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Wednesday, July 7, 2010

Health Insurance Portability

We have all heard of mobile number portability (that it gets perpetually delayed is another matter altogether!). Similarly, the Insurance Regulatory and Development Authority (IRDA) is now working with an aggressive timeline for Health Insurance Portability. At a simplistic level, health insurance portability means that the insurance policyholder can transfer the health insurance policy on renewal from one insurance company to another, without losing any of the accrued benefits.

The basic idea is to enable the insurance policy holder to continue with a minimum base cover that is constant across all insurance companies. Today, if you acquired an illness during the earlier policy term, it is treated as a pre-existing one by the new insurer, and thus people (especially senior people) find it very difficult to change their health insurance company even though they might be dissatisfied.

This is a boon for policyholders. What it does is that it ensures that the insurance company with whom you are currently insured cannot afford to take you for granted (irrespective of what the customer service department would like you to believe, you are nothing but a revenue stream for the insurance company!). It also will make the health insurance company think twice before frivolously rejecting any claims. The biggest advantage is that the policyholder is not tied down to one insurance company, and has an option when his existing insurance company might not want to cover his risk any more. This will also ensure that insurance companies will introduce more cost competitive and customer friendly schemes so that there is no switch by their existing policy holders, thus leading to a reduction in premium.

Currently, most health insurance contracts are one year contracts, and if there has been no claim, bonuses in the form of higher sum assured for the same premium, or a reduction in premium, is assured. However, if the policyholder wants to move to another company, the bonuses are not transferred and the policyholder pays the base rate. For senior citizens who bought the original health insurance policy many years earlier, it becomes even more difficult to shift as the insurance companies are reluctant to sell new policies to the elderly.

Some of the major issues such as data exchange, bonus transfer and two policies being different are being worked out. According to senior officials, the basic product has already been developed by GIC and is now awaiting the approval of IRDA. Health Insurance portability will most probably be available for sum insured upto Rs 1 lakh or 2 Lakh ( we recommend 2 lakhs). Since two mediclaim policies are hardly ever identical, GIC is working towards a common minimum benefit which can be carried forward if one decides to change the insurance company.

Accumulated bonuses on claim free policy will not be carried forward and extended cover will be treated as a new policy. On the base cover, there will be no exclusions on the basis of cooling off time or pre existing diseases. While portability might take away customization of health insurance policies, it is a small price to pay for the freedom of knowing that the health insurance company cannot twist your arm when you are at your weakest.

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