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    IRDAI proposes to restrict proportionate deduction in health insurance claims to help policyholders

    Synopsis

    In most health insurance policies, if the rent of the room taken by the insured exceeds the rent covered in the policy, then the hospital bill is not reimbursed fully. The insurer subjects the bill to 'proportionate deduction'.

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    Insured may get higher amount of health policy claim
    The Insurance Regulatory and Development Authority of India (IRDAI) has proposed changes in norms which govern how much of hospital bill is reimbursed to a health insurance policyholder in case of a claim. The proposed changes are expected to benefit policyholders with insurance policies which have sub-limits.

    In most health insurance policies, if the rent of the room taken by the insured exceeds the rent covered in the policy, then the hospital bill is not reimbursed fully. The insurer subjects the bill to 'proportionate deduction'. The proposed changes aim to restrict this proportionate deduction which would lead to, in most cases, the insured being able to get a higher percentage of the bill reimbursed by the insurer.

    How it will benefit the policyholder
    The proposed changes will benefit those policyholders who have sub-limits in their health insurance policies. Majority of health insurance policies have sub-limits and that is the reason why your claims are generally partially paid if you opt for a hospital room (during hospitalisation) with rent higher than what is covered/provided for in the policy.

    Sub-limits in a health insurance policy means the maximum coverage that the insurer is liable to pay for different medical expenses such as room rent, doctor fees, surgery cost, etc., during the hospitalisation. The sub-limits are so called because they limit the amount that is reimbursable by the insurer for a particular type of expenditure forming a part of the total hospital bill.

    Naval Goel, CEO, PolicyX.com said, "It is a beneficial move for the policyholders. As associated medical expenses which include the cost of medicines, cost of implants and medical devices, and cost of diagnostics are not allowed to be part of the proportionate deduction; it will help the insured in a far better way. With the help of the same, now the insured will get better coverage and have to pay less from their pockets. It will allow the insured to grab better services at the hospital."

    What the IRDAI guidelines state
    The regulator has issued draft guidelines or 'Exposure draft' proposed to be implemented in this regard. The regulator has sought comments on this exposure draft. As per this draft, it is proposed to:

    1. Where as part of product design, insurers propose proportionate deductions of the associated medical expenses when a policyholder chooses a higher room category than the category that is eligible as per terms and conditions of the policy, insurers shall define 'associate medical expenses' in the terms and conditions of policy contract.

    2. The following expenses are not allowed to be part of the definition of 'associate medical expenses.' This means that these costs will not be subject to proportionate deduction.
    • Cost of pharmacy;
    • Cost of implants and medical devices;
    • Cost of diagnostics.

    3. The IRDAI draft guidelines state that insurers shall not recover any expenses towards proportionate deductions other than the defined 'associate medical expenses' while processing claims.

    4. As per these draft norms, insurers shall ensure that proportionate deductions are not applied in respect of the hospitals which do not follow differential billing based on the room category. Towards this, the policy conditions shall be specified that the proportionate deduction would be applied only in case of a hospital that follows differential billing practice based on the room category occupied by a patient.

    What is proportional deduction?
    How much you can get as reimbursement for hospitalisation bills depends on the room rent limit of your policy. So, when you are hospitalised and take a room with a daily rent higher than the policy's eligibility, the insurer will deduct the amount by which the rent is higher than the permissible rent from the bill. However, the amount of other medical expenses incurred is also reduced in the same proportion at the time of reimbursement. This is done because often the cost of various medical procedures, doctors' visits etc. is billed higher for rooms with higher rent as compared to those with lower rent.

    In essence, if you choose a higher rent room you are charged higher for a lot of other things in many hospitals. Therefore, you must know that room rent limit impacts your health insurance claim, so be careful when choosing a health insurance plan because there are some policies which do not impose sub-limits.

    This way, the insured has to pay up the difference as an out-of-pocket expense because the insurance company doesn't reimburse the amount exceeding the room rent sub-limits.

    IRDAI's proposed guidelines also state that insurers shall ensure that proportionate deductions are not applied in respect to the hospitals which do not follow differential billing based on the room category. Towards this, the policy conditions shall specify that the proportionate deduction would be applied only in case of a hospital that follows differential billing practice based on the room category occupied by a patient.
    ( Originally published on Mar 17, 2020 )

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