Understanding Deductibles in Health Insurance
Understanding Deductibles in Health Insurance
Blog Article
Have you ever faced a situation where: “You had to pay your hospital bill in full despite of having health insurance?”
Doesn’t it seem odd?
Well, we know that health insurance products are more complex to understand, as there are many terms and conditions which make it more confusing for a normal person. That’s the reason why we thought to cover up a series of blogs on – “Out of Pocket Expenses in Health Insurance.”
In today’s blog, we will be trying to simplify the most sought yet confusing topic of Health Insurance i.e. Deductibles.
But before that, let’s check the definition of Deductibles from Investopedia – A health insurance deductible is the amount of money that an insured person must pay out of pocket every year for eligible healthcare services before the insurance plan begins to cover the costs. The size of the deductible varies depending on the health insurance plan. As a rule, the higher the monthly premium, the lower the deductible.
I expect that you must have got a very rough picture of the deductible here from the definition. Let’s understand the same with basic examples for more clarity.
Case 1 – Assume that you’ve bought a health insurance policy for a Sum Insured of ₹ 15 Lakh. And you’ve opted for a ₹ 3 Lakh deductible on it. Now if a hospital bill comes for ₹ 10 Lakh; then in that case,
| Base Health Cover (with ₹ 3 Lakh deductible) | ₹ 15 Lakh |
| Hospitalisation Claim | ₹ 10 Lakh |
| Out-of-pocket expense (deductible) | ₹ 3 Lakh |
| Insurer will pay | ₹ 7 Lakh |
Conclusion: In this case, at the time of claim settlement, you need to pay ₹ 3 Lakh out of your pocket to get the rest ₹ 7 Lakh from the insurer.
Case 2 – Assume that you’ve bought a health insurance policy for a Sum Insured of ₹ 15 Lakh. And you’ve opted for a ₹ 3 Lakh deductible on it. Now if a hospital bill comes for ₹ 2.5 Lakh; then in that case,
| Base Health Cover (with ₹ 3 Lakh deductible) | ₹ 15 Lakh |
| Hospitalisation Claim | ₹ 2.5 Lakh |
| Out-of-pocket expense (deductible) | ₹ 2.5 Lakh |
| Insurer will pay | ₹ 0 |
| Remaining deductible for that year to be used | ₹ 50,000 |
In case if you got hospitalisation in the same year, where your hospital bill is ₹ 10 Lakh.
| Base Health Cover (with ₹ 3 Lakh deductible) | ₹ 15 Lakh |
| Hospitalisation Claim | ₹10 Lakh |
| Out-of-pocket expense (deductible) | ₹ 50,000 |
| Insurer will pay | ₹ 9.5 Lakh |
Conclusion: In this case, at the time of claim settlement, you need to pay ₹ 2.5 Lakh out of your pocket for the first treatment in a year. If you’re admitted next time in the same year, then you need to pay another ₹ 50000 out of your pocket to get the rest ₹ 9.5 Lakhs from the insurer.
In both the above-mentioned cases, you must have observed that there is a huge bill amount is paid from the policyholder, which is not a viable case. Why? Because, just to reduce the yearly premium of your insurance to become pocket-friendly, you’re opting for it. But you must understand that a big amount of expense will come out of your pocket. And it’s not solving the purpose of your insurance, as it will not give a peace of mind when you need it most.
Now you must be thinking, is there a better way to get insured with a deductible, but you don’t have to pay anything from your pocket?
Yes.
Case 3 – To avail of this option, you need to buy a ₹ 3 Lakh base cover insurance and take a top-up cover of ₹ 15 Lakh on it. Then in this scenario, your base cover will be treated as a deductible and a top-up cover of ₹ 15 Lakh will be used once the base cover of ₹ 3 Lakh is exhausted.
- When the hospitalisation bill is ₹ 2.5 Lakh
| Base Health Cover (with ₹ 3 Lakh deductible) | ₹ 3 Lakh |
| Top Up Sum Insured (with ₹ 3 Lakh base cover as deductible) | ₹ 15 Lakh |
| Hospitalisation Claim | ₹ 3 Lakh |
| The insurer will pay (only base cover got exhausted) | ₹ 3 Lakh |
- When the hospitalisation bill is ₹ 10 Lakh
| Base Health Cover (with ₹ 3 Lakh deductible) | ₹ 3 Lakh |
| Top Up Sum Insured (with ₹ 3 Lakh base cover as deductible) | ₹ 15 Lakh |
| Hospitalisation Claim | ₹ 10 Lakh |
| The insurer will pay (Base Cover + Top-up Cover) | ₹ 10 Lakh |
Hence, with a combination of a ₹ 3 lakh base plan and a ₹ 15 lakh top-up plan, you get coverage for larger hospitalization bills while keeping the initial premium cost lower.
Now that we’ve established the importance of deductibles and how they impact your out-of-pocket expenses, let’s explore some additional factors to consider when choosing a deductible plan:
- Age and health: Younger and healthier individuals might be more comfortable with a higher deductible plan to save on premiums. However, as you age or have pre-existing health conditions, a lower deductible might be preferable to avoid significant out-of-pocket costs in case of medical emergencies.
- Emergency fund: Having a healthy emergency fund can help bridge the gap between your deductible and the total hospitalization bill. If your emergency savings are limited, opting for a lower deductible plan might be a wiser choice.
- Frequency of healthcare utilization: If you anticipate needing frequent medical care, a lower deductible plan might be more cost-effective in the long run, even if the monthly premiums are higher.
Understanding deductibles is crucial when choosing a health insurance plan. While a lower premium might seem attractive, a high deductible can leave you with a big bill during a medical emergency. In this blog, we’ve explored how deductibles work with real-life examples. We also saw how combining a base plan with a top-up plan can offer you broader coverage while keeping the initial cost manageable. Remember, a well-chosen health insurance plan should provide peace of mind when you need it most. Don’t get trapped by the unexpected costs. Report this page