Deductible in a group insurance policy
Many companies purchase group insurance policies for their employees to help with medical expenses. However, many employee insurance schemes have a deductible clause. This post helps to understand the deductible clause and its implications.
Key Takeaways
Deductible vs. Co-pay: A deductible is a fixed amount (e.g., ₹10,000) you pay before the insurer steps in. A co-pay is a percentage (e.g., 10%) of the total bill. Deductibles are generally more predictable for the employee.
The “Threshold” Effect: As seen in the MW Technology case, the insurer only settles claims that exceed the deductible amount. If your bill is ₹8,000 and your deductible is ₹10,000, you bear the entire cost.
The Power of Cumulative Progress: With an “Overall Deductible,” your payments “stack up.” Once you have spent the deductible amount across one or more incidents, your insurance becomes “full cover” for the rest of the policy year.
Premium Control: Employers use deductibles as a lever. Increasing the deductible amount (from ₹5,000 to ₹10,000) directly lowers the premium rate, helping companies manage their budgets during renewal.
Deterrent for Claims: Deductibles encourage employees to use insurance only for genuine needs, which keeps the company’s “Claim Ratio” low and prevents steep premium hikes in the future.
The deductible clause
A deductible clause specifies a monetary sum that the employees will have to pay themselves in the event of medical expenses. The insurer will only pay the remaining bill. This means that at the time of a claim, a certain portion of the bill would have to be borne by the employee.
Difference between deductible and co-pay in a group health insurance
The difference between deductible and co-pay is that in a deductible, the insurer pays the complete claim in excess of the deductible. In a co-pay the patient will need to pay a specified proportion of the entire bill. Consider a hospital claim for Rs 2 lakh. If the policy has a deductible of Rs 10,000 then the insurer will pay Rs 1,90,000, i.e., Rs 2 lakh less the deductible of Rs 10,000. However, if the individual has an insurance with a 10% co-pay, then the insured will have to pay Rs 20,000 or 10% of Rs 2 lakhs. The insurer will pay the remaining Rs 1,80,000. Co-pays are routinely applied in senior citizen health insurance, whereas deductibles are used more often across ages to lower insurance cost.
Types of deductibles
Deductibles in employee group insurance policies are chiefly of two types:
An overall deductible refers to an amount that the policyholder must pay themselves before an insurer will pay. This deductible can be adjusted across illnesses that the policy holder has or even across the costs for various family members.
A per-claim deductible refers to an amount that policyholders must pay themselves in each and every claim. If there are multiple hospitalisations that are all less than the deductible limit then the insurer will not pay any claim.
Deductibles are an effective way to reduce insurance costs. However, in general, the overall deductible option is better than the per-claim deductible cover. The former balances cost reduction with policies that will actually pay a claim.
Read More: How does Group Insurance Cover work?
Many employers encourage their employees to opt for a high deductible so as to keep premium rates low. The higher the deductible, the lower the premium charged for the same cover. A deductible is generally a fixed amount like Rs 5,000; Rs 10,000, etc.
Case study: How per-claim deductible works
MW Technology, an IT company, offers various amenities to its employees, including group health insurance. With an employee base of 500, the company decided to introduce a deductible clause in its group health insurance policy to keep premiums in check.
This meant that in case of a claim, an employee would have to bear some part of the cost. This would also act as a deterrent against unnecessary claims, keeping the number of claims low for MW Technology. Fewer claims would mean premium rates would not increase at the time of policy renewal.
The deductible the company chose was Rs 10,000 on a per-claim basis. This meant that, at the time of a claim, an employee would have to pay Rs 10,000 from their pocket and the remaining cost would be borne by the insurer. It also meant that the insurance company would only settle claims higher than Rs 10,000. Employees would have to bear the entire cost if the claim amount was less than Rs 10,000.
Read More: Types of Group Insurance Policies available in India
Summary Table: Understanding Deductibles
| Feature | Per-Claim Deductible | Overall (Annual) Deductible |
| Application | Applied to every single hospitalization claim. | Applied to the cumulative total of claims in a year. |
| Out-of-Pocket | Employee pays the fixed amount (e.g., ₹10k) every time. | Employee pays until the limit (e.g., ₹10k) is hit for the year. |
| Benefit Period | Resets with every new claim. | Once met, the insurer pays 100% for all future claims that year. |
| Impact on Premium | Highest reduction in premium costs. | Moderate reduction in premium costs. |
| Best For | Deterring small or frequent “frivolous” claims. | Balancing cost with employee-friendly coverage. |
Case study: How overall claim deductible works
Last year, JS Clothing purchased a group personal health insurance policy for its 200 employees. The policy had a Rs 10,000 overall deductible clause.
Nearly two months ago, Rajiv, one of the company’s senior engineers, met with an accident when his car collided with a truck. He was hospitalised for investigations. This cost Rs 8,000. Since the amount was less than the overall deductible, Rajiv had to pay the entire amount himself.
Three months later, Rajiv had another car accident when he collided with a bus. (Fortunately, insurers do not evaluate driving skills, because Rajiv might not have fared well.) The hospitalisation cost this time was Rs 20,000. Since Rajiv had already paid an expense of Rs 8,000 previously, the insurer deducted just Rs 2,000 and paid the remaining Rs 18,000. We wish Rajiv well and hope he does not meet with another accident but if he does, the entire amount will be paid by insurance, since his deductible of Rs 10,000 has already been adjusted.
Frequently Asked Questions (FAQs)
1. If I have a ₹10,000 deductible and my bill is ₹12,000, how much will I get back?
A) The insurer will pay the amount in excess of the deductible. In this case, they would pay ₹2,000 (₹12,000 – ₹10,000), and you would pay the initial ₹10,000.
2. Is an “Overall Deductible” shared by my whole family?
A) Usually, yes. In a family floater group plan, the overall deductible can be adjusted across the medical costs of all covered family members. Once the family collectively spends the deductible amount, the insurer covers everyone for the rest of the year.
3. Which is better for an employee: a 10% co-pay or a ₹10,000 deductible?
A) It depends on the bill. For a massive ₹5 Lakh surgery, a 10% co-pay would cost you ₹50,000, while a ₹10,000 deductible would save you much more. Generally, for high-value claims, a fixed deductible is more beneficial for the employee.
4. Can I use my individual health insurance to pay the deductible for my office plan?
A) Yes! This is a smart strategy. If your office plan has a ₹10,000 deductible, you can pay that amount out of pocket and then file a reimbursement claim for that specific ₹10,000 with your personal independent health insurance provider.
5. What happens if I have multiple small claims under a “Per-claim” deductible?
A) If you have three different hospitalisations costing ₹8,000 each and your per-claim deductible is ₹10,000, you will have to pay for all of them yourself. This is why “Overall Deductibles” are generally considered more employee-friendly.
About The Author
Mayank Sharma
MBA Finance
He is a professional who brings extensive knowledge and expertise to the field of group health insurance. He has dedicated 7years to helping individuals and businesses navigate the complexities of insurance. Having worked closely with numerous clients and insurance providers, he deeply understands the nuances of group health insurance policies. With a reputation for providing insightful and informative content, he leverages his industry experience to educate readers about the importance of group health insurance and its benefits. Through their articles, Mayank Sharma aims to empower individuals and businesses to make informed decisions about their healthcare coverage, ultimately promoting healthier and more secure communities.
