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.
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.
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.