Many people don’t trust insurance companies. You may pay the premium for many years but still can’t be sure if the insurance company will return the favour when you make a claim. This is a prominent reason why many choose not to purchase insurance despite being fully aware of the risks of staying uninsured. Insurance companies haven’t done themselves proud either. There is no dearth of accounts where insurers have let the families down at the worst possible time for very flimsy and technical reasons. Aggressive sales practices also leave scope for claim rejection later.

The government provided some comfort for the life insurance policies by stating that the life insurance companies cannot reject the claim on any grounds if your policy is over 3 years old. Life insurance policies, in any case, have a very crisp insured event. It is difficult to contest if the insured is alive or not.

Health insurance policies, on the other hand, can get quite subjective. There are many exclusions that can’t be understood by a common man. There are multiple waiting periods. In contracts, subjectivity can’t be your friend.

To address this issue, IRDA, the insurance regulator, has come out with a proposal to crisply define possible exclusions in health policy. Additionally, there is a favourable change in the definition of pre-existing diseases. More importantly, there is a proposal that your Health Insurance Claims can’t be rejected if your policy is over 8 years old.

Let’s find out more.

Note: These are draft rules. The final regulation may be very different

1. Initial Waiting period of 30 days from the commencement: During this period, the insurance company won’t pay any claim during this period except for any hospitalization due to an accident.
2. Waiting period for certain kind of treatments/procedures: This is not related to any pre-existing illness. The insurance company is permitted not to cover certain kind of treatments for a few years. Let’s say knee transplant may not be covered in the first 2 years.  This is to prevent adverse selection. Someone who wants to undergo a knee transplant may want to apply for the policy.
3. Waiting period for a pre-existing illness: The insurance company can impose a waiting period of up to 4 years from the date of purchase of the policy for pre-existing illness. This means that the insurance company won’t cover any treatment costs during the waiting period for such pre-existing illnesses.
4. Pre-existing diseases to be permanently excluded: In this case, the insurer, after taking your consent, can exclude treatment of a pre-existing illness permanently. This means that the insurance company will never cover the treatment for such pre-existing illness.  To put it another way, the waiting period is infinite. IRDA has also provided the list of 17 illnesses/ailments that can be put under this bucket. Prominent ones are HIV, Hepatitis B, HIV, AIDS, Alzheimer’s disease, Parkinson’s disease, etc.
5. Treatment that can be permanently excluded: Additionally, there are certain treatments that can be excluded without buyer consent. Cosmetic surgeries, injuries due to participation in hazardous sports, etc. can be put in this bucket.
6. Consumables/food/E-mail/internet charges etc.

Your claim won’t be rejected after 8 years

As per IRDA proposal, if your policy has completed 8 years (or you have been in the policy for 8 continuous years), your health insurance claim cannot be contested except for proven fraud and permanent exclusions. So, your claim won’t be rejected from the 9^th policy year unless you have indulged in fraud or are making a claim for a permanent exclusion (exclusions 4, 5 and 6 in the previous section). In my opinion, this is a welcome relief for honest health insurance buyers. The proposal refers to this period of 8 years as “Moratorium period”.

Many of us purchase health insurance at a young age to avoid premium loading or even outright denial of health cover at an older age. In such cases, you may pay a premium for many years without making a claim. However, there is worry that when you make a claim after many years, your claim may get rejected. I believe, with this proposed change, this concern will be taken care off to an extent.

By the way, if your policy has sub-limits, co-payments or deductibles, those will be adhered to. Of course, the insurer, in any case, won’t pay more than the Sum Insured.

If you enhanced the cover in the interim, the timer for the enhanced portion will start again. For instance, you had taken a cover of Rs 10 lakh in 2019. You want to enhance the cover to Rs 15 lakh in 2024. Moratorium period for first 10 lakh will be over in the year 2027. The moratorium period for the enhanced portion (Rs 5 lakh) will complete in the year 2032. By the way, this is not a new approach. This is how it works for pre-existing illnesses even now.

What is a pre-existing Illness?

This can be a major bone of contention. Insurance policies are issued in good faith. The insurance company cannot possibly get you checked for every possible illness and then decide on your application. Therefore, it asks you to disclose any health conditions you may have at the time of first purchase. Insurance is a contract and you must keep your end of the bargain. That’s why it is advised that you provide full disclosure about the health conditions while purchasing the policy. However, there is still an issue.

You can disclose only those conditions/ailments that you know you are suffering with. How can you possibly disclose that you do not know yourself? The insurance companies can use this against you.  After all, they can say, that you knew but did not disclose. How do you counter that?

As per Guidelines on Standardization of Health Insurance dated July 29, 2016, a pre-existing illness means “any condition, ailment or injury or related condition(s) for which there were signs or symptoms, and/or were diagnosed, and/or for which medical advice/treatment was received within 48 months prior to the first policy issued by the insurer and renewed continuously thereafter.”

Now, signs or symptoms is very subjective and can be misused by insurance companies. I am sure this flexibility has been abused by insurers.

IRDA, perhaps taking cognizance of this issue, has proposed the following change to the definition

1. That is/are diagnosed by a physician prior to the effective date of the first policy issued by the insurer or
2. For which medical advice or treatment was recommended by, or received from, a physician prior to the effective date of the policy or its reinstatement.

The focus of the new definition is on actual diagnosis and the treatment (and not the symptoms). I believe, this takes care of the subjectivity that “signs” or “symptoms” had.

The revision to the definition of the Pre-existing illness will be a favorable change.

Note that, any illness contracted after the first purchase of the policy is covered under the health plan without any waiting period.

1. If these proposals are accepted, we may see a hike in health insurance premiums across the board.
2. I am not sure if the concept of “Moratorium period” will apply if you port your policy. Since there is fresh underwriting done when you port your policy, it is unlikely the “moratorium period” served under the existing policy will be carried forward to the new policy.
3. Even with these rules, can insurance companies still find a way around? I had presented an example in an earlier post. In my opinion, insurance companies can still use this workaround to trick you.
4. By the way, the draft also has a list of expenses that can’t be excluded from coverage. Examples are Treatment of mental illness, stress or psychological disorders and neurodegenerative disorders.

With health insurance, no matter how hard you try, you can’t make things objective. For instance, at one place, the proposal says “Neurodegenerative disorders” can’t be excluded from coverage. At another place, it permits insurers to add Alzheimer’s and Parkinson’s to permanent exclusions. I think both these illnesses are neurodegenerative disorders.

It is a fine attempt, nonetheless.

• CNBC
• 11/06/2019