Let’s say you have health insurance coverage of INR 10 lakhs. At the time, the coverage seemed ample, and the premium was affordable.
However, as a few months go by, and you hear of a few friends and relatives who have had to go through hospitalization, you start doubting your decision of settling with a 10 lakh coverage. With the skyrocketing charges for premium health services, you are now in two minds about the financial and medical decisions that you just took.
And now, you get restless to find a way to extend your health insurance coverage. So, you reach out to your current insurer, who tells you about an affordable option - a top-up plan (or a super top-up plan).
Considering the premium you will need to pay for the substantial extension of your existing coverage, you are elated.
The only thing that concerns you is a term that your insurance advisor used while explaining the plan: “Deductibles.” So, you decide to delve into a rabbit hole to understand the meaning of deductible.
While we can subtly suggest that a conversation with one of our insurance advisors and a quick read of our blog on Tops-Ups and Super Top-Ups in Health Insurance Policy can give you the perfect idea to clear your doubt, here is an overview of what Deductibles are, how and why are they placed into health insurance policies, and more!
What is Deductible in Health Insurance?
Deductible in Health Insurance (specifically in Top-Up and Super Top-Up Plans) Policies is the threshold amount that needs to be paid off by either the base insurance policy or by the policyholder himself before he/she has access to the extended financial coverage.
Let’s take your case as an example to understand what is deductible in medical billing -
- You already have existing health insurance coverage of INR 10 Lakhs.
- You opt for a Super Top-Up Plan on your current plan with a coverage of INR 50 lakhs and a deductible of INR 10 lakhs.
- Say you had to undergo an urgent surgery that required hospitalization and incurred a bill of INR 25 lakhs.
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Now, your existing insurance coverage is insufficient when covering these expenses. By now, you are extremely glad you took on the added financial cushion via the Super Top-Up.
The Super Top-Up fund will, however, only be activated if the initial (read: deductible) amount of INR 10 lakhs is paid off (via your base plan coverage).
After the deductible is paid off, the Super Top-Up plan kicks in and pays off the residual hospital bill: INR 15 lakhs (INR 25 lakhs - INR 10 lakhs).
So, you now know what is the meaning of deductible. However, the question that arises is why they are put into place by health insurers.
Why are Deductibles Required in Health Insurance Policies?
Health insurance policies are now a mandatory financial safety net considering the rising health complications and the subsequent health treatment charges. To meet this increasing demand, some of the top health insurance providers across India now offer lucrative plans and considerable coverages that policyholders can fall back upon.
However, as such availability kicks in, insurance providers become more aware of how policyholders can misuse such funds. For example, one common way to misuse the fund is by claiming insurance for minimal medical procedures just because an individual has the provision to do so.
To safeguard themselves from going through the claim settlement process (you can learn all about the claim settlement process from our blog)
for such redundant claims and straining their financial stability for this, they rely on Deductibles.
This minimum amount builds a kind of ownership for the insured towards their insured amount, thereby making them less likely to make claims for smaller funds.
Additionally, with such tools in place, policyholders are incentivised to hold back from making frequent claims and, thus, gain from the No-Claim Bonus perk as is offered by Health Insurance Providers.
While we say that deductibles benefit the insurance provider and the insured, who decides the deductible - is the insurer or the policyholder? We say it’s both - this depends on the type of deductible your plan offers.
Take a look at the type of deductibles offered (also remember to ask your insurance provider if you can choose the deductible or if it will be decided by the provider itself).
What are the Types of Deductible in Health Insurance?
There are mainly 2 types of Deductibles: compulsory and voluntary -
| Types of Deductibles | Features |
|---|---|
| Compulsory Deductibles | The deductible amount is decided by the insurer. The policyholder has no say over the insurance amount. The deductible is fixed; thus, there is no impact on the premium to be paid towards the insurance. |
| Voluntary Deductible | The deductible amount is chosen by the insured while he/she decides upon the health insurance plan. The decision depends on the financial affordability of the policyholder. The higher the deductible, the lower the premium to be paid, and vice versa. |
While wavering on deductibles isn’t in your power, and it is a mandatory inclusion for some insurance plans, knowing its pros and cons would help you make an informed decision while choosing plans and opting for lower or higher deductibles.
What are the Pros and Cons of Deductibles in Health Insurance Coverage?
PROS
- Mitigated Premiums
Deductibles usually come into play in insurance plans targeted to boost the bandwidth of the existing health insurance coverage. Since insurers offer these plans that come with an extensive fund, they impose deductibles. The higher the deductible, the more inclined the insurers become to offer a plan with a lower premium.
- Boosted cost awareness
With a deductible in place, the policyholders are more conscious about the price of the healthcare services they seek. If they can opt for a treatment of premium quality over a lower cost, they will be opting for it as compared to one that is more pricey since a section of the bill will be paid from their pocket.
- Increased insurance power
Since insured individuals are entitled to pay a certain amount of sum towards their hospital bills, they are discouraged from making small claims to have accessibility to the No-Claim Bonus amount that extends the existing coverage.
- Flexibility
Deductibles come with a flexibility factor for policyholders (in the case of voluntary deductibles). They can choose whether to go for a lower deductible and a higher premium or a higher deductible and a lower premium.
Cons
- Chances of a substantial dent in personal savings
Whether you go for a higher deductible to obtain lower premiums or a higher deductible for a lower premium, you are looking at a significant dip in your savings.
SOLUTION: Opt for a higher deductible and a super top-up plan. While you have the upper hand with cumulative coverage of the deductible over a year, you have a higher coverage with Super top-ups and a significantly lower premium.
- Discouragement in availing of premium healthcare services
When there is a deductible in place, policyholders are often reluctant to avail of an insurance plan. The common notion is that if, even after insurance coverage, they end up paying from their pocket (without a reimbursement), why should they opt for financial coverage that demands a substantial premium?
SOLUTION: It is important to acknowledge that while the deductible might seem steep on the initial impression, the total cost of treatments is usually much higher. And by paying the nominal deductible, you can access increased coverage to meet your medical expenses, which helps you enjoy premium healthcare.
- Complications in deciphering insurance terms
Insurance plans, as it is, come with a labyrinth of financial terms and conditions. This is a safeguard from the end of the insurers to ensure that their companies stay on the profitable side of the business via discreet loopholes in their policies.
With the added feature of Deductibles, the complications increase further, making it cumbersome for insured individuals to completely understand the policy they are about to avail of.
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SOLUTION: Reach out to unbiased insurance advisors who will help you swim through the financial complications in your policy prior to purchasing one. Ask about the exclusions, inclusions, and modes of payments to be made toward the deductible.
We thought since wavering deductibles isn’t really an option, maybe the pertinent solutions to the cons might help you out. Were we right?
Frequently Asked Questions:
Why are deductibles mandatory in health insurance?
While some health insurance plans demand deductibles, they are NOT MANDATORY for all policies. For health insurance coverages that require deductibles, it is included because it -
- Ensures that unnecessary claims can be prevented.
- Reduces the premium amount to be paid.
Is it better to have a deductible or no deductible?
Given a choice, it is only logical that opting for a plan that requires no deductible is the best option. This ensures that you need not pay a penny out of your pocket (unless the bill exceeds your insurance coverage amount).
But, when talking about Super Top-Up plans, the policies that come without a deductible usually require a high premium. However, if the premium isn’t much of a financial burden, we suggest you opt for the plan without a deductible so that in case you exhaust your existing insurance base coverage, you can access the extended fund offered by the Super Top-Up plan.
Which is better in Health Insurance: low deductible or low copay?
None is better. You will have to go with them based on your circumstances. For a base policy, both deductible and copay should be avoided.
What happens if you don't meet your deductible?
Considering that deductibles are the threshold amount whose complete payment kick starts or unlocks your insurance funds, not meeting your deductible will mean you will be paying the medical expenses out of your pocket.
Once the deductible is paid off, your insurer will be paying off your hospital expenses (either completely or in the pre-decided co-payment ratio)
