What is health insurance? Write advantages and modes of health insurance.

 What is health insurance? Write advantages and modes of health insurance.


Introduction

In the Indian market health insurance premium has been steadily increasing over

the years (and now it is next to motor premium) comprising 22% of the Gross Direct Premium Income of General Insurers. Over the last few years our economy has done well leading to good GDP growth. This has led to the rise in disposable income and better quality living standards. The increase in life expectancy exposes a person to health problems and diseases with increase in age. For an average person, in their retirement years, they do not have the income to meet

healthcare costs. Moreover, healthcare costs have soared in the last few years. This leads to a double blow to the person who falls prey to critical illnesses or other diseases which require hospitalization and result in huge medical bills. This underlines the importance of health insurance which is gaining popularity among the masses. The health insurance products available in the marker today come in many variations and combinations and are sold by many Life and Health insurance companies.

Cashless treatment

In the case of medical emergencies, it is often difficult to find immediate cash to see

the medical expenses. Health insurance covers treatment costs which require

hospitalization (including domiciliary treatment). Health insurance companies te

with hospitals across the country and include them in their network. Health insurance claims are now being serviced by a network of Third Party Administrators (TPA) he have been licenced by IRDA. Insurance companies issue cashless cards to the insured which does not require them to pay for treatment (allowed costs) when admitted to one of the network hospitals. If the insured gets admitted to a non-network hospital then they have to pay the hospital bill and claim the amount from the insurance company on reimbursement basis.


Type of health insurance plans

1. Individual Policy : This type of health insurance policy caters to the medical

needs of only one individuals

For example, Ram has taken a health insurance policy from Company ABC for a sum of 2,00,000 by paying a premium of 3 4,000. Under this policy, Ram will be covered against expenses for any illness (covered as per the policy terms) which requires him to be hospitalized, up to a limit of 2,00,000 in that particular year,


2. Family Floater Policy : This type of health insurance policy caters to the

medical needs of a family. In family floater policies, normally insurance companies allow coverage for up to two adults and two children in a family. The sum insured can be shared by the family members covered in the policy. There are no fixed proportions inwhich the sum insured is shared by the family members. For example, A has taken a Family Floater Policy from Company XYZ for 3,00,000 for his family. The policy covers A, his wife and his two children. In this policy,

the sum assured of 3,00,000 will be shared by all the four members of the family in no fixed proportion. It can happen that A's wife suffers a heart attack and the entire 3,00,000 is used up for her treatment.


3. Group Policy : This type of health insurance policy caters to the medical needs of a group of people brought together for a common objective or purpose.


For example, Company XYZ has taken a group health insurance policy from

Company ABC for all their employees. This policy will take care of medical needs of the employees of Company XYZ up to a fixed amount, say2,00,000: Healthcare policies normally have some exclusions such as dental treatment, diagnostic tests, expenses on vitamins, cosmetic treatment, homeopathic treatment etc. These policies also, exclude treatment for diseases prevalent at the time of taking the policy for the first time or contracted within 30 days of such commencement.


These diseases are termed as pre-existing illnesses by health insurance companies. If

there is no claim during the year the insurance company gives a discount on the renewal premium or keeps the premium same and increases the sum assured, which is known as 'No Claim Bonus.'


Health insurance generally provides cover for treatment of the following:


Hospitalisation : The hospitalization charges are paid by the insurance

company if the insured is hospitalized for more than 24 hours. Insurance is provided for pre and post hospitalization treatment as well.


ICU Treatment : If the insured is to be treated in ICU (Intensive Care Unit)

then some companies have a provision of additional payment provided the

insured has paid the additional premium for the same. Some health insurance

companies also provide additional "Critical liness Cover' which can be specifically used to treat critical illnesses over and above the normal sum assured Por extra premium payment


Surgery: A fixed lump sum amount is payable if the insured has to undergo

some listed surgery.


Recuperating :expenses Some insurance companies pay the post hospitalization benefit to help the individuals meet expenses like follow up testa and medical consultations.


Health Check-up : Some health insurance companies alao provide annual health check-up on regular basis as part of the policy.


Day Care Expenses : There are some treatments which do require less than 24

hours hospitalization. Such treatments are covered under any day care expenses

if they are covered under the policy.


Hospitalization Cash Policy : Both life insurance companies and non-life

insurance companies provide this policy. This policy only covers the hospitalization expenses and excludes other medical expenses. The insured gets a lump-sum payment for hospitalization on daily basis. The hospitalization charges are payable by the insurance company if the insured is hospitalized for more than 24 hours


Advantages of health insurance

In this section we will discuss the advantages of health insurance to individuals and to the society

Advantages of Health Insurance to Individuals

(1) Doing away the need for building a reserve fund for medical needs : An

individual needs to realize that he would incur expenses towards healthcare sooner or later. He can choose to spend money from his reserves. He can save and create a pool for his and his family's future medical expenses. Though this approach appears simple, apart from those who are very rich and can afford to have liquidity for any medical expenses at short notice, this would be difficult to achieve from a practical point of view.


Health Insurance Solution : The comparatively easier option would be to buy an insurance policy that would pay for the medical costs, up to a fixed limit, if and when they arise. The difference here is that on the payment of a certain amount of premium, the individual is free of the trouble of planning for an uncertain future event, the monetary impact of which he is not sure.


(ii) Cushion for resources meant for other financial goals : Health insurance can help in avoiding derailment of savings plans. Hospitalisation and surgery expenses are known to have derailed the savings plan of many an individual. With the rising treatment costs, medical expenditure can burn a hole in the deepest of pockets. Due to the unforeseen and unplanned nature of such expenses that are often more than the individual can, bear or repay (when loans are taken) there are several instances of disease-induced poverty. People save money for many reasons like for a child education or wedding, for a foreign trip post retirement, or for a second house. Health related problems could easily topple these plans from a financial point of view.


Health Insurance Solution : Health insurance helps mitigate the financial

hardships involved in such situations to a large extent.


(iii) Income Tax Benefits : As health insurance prevents the erosion of one's long-term savings, it can be argued that properly planned health insurance plans are tools of long-term savings along with other instruments. Tax benefits available under these schemes also make them lucrative from a tax planning point of view.


(iv) Peace of Mind : On a non-tangible level, health insurance gives a sense of

peace to individuals. The assurance that a large part of an individual's unexpected

expenses caused due to accidents or diseases will be borne by the insurance company gives people the peace of mind to go ahead with their other endeavors with greater peace of mind and efficiency.


Advantages of health insurance to the society

(i) Mobilisation of resources for economic development of the country :

Health insurance, like any other form of insurance, can serve as a means to protect savings of individuals. Savings mobilization, leads to increase in investments, which in turn has its effect on the economic development of any country. The development index of a country is measured with, among other things, the quantum of financial savings of its

citizens; made in the form of bonds, insurance policies, bank deposits and equity.

(ii) Substitute for Government provided social security : Health insurance

reduces the state's burden of providing healthcare for its citizens through subsidized systems like Government hospitals. Thus, it acts as a substitute for Government provided social security reducing the welfare burden of the State. It allows the Government to provide for those who really cannot provide for themselves and promotes a feeling of thrift among those who can.


(iii) Investment Expertise : People can choose to save themselves and invest the

savings in some financial instrument to build up a self-insurance corpus. However, not all individuals have the knowledge and/or wherewithal to invest their savings prudently. The insurance companies and other members of the financial sector are well equipped to invest these savings in useful and profitable instruments which then helps the economy as a whole.