurance customer?
As a customer, you should give your full attention to things that are in your control.
- Start and maintain an emergency fund. One that takes care of financial hiccups including expenses, loss of earnings not covered by insurance, or the government.
- Ensure you are adequately covered for Health Insurance. Upgrade your policy to at least Rs. 10 Lakhs per adult.
- Ensure there are no room rent restrictions in your policy.
- Follow all the healthcare, immunity, and fitness advice that is coming our way from credible professionals.
These are cardinal rules, that will not change with or without Covid 19 special policies.
For the special covers, we will have to wait and watch till the insurers launch these products on July 10th. If you want to stay updated, you can subscribe to our newsletter below.
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What’s your view?
Doesn’t matter whether you are a customer, financial planner, or an insurance industry professional – Would love to hear your opinions in the comments section below.