IRDAI’s new rules would reduce your out-of-pocket expenses. Here’s how

Health insurance

Health insurance plans prove to be a blessing in times of medical emergencies when expensive treatments and hospitalisation might blow a hole in your finances. Health plans cover your hospitalisation expenses as well as the costs of treatments sparing you the financial burden. 

The Insurance Regulatory and Development Authority of India (IRDAI) constantly makes changes in the rules and regulations governing health insurance plans to make the plans more customer-friendly. Recently, IRDAI has made new guidelines for the concept of ‘proportionate deduction’ which is applicable under plans with room rent sub-limits. Before having a look into the recent changes made by the regulator, let’s understand the concept of proportionate deduction and how it works.

Sub-limits on room rent

Under many health insurance plans, especially when the sum insured is up to INR 5 lakhs, there are sub-limits on room rent covered under the policy. This sub-limit is expressed as a percentage of the sum insured and ranges between 1% and 2% of the sum insured. For example, if the sum insured is INR 5 lakhs and room rent sub-limit is 1% of the sum insured, the applicable limit would be INR 5000/day.

Proportionate deduction – the concept

Many hospitals have preferential pricing for treatments and doctor’s fee depending on the type of room that they are admitted. If you are admitted to a suite room and undergo an appendectomy, its cost would be higher compared to the same treatment taken in a normal room. So, since hospitals price their costs based on the room rent, health insurance companies do not want to pay higher claims for rooms with higher room rents especially when there is a specific sub-limit on the rent under the plan.

The concept of proportionate deduction, thus, becomes applicable if your actual room rent exceeds the specified limit. If your actual room rent is higher than the allowed limit, the insurance company does not pay the full cost of inpatient hospitalisation. It reduces the bill proportionately to the cost which would have incurred had you taken treatments in a room within the allowed room rent. Let’s understand with an example –

Say for a plan with a sum insured of INR 5 lakhs, the room rent limit is 1% or INR 5000. If you seek treatment in a room whose rent is INR 6000 and incur a total hospitalisation bill of INR 1.5 lakhs, the claim payable would be calculated as follows –

INR 1.5 lakhs * (5000/6000) = INR 1.25 lakhs

Thus, even if the claim is within the sum insured, the amount would be proportionately reduced to arrive at a figure proportional to the allowed room rent. Any excess costs incurred, i.e. INR 25,000 in the above example, would be borne by you and become your out-of-pocket expenses.

What has changed?

IRDAI has made two important changes in the concept of proportionate deduction in health insurance plans. These changes are as follows –

  • Costs included under proportionate deduction

    Earlier, health insurers considered the total inpatient hospitalisation bill when calculating the proportionate claim payable. However, in the recent guidelines, IRDAI has eliminated some medical costs from the purview of proportionate deduction. The following costs would now no longer be considered in the hospitalisation bill when doing proportionate deductions – 

    • Pharmacy costs
    • Costs of medical implants and devices
    • Cost of diagnostic tests
    • Consumables 

    Other hospitalisation costs would be considered when calculating the proportionate amount of claim thereby reducing your out-of-pocket expenses.

  • Non-applicability of proportionate deduction 

    According to the guidelines specified by the IRDAI, if hospitals do not have different room rents for different rooms, the concept of proportionate deduction would not apply. In that case, if the actual room rent is higher than the sub-limit, the total inpatient hospitalisation claim would be paid by the insurance company without any deduction.

Furthermore, if the insured is admitted to the ICU, the concept of proportionate deduction would not be applicable because ICU rent is fixed and does not change with the type of room you are admitted into.

Implementation of the change

These changes would be made effective for all new health insurance plans bought on or after 1st October 2020. For existing policies bought before 1st October 2020, the changes would be effective from 1st April 2021.

What the changes mean for you?

As specific costs are being excluded from the computation of proportionate claim, you would get full coverage for such costs irrespective of the room rent. Moreover, if you seek admission at hospitals where there are no different room rent categories or in case of ICU admissions, proportionate deduction would not apply. All these aspects would increase the claim amount payable and reduce your out-of-pocket expenses thereby making health plans more pocket-friendly.

The rules are, therefore, a welcome change for health insurance customers and might even drive the sale of new health plans. Your health plan has just become better and you should know these changes to know the expected out-of-pocket expenses when claims occur.

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