What does health insurance really give you?

From plain mediclaim policies to a plethora of new hospitalisation and cashless plans, health insurers are targetting specific customer audiences. Understanding them can help policy holders opt for the plan that would work best for them. By Sanjay Matai

Sanjay MataiTill a few years back the most common form of health insurance was what is commonly referred to as a mediclaim policy. This came with many 'illness' riders, resulting in limited coverage that often left policy holders high and dry in critical health situations.

However, with the opening up of the insurance sector to private players and the entry of foreign insurance companies, health insurance has witnessed many innovations. Today one has much more choice – various health insurance schemes offer specific and diverse benefits.

Therefore health insurance is no longer limited to buying a particular policy. Instead one can build a portfolio of policies that would provide wide-ranging cover.

Below is an outline of the benefits of various health schemes available:
 
Conventional medical insurance policy

A conventional medical insurance policy reimburses (most of) the expenses incurred by you for any medical treatment that requires hospitalisation (including related expenses 30 days prior to and 60-90 days post-hospitalisation). The key condition in these policies is hospitalisation for at least 24-48 hours (except for certain specified treatments that do not necessitate hospitalisation).

This kind of policy provides fairly comprehensive coverage; but fails on three counts:

  • It does not cover associated expenses such as medical aids, special diet, an extra hospital bed, to-and-fro conveyance costs incurred by family members, etc.
  • It does not cover two common issues: maternity and dental treatment.
  • It does not provide any benefit for OPD (out-patient department) expenses. 

There are many other important factors such as exclusions, coverage of pre-existing illnesses, hospital network, cashless facility, etc that must be evaluated before buying such a policy.

Critical illness cover

Compared to the traditional plan, a critical illness policy provides restricted cover, as it is limited to a few specific illnesses only. However these ailments would be serious in nature, such as a heart attack, stroke, cancer, organ transplant, diabetes, etc.

Another significant difference vis--vis a conventional plan is that here, upon positive diagnosis, you are paid the entire sum assured irrespective of the amount you incur on the treatment, provided you survive for at least 30 days after the diagnosis. 

Hospital cash plan

New in the Indian health insurance field, this policy is usually long-term in nature - up to 10 years, unlike the conventional plan which is generally on an annual basis.

Though it works like the traditional plan - it requires hospitalisation, has exclusions, pre-existing ailments are not covered for two to four years, etc.

The reimbursement is a fixed pre-defined amount irrespective of the cost you incur on the treatment. You are eligible for a fixed daily amount and the reimbursement is simply based on the number of days you stay in the hospital.

However, it must be noted that your claim is limited to a pre-fixed number of days in a year and during the policy's tenure. You will not be paid for extra days that you may have to stay in the hospital. Even the claim for surgeries is limited (to usually three surgeries during the policy tenure).

Unit-linked health plan

Given the reluctance of people to pay for something that may yield no tangible returns, insurance companies have launched unit-linked health plans similar to ULIPs. In other words, they have an insurance element and an investment element.

A part of the premium goes towards providing insurance (which works like a typical hospital cash plan discussed above; that is you get a daily allowance for every day that you are hospitalised) and the balance is invested to provide returns on maturity.

OPD plan

Most plans discussed above do not cover the OPD kind of expenses such as nursing expenses, consultant/specialist fees, external medical aids, pacemaker, artificial limbs, ambulance charges and dental or maternity expenses. An OPD plan typically covers all such costs, thus covering areas where the conventional plan falls short. 

Building a health insurance portfolio

Given different benefits from different policies, selection of health insurance is not about choosing one policy or the other, but rather buying a mix of various policies.

First and foremost, one must have a conventional plan, as it provides cover for the widest range of illnesses. Though a hospital cash plan also covers many illnesses, it has a few drawbacks: 

(i) It provides you a fixed amount - so if your expenses exceed that you have to pay the difference yourself,

(ii) It limits the number of hospitalisation days, so if your stay exceeds this limit, again you have to pay the difference; and

(iii) It provides a pre-fixed amount for a pre-fixed number of surgeries - again a possible source of additional cost to you. (Needless to mention that in any case, your claim will be limited to the sum assured).

Therefore, the foundation of your health insurance portfolio has to be a conventional plan. This can be supplemented with a small cover through a hospital cash plan to take care of the miscellaneous expenses which the conventional plan doesn't cover.

Since the conventional plan takes care of almost all ailments, the question arises - should you buy a critical illness cover? The answer is yes.

A critical illness often results in a long break from the work, which in turn may result in loss of income. Thus, while the mediclaim policy will mitigate the cost of treatment, the proceeds of the critical illness policy will mitigate the loss of income. Therefore, it is important to have a critical illness policy to complement the basic health plan.

OPD plans at present offer only limited benefit. They are also relatively more expensive. Further, there may be limits/sub-limits prescribed. Therefore, there may not be any significant financial relief if you insure against OPD expenses.

However, this plan may help to you to save some tax. Many times the premium for the conventional plan together with the critical illness rider may be much less than the Rs15,000 limit available under tax laws. So you could consider an OPD plan just to save some tax. 

Avoid ULIPs

A unit-linked health plan is not really an efficient product; and hence could be skipped in most cases. Given the higher costs involved, a normal investment product will usually give better returns than an insurance-linked investment.

It is generally advisable to keep insurance and investment separate. Moreover, even on the insurance aspect, the daily-hospital-cash type of cover that a ULHP provides is not the best option.

This is the basic strategy to build a comprehensive defence to protect your finances against medical exigencies.

Of course, each plan costs money. So you have to do a cost-benefit analysis and choose the plans that best suit your needs, age, gender, family medical history and budget.