Advantages and disadvantages of buying a group health insurance policy

Being a member of a group or an association comes with its own benefits. A lesser-known plus is such memberships allow you to insure your health on favourable terms.

However, the arrangement has its downsides too. Read to know more.

Collective covers
According to the Insurance Regulatory and Development Authority of India (Irdai), such groups comprise persons who assemble with a commonality of purpose or engage in a common economic activity. This includes employer-employee groups as well as members of a professional body, housing society, alumni, social or cultural association, holders of the same credit card product, savings bank account holders of a bank and so on. “Any group that is not expressly formed for the purpose of buying insurance would be eligible for group covers,” explains Sanjay Datta, Chief, Underwriting, Claims and Reinsurance, ICICI Lombard.

IIT Delhi and IIT Madras alumni associations, for example, provide family floater health covers of Rs 5-15 lakh for members. Both cover pre-existing diseases from day one, albeit with some conditions on disclosures for both and a 20% co-pay in case of the latter. Likewise, the Mumbai-headquartered Jain International Organisation (JIO) facilitates group health covers of Rs 2-10 lakh for members. Pre-existing diseases are covered from day one, but with co-pay.

“As the number of members is likely to be large, the premium per member could be lower than that of an individual cover,” says Subramanyam Brahmajosyula, Head, Underwriting and Reinsurance, SBI General Insurance. Moreover, retail policies come with waiting periods for pre-existing diseases, and co-pay clauses for senior citizens. “Lower premium, waiver of medical check-ups, smoother claim settlement and wider coverages compared to retail plans are some of the advantages,” says Jayesh Gadekar, Head, Health and Benefits, Innovative Solutions, Global Insurance Brokers. Insurers could also customise plans.

The workings
To buy a group cover, first approach an insurer. “Guidelines may vary among insurers about the minimum number of members required. Most insurers insist that all members are covered to avoid the issue of anti-selection,” says Brahmajosyula. This happens when only older or less healthy members of the group sign up for insurance cover, increasing the possibility of more and large claims. “A housing society wanting to cover its members under a group scheme should have the approval of the majority of members. If half the members decide to stay out, then the group policy cannot be issued,” says C.S. Sudheer, Founder, Indianmoney. com, a financial advisory firm.

Age, demography, group size, sum insured and scope of coverage are some of the criteria insurers use to evaluate a proposal. These factors also determine the premium. “Adverse demography and very low participation may act as deterrents,” says Mohit Agarwal, MD, Employee Health & Benefits and Affinity, Marsh India Insurance Brokers . Some insurers might quote a higher premium if the proportion of older members is higher or the sum insured is large. “Others might choose to avoid such proposals,” says Brahmajosyula.

Under one umbrella
Pros

• Waiting period for pre-existing diseases waived.
• Cover for all members, including older individuals.
• Customisation like tailor made list of cashless hospitals, maternity coverage and new-born baby cover allowed.
• Lower premiums due to higher negotiation power of the group.

Cons

• Higher claims make the cover unviable over the mid- to long-term.
• Higher and more number of claims could lead to higher renewal premiums or insurer's withdrawal.
• Higher payouts could lead to insurers and group administrators introducing co-pay and other restrictions.
• Premiums can increase sharply in future based on claim experience, resulting in discontentment amongst members used to lower premiums.

Once the proposal is accepted, a master policy, in the name of the group, is issued. Individual members get a certificate of insurance, which detail features, premiums and clauses. Newer members can enroll during the year. If you decide to exit the group, you can switch to the insurer’s individual policy on fresh terms and conditions, but carry forward the continuity benefits.

Beware of risks
While the benefits are evident, such covers come with their set of risks. The key threat is the plan becoming unviable. “Initially, the group tends to be enthusiastic and a large number of members sign up. They negotiate a lower premium, not realising that one bad year of high claims could upset the applecart,” says Mahavir Chopra, Director, Health, Life and Strategic Initiatives, Coverfox.com.

The unique selling points (USP) of a group policy – PED cover from day one and coverage for older individuals— often lead to issues. “If the claims ratio is too adverse, the insurer can notify the group to either pay the additional premium or accept cancellation,” says Sudheer.

The new insurer comes on board on its own terms. “In such cases, the group’s negotiation power could go down,” adds Chopra. The group will either be forced to accept the rates, potentially earning members’ discontent, or abandon the cover entirely, leaving those solely dependent on the policy unprotected.

If you are in charge of a group and are managing a policy, take the cover’s sustainability over the long-term into consideration while negotiating premiums. “Mandatory cover to all members to ensure proper demographic mix as well as effective risk control measures can ensure portfolio’s sustainability,” says Agarwal.