Deductibles
In an insurance policy, the
deductible is the amount of expenses that must be paid out of pocket before an
insurer will pay any expenses.
Deductibles are typically used to
deter the large number of trivial claims that a consumer can be reasonably
expected to bear the cost of.
By restricting its coverage to
events that are significant enough to incur large costs, the insurance firm
expects to pay out slightly smaller amounts much less frequently, incurring
much higher savings.
As a result, insurance premiums
are typically cheaper when they involve higher deductibles. Deductible is what
makes insurance so profitable.
Copay
Copayment or copay is a payment
defined in the insurance policy and paid by the insured person each time a
medical service is accessed. It is technically a form of coinsurance, but is
defined differently in health insurance where a coinsurance is a percentage
payment after the deductible up to a certain limit. It must be paid before any
policy benefit is payable by an insurance company. Copayments do not usually
contribute towards any policy out-of-pocket maxima whereas coinsurance payments
do.
Though the copay is often a small
portion of the actual cost of the medical service, it is meant to prevent
people from seeking medical care that may not be necessary (e.g.: an infection
by the common cold). The underlying philosophy is that with no copay, people
will consume much more care than they otherwise would if they were paying for
all or some of it.
Co Insurance
In health insurance, coinsurance
is sometimes used synonymously with copayment, but is defined differently – a
copay is typically fixed while the coinsurance is a percentage that the insurer
pays after the insurance policy's deductible is exceeded up to the policy's
stop loss.
It is expressed as a pair of
percentages with the insurer's portion stated first. The maximum percentage the
insured will be responsible for is generally no more than 50%.
Out of pocket maximum
The yearly out-of-pocket maximum
is the highest or total amount your health insurance company requires you to
pay towards the cost of your health care.
Out-of-pocket expenses are what
you pay for health-related services above and beyond your monthly premium.
Depending on your health plan, these expenses may include an annual deductable,
coinsurance, and copayments for doctor visits and prescription drugs.
The out-of-pocket maximum helps
protect you from very high additional costs. In most cases, once you reach your
health plan's out-of-pocket maximum, your insurance company will cover 100% of
the costs they consider to be medically necessary.
Loading in Health Insurance
Loading, in terms of Mediclaim
Insurance means the Insurer (Company) will charge more amount than the regular
premium from the policy holder after a claim has been made.
For example you pay Rs 6,000
annual premium, and now in 4th year you make a claim, then from the 5th year
onwards, your premium will increases by a certain amount which can range from
5% to even 300%. The increase depends on the company terms and the rules.
If the loading is 50%, your premium will increase by 50%. (9000/-
in this case). Loading can apply with every claim you make.
1. ICICI Lombard mediclaim policy
states different slabs for different amounts of claim made.
2. Star Health’s Red Carpet policy
for Senior citizens: makes an option of Co-pay up to 30% but also has Loading
as well.
3. United India (Gold and
Platinum only) and Max Bupa has no loading clauses
Loading challenged in consumer
courts
1. Amina Sheikh, an octogenarian,
was insured for Rs 1.5 lakh for a decade by the National Insurance Co. Ltd.
under its Mediclaim Policy. When her policy was due for renewal in 2007, the
company increased the premium from Rs 5,305 to Rs 32,787. This was done to make
it financially unviable to continue with the policy. Her daughter protested, so
the premium was brought down to Rs 23,845, which too was very high. She was
forced to pay this premium and renew the policy to avoid a break in insurance.
Her daughter wrote to the company demanding an explanation for the arbitrary
increase. The divisional manager replied that the policy now stood cancelled as
Amina did not seem happy with the firm. He also clarified that the premium
doubles immediately when a person crosses 80 years of age and for her, the
premium had been loaded by another 100% in anticipation of claims arising due
to advanced age.
CWA then filed a consumer
complaint. Rendering the judgment on behalf of the bench, the forum president
observed: “Managers of public sector undertakings are duty-bound to take
decisions based on facts and not in an arbitrary and irresponsible manner based
on their emotions.”
The Forum held that the loading of
the premium was arbitrary, unjustified, and contradicted the terms of the
policy, which is deficiency in service and unfair trade practice. The forum
directed the firm to continue the policy by charging Rs 13,112 and to refund
the excess premium collected. It also directed the company to continue renewals
without loading as long as the insured paid regular premium in time. Also,
compensation of Rs 15,000 for mental agony and Rs 2,500 as costs were granted.
Source : TOI
Case Study 2: In Dr Rupali
Shirke’s case, the insurance company loaded her premium by 50%, increasing it
from Rs 7,727 to Rs 11,824 and decreased the sum insured from Rs 5 lakh to Rs
2.5 lakh. This was done because of two claims lodged by her, which were genuine
and settled by the company. This was considered as an “adverse claims ratio” by
the firm. When she protested, the insurance firm ignored it.
CWA filed a complaint challenging
loading of premium and reduction of the sum insured by United India Insurance
Co. Ltd. The Forum held that the firm was bound to renew the policy on the same
terms and conditions. It directed the firm to restore the sum insured and
charge regular premium without loading. A compensation of Rs 5,000 and costs of
Rs 5,000 were also awarded.
Case Study 3: In the case of Hoshang
Khan, after a claim was lodged, the insurance firm imposed a loading of 400%,
increasing the premium from Rs 10,558 to Rs 55,952. Khan could not afford the
high premium, so he sent the premium cheque without the loading, but the
insurance company returned it. CWA filed a complaint against United India
Insurance Co. Ltd. The Forum held that loading of premium was arbitrary and
unjustified. It directed the company to accept the premium without loading. On
receipt of the basic premium, the firm was directed renew the policy with
retrospective effect from 2006 onwards to maintain the policy’s continuity.
Co-Pay in Mediclaim
Co-pay, as the name signifies is
the payment made by two parties, even if that is not in equal proportions.
Under this clause, the insured is also required to bear a certain percentage of
expenses incurred on illness/disease while hospitalized, either conditionally
or under certain conditions.
In India Co-Pay only comes into
picture after a certain age. Most of the companies levy this clause once the
policyholder enters the Senior citizen category, that is after the age of 60.
Mostly this percentage is
mentioned as 20% pay – i.e., policyholder is required to pay 20% of the
expenses out of his own pocket.
For example a person is 65, and
falls ill and gets admitted for which a bill comes of 70,000/-. His Mediclaim
Policy mentions 20% co-pay, then he will have to pay 14000/- and the rest will
be paid by the Mediclaim company.
Some companies may charge this
co-pay clause if the policyholder is taking treatment in out of network
hospitals.
Even if a company does not have
co-pay and loading clauses today , it can include them at later stage . Every
policy mentions that “all terms including premium are subject to change on
renewal, based on claims or otherwise.”
1. Bajaj Allianz implemented a new
loading clause in August 2010.
2. ICICI Lombard, has classified
claims into Chronic and Non Chronic. Non-chronic claims like an accident or
Malaria etc. would have a loading only above a certain threshold claim amount,
which is not carried forward in the subsequent year. Whereas chronic ailments
will have a loading of 75% and carried forward up to 200%.
(Some of the inputs from Manish
Chauhan, Jago Investor)
