Health Insurance actions to survive through the COVID-19 crisis.

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A regular health insurance may not be enough.

I have been talking about this for a while now. While your regular health insurance policy is super important for covering short term and long term healthcare expenses, it may not be enough to cover a COVID 19 hospitalization bill.

There are three major reasons that can burn a hole in your pocket inspite of you investing in and owning a health insurance policy for years.

Special Costs for COVID 19

A COVID-19 treatment requires special hygiene, PPE, isolation, separate dedicated staff, waste management. Hospitals are charging for these separately in their bill. A health insurance policy, however, considers these charges to be a part of the room charges, and do not account or pay for it separately. It’s like housekeeping is a part of the deliverables when you rent a hotel room for a day, you don’t pay separately for housekeeping. PPE and other charges as you would have read can as big as Rs. 5000-8000 a day, and hence can cause serious dent on your savings.

Room Rent Limits.

As you would have already heard on social media, Hospitals are also charging a bomb for room rent. Many health insurance policies cap the per day room rent, and hence the chances of significant deductions in your claim.

What’s worse,these claims will also attract something called “proportionate deduction”. Which means not only will the customer bear the difference amount between paid room rent and eligible room rent, but also bear proportionately on all other associated expenses.

For instance if you are hospitalized for 10 days; the room rent limit in the policy is Rs. 5000 and the actual room rent charged is Rs. 10000. In this case not only will the insurer deduct Rs. 5000 X 10 days = Rs. 50000, but also deduct 50% for expenses that are linked to the room charge structure in the hospital like doctor visits, surgery costs, diagnostic tests etc. (called associated expenses)

Reasonable & Customary Charges

In absence of a strong healthcare regulation that standarizes healthcare costs, Insurers are invoking the “Reasonable & Customer Charge” clause in the health insurance policy contract that protects themselves from unreasonable billing from the hospital.

As per this clause an insurer is only liable to reimburse for charges that are reasonable and customary for a hospital of a similar grade/certification in the same geographical location.

So if a Grade A hospital certified by NABH or similar certification body charges say Rs. 10000 per room per day, and your hospital which is of similar grade and in the same geo location charges Rs. 18000. The insurer can invoke the reasonable and customary charge clause and deduct Rs. 8000 per day from room rent.

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Insurance Industry has standardized the charges it will pay.

Since what is reasonable can be subjective intepretation of each insurer, very recently the general insurance industry got together to standardized the costs it will pay for various line items in a hospital bill. This standardization will be implemented under the reasonable and customary clause we discussed above.

Now, if hospitals too agree for these standardized costs, then life would have been easy. But hey this is 2020 remember, so while Insurers have been working to enforce these standard charges with hospitals, hospitals have been actively resisting these standard rates. This will for sure result in disputes. No prizes for guessing who will bear the remainder of what the insurer does not pay.

But what if your policy does not have any caps on Room Rent?

While, people with room rent limits will have to bear with significant deductions, the rest of you with a policy without room rent limit do not get to breathe easy. Here’s where I break the bad news. Please don’t hate me for this but invoking the reasonable and customary charges clause, Insurers will apply standardized rates in spite of your policy having no limits or caps on room rent. You may hence have to bear deductions in your health insurance inspite of having a comprehensive no room rent cover.

Not convinced yet?

Let me throw some numbers. Here is a recent report in The Times of India that details the staggering numbers around COVID claims registered and settled.

From this table, if we compare the average claim reported (1.64 Lakhs) vs the average claim settled (0.80 Lakhs), the average value of deduction in every claim is close to 50%. Yes, the average deduction in claims is a scary 50%.

While there could be other reasons why the % is high – for instance, if large claims are pending approval, then the % of claims settled (in value) could be low. Yet, even after such numbers are factored, the deduction % will remain alarming!

Hence, the need for a supplementary cover

That’s where I come to my point around the need for a short term supplementary cover over your regular health insurance to wade through these unprecedented times.

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IRDAI recently designed the Corona Rakshak Health Insurance policy.

This is a short term supplementary policy designed by IRDAI that pays you fixed cash benefit of up to Rs. 2.50 Lakhs per person on the occurence of the following events

This is a short term supplementary policy designed by IRDAI that pays you fixed cash benefit of up to Rs. 2.50 Lakhs per person on the occurence of the following events

  • You are diagnosed positive for Covid 19 <and>
  • You require hospitalization of more than 72 hours

This fixed cash can help provide much required relief to survive through these large deductions as well as be a source of replacement income, especially for the self-employed.

This fixed cash can help provide much required relief to survive through these large deductions as well as be a source of replacement income, especially for the self-employed.

Insurers have been encouraged to offer this policy to customers. As we speak, very few insurers provide this policy.

We have found Future Generali and Iffco Tokio providing this policy on their platform at attractively priced premium, but on the condition that you don’t suffer from any disease or health condition?

Premiums for 9.5 Months 65 years age 35 years age
Future Rs. 3293 770
Iffco Rs. 4538 2555
Rates as on 23/07/2020 | Premiums inclusive of taxes.

What are the options for people suffering from chronic ailments

If you are suffering from a chronic lifestyle ailment like Hypertension, Diabetes then you may find it very difficult to get Corona Rakshak.

In that case, another policy again designed by IRDAI – called the Corona Kavach can work for you. Every insurer is supposed to offer this policy without exception.

But note, Corona Kavach is not a fixed benefit policy – it is a short term insurance that reimburses actual hospitalization expenses – just like your regular health insurance, albeit only for COVID 19 hospitalization.

The benefits of this policy are that:

  • it does not have any room rent limit.
  • The policy will overs PPE, mask and other charges separately.
  • The policy wordings do not have the mention of the “reasonable and customary clause” I talked about earlier. (I really hope this is not out of oversight)
  • Most importantly, it covers hospitalization for co-morbidities even in case of pre-existing diseases.
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So, in case you have a chronic disease, and god forbid you are hospitalized for COVID 19, this policy can provide way better coverage with lower out of pocket expenses than your regular health insurance.

Currently National Insurance and Max Bupa are the only insurers not blocking purchase of Corona Kavach for people who have existing diseases. You can opt for these and get your supplementary cover, before they change it.

Here’s when you may not need Corona Kavach – even if you have chronic disease

The only scenario when you have pre-existing disease and can avoid buying Corona Kavach is in the following conditions.

  • You have a health insurance with coverage of more Rs. 7 Lakhs per adult and
  • Your health insurance does not have a room rent capping and
  • The health insurance was bought long ago, and the waiting period of pre-existing disease is completed, and hence you are covered for Pre-existing diseases.

More details about Corona Kavach

You still need long term health insurance.

As you are aware, Corona Kavach/Rakshak are short term policies that cover only COVID 19 hospitalization. You still need to invest in a regular health insurance that provides you lifelong comprehensive cover for hospitalization expenses for all kinds of diseases, injuries.

Reports suggest there are multiple health complications that can arise once you have recovered from COVID-19. Here’s an article which says COVID19 recovered are returning to hospitals with heart and lung problems.

Hence, it is very important to invest in a long term health insurance with the following minimum configuration.

  • Coverage of at least 7-10L per adult. So if there are 2 adults a 15-20 L health insurance cover.
  • As far as possible, buy a policy without any room rent limit, or other financial limits like a copay.

What is the immediate actionable right now?

So do I buy Corona Rakshak or do I upgrade my health insurance?

The steps you need to take between the special Corona policies and regular health insurance can be very confusing.

We have tried creating a visual guide on the way forward. Just follow this, and you should be fine.

If you have any questions you can always write to us in the comments section below or tweet to us @BeshakIN.

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Mahavir Chopra
Online Insurance (aka #insurtech) since 2005 | Chartered Accountant | Ex. @Coverfox, Marsh, EY | Writes for ET/Mint/MoneyControl/Business Standard
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