In particular, avoid room rent caps that lead to proportionate deduction
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IRDAI flags that high claim settlement ratios conceal frequent partial payouts driven by room rent caps, sub-limits, co-pays, and exclusions. Experts urge customers to decode policy clauses carefully.
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The Insurance Regulatory and Development Authority of India (IRDAI) chairman, Ajay Seth, recently highlighted a gap in health insurance claim settlement: while most claims are approved, the amounts paid are often lower than customers expect.
“High claim settlement ratios (CSRs) can mask the fact that settled amounts may be much lower than what customers claim. CSR counts approvals but does not reflect the actual amount paid,” says Manju Dhake, head – insurance advisory practice, 1 Finance.
Partial settlements typically result from policy conditions. “Health insurance policies frequently include clauses such as co-payments, room rent caps, sub-limits on treatments, exclusions for certain consumables, and deductibles,” says Saurabh Vijayvergia, founder and chief executive officer, CoverSure. As a result of these policy conditions, customers often have to pay a portion of hospital expenses themselves.
Key reasons for partial payouts
Room rent capping: Staying in a room that exceeds the policy’s rent limit reduces both room rent reimbursement and several related charges. “The payout for several other costs — most but not all — gets proportionately reduced. This is referred to as proportionate deductions,” says Kapil Mehta, co-founder, SecureNow Insurance Broker.
Many customers think they would only pay the higher room rent, but end up taking a bigger hit. “Linking the room rent capping clause to other non-room costs (e.g., surgeon fees, diagnostics) has a multiplier effect,” says Indraneel Chatterjee, co-founder, RenewBuy.
Policy sub-limits: Many plans impose caps on specific treatments and services. These are explicit, pre-agreed caps on specific types of treatments (for example, knee replacement, maternity, etc.) or ancillary services (such as ICU charges, ambulance charges, etc.).
Consumables and non-payable items: Items such as gloves, syringes, PPE kits and visitor meals are often excluded. The regulator stipulates the list of non-payable items.
“While individually small, these costs accumulate during a multi-day hospitalisation and can significantly reduce the final settlement,” says Chatterjee.
Co-payments and deductibles: If a policy has a 10 per cent co-pay, a ₹100 claim results in a ₹90 payout, with ₹10 being borne by the insured. Deductibles take the form of a fixed threshold amount. “They serve as instruments for mitigating moral hazard and lower unnecessary utilisation of health insurance,” says Chatterjee.
Network vs non-network hospitals: Cashless treatment is available only at network hospitals. At non-network hospitals, costs are reimbursed. Dhake explains that the reasonable and customary (R&C) clause allows insurers to scale down charges they consider to be above benchmark rates.
“In a reimbursement claim, the insurer only pays the reasonable charges — a rate benchmarked against the prevailing costs in that city or region. The difference between the hospital’s bill and the benchmark becomes the policyholder’s liability,” adds Chatterjee.
What to avoid
Minimising partial payouts begins with understanding policy features. “Know your policy — the ideal coverage and features,” says Vijayvergia.
Make sure your policy says that it offers ‘no room rent capping’, ‘any room’, or ‘single private AC room’.
Dhake advises avoiding both room rent caps and mandatory co-pays unless necessary for affordability.
Mehta recommends selecting policies without sub-limits. Dhake explains that low caps often fail to reflect current medical costs. If a policy has sub-limits, they should be high.
Customers should also consider a rider such as a ‘consumables cover’ or ‘non-payables cover’. “Non-consumable coverage is important, since items like syringes and PPE kits can make up as much as 5 per cent of hospital bills, so opting for this — whether built-in or as an add-on — can be beneficial,” says Vijayvergia.
Finally, Dhake recommends choosing a policy with a wide network of hospitals to reduce out-of-pocket expenses and improve claim experience.
Pre-hospitalisation tips
· Prefer network hospitals for smoother cashless processing
· Initiate pre-authorisation
· Check room eligibility to avoid proportionate deduction
· Understand impact of room upgrades on deduction
· Understand policy sub-limits, caps
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