What Are Deductibles in Health Insurance?

We work hard to save our money. We try to invest wisely to grow our money. But one undesirable event is enough to dent our savings. That's where health insurance comes to the rescue. There are many important terms in any health insurance plan that affect our cash outflow when needed. One such important term is deductibles in health insurance.

What are deductibles in health insurance?

If you spot the word, "deductible", it means some amount is to be deducted. But the fundamental questions are, "From what? Why?" So, deductibles in health insurance are the portion of the hospitalization expenses that an insurance holder (i.e., the person who has bought the health insurance policy) is required to pay out of his/her pocket before claiming. The insurer will then pay for the balance portion.

It means that the insurance cover is applicable only on the claim amount, which is over and above the deductible portion. Such a clause is added in an insurance plan to ensure that only genuine claims are settled.

For example, if the claim amount is Rs. 350,000 and a deductible portion is Rs. 150,000, the insurance company is liable to make good the loss of only Rs. 200,000. Thus, a higher deductible means a lower insurance claim.

How does the deductible work in health insurance? ?

• The basic tendency in India is to make unnecessary and petty claims to recover the insurance coverage amount. Deductibles in health insurance ensure that only those claims are settled, which dent your financial planning and savings.
• Since you must pay for the deductible portion first, unnecessary claims are eliminated, and only rightful claims are rewarded.
• A lower deductible portion means a higher claim amount. Thus, a higher claim amount is associated with a higher premium. Therefore, there is an inverse relationship between deductible portions and premium amounts.
• If the claim amount is less than the deductible portion, you have to bear the entire bill amount. For example, if the bill amount is Rs. 15,000 and the deductible portion agreed in the health insurance policy is Rs. 25,000, you are required to pay the entire bill amount without going for any claim from the insurer.
• When an employer purchases a group health insurance policy for employees, it often comes with a deductible portion. The clause is applied in the same way as discussed above. However, in the case of group medical insurance plans, an employee (i.e., beneficiary) must pay the deductible portion and not the employer.

What are the different types of deductibles?

Category A: In India, primarily there are two types of deductibles in health insurance as explained below:

Compulsory deductible - It means a mandatory deductible. There are no ifs and buts or any conditions before paying the deductible amount. It is specified in the insurance agreement, and you don't have a choice to change the deductible amount. If the bill amount is Rs. 105,000 with a compulsory deductible portion of Rs. 25,000, then the insurance company will pay 25,000 and the balance amount. The deductible portion cannot be reduced here. Thus, the premium amount remains the same over the tenure of the policy.

Voluntary deductible - In this case, the insurance company provides you with an option to choose your deductible amount when entering into the insurance plan. So, voluntary deductible means your choice of the deductible amount. This helps the insured, who does not suffer from any severe health issues, and you don't expect any major health mishap to occur. Choosing a higher deductible portion will help you lower your premium amounts today.

Category B: Other types of deductibles available in the international market are explained below:

Comprehensive deductible - The amount you pay for each medical emergency gets added to the single deductible portion. It applies to all health insurance covers.

Non-comprehensive deductible - It is a standard deductible wherein the insurance holder is liable to pay for the deductible portion first, and the amount paid is treated separately for each cover type.

Cumulative deductible - A health insurance policy can be taken for the entire family. The clause applies only in the case of family insurance plans. Say a family of 4 members has taken an insurance plan altogether, and the total cover is Rs. 600,000 with a deductible amount of Rs. 150,000.  Say only one member is hospitalized and the bill amount is Rs. 75,000. In such a case, the insurance holder will pay the total amount. Say another family member is hospitalized, and the bill amount is Rs. 80,000. Even in this case, the insurance holder will pay Rs. 75,000. Now the insurance company is liable to pay the balance portion of the bill.

Why should anyone opt for an insurance deductible?

• Deductible seeks to reduce the premium amount. A higher portion of deductible means lower monthly premium amount and vice versa.
• Deductibles in health insurance ensure that fewer claims are made to an insurance company. It helps you to claim the actual amount at the hour of need. Further, in case of no claims, the insurance company provides you with No Claim Bonus, which reduces your premium amount at the time of policy renewal.

Conclusion

The deductible is a matter of your paying capacity. You have to first assess the sufficiency and liquidity of funds in case of any emergency. Then you can set the deductible portion and the type that suits your purpose. Thus, a careful evaluation of a few factors such as the need, expected hospitalization bill, present medical condition, paying capacity, and liquidity of funds needs to be made before opting for deductibles in health insurance.

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