Health Insurance - Common Terms and Definitions

Health Insurance - Common Terms and Definitions

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Introduction

Before you ask your health insurance agent for the best health insurance quote or plan; it is best to be an informed consumer. Find definitions of commonly used health insurance terms in this health insurance glossary. It serves as a dictionary to help consumers understand common terms used in health insurance.

Health Insurance

It is a way to distribute the financial risk associated with the variation of individual’s health care expenditures by pooling costs over time (pre-payment) and over people (pooling).

Agent

An agent is appointed by the insurer to conduct business on behalf of the insurance company. An agent must hold a license issued by the Insurance Regulatory and Development Authority (IRDA).

Claim

The process of applying to the insurer for reimbursement of the expenses incurred for treatment is called “filing a claim”. Usually, this process is handled by a service provider to the health insurance company. This service provider is called a “Third Party Administrator” (See below).

Cashless Claim

As the term suggests, the insured can claim without paying any cash upfront. The insurer or its Third Party Administrator have tie-ups with network of hospitals and nursing homes called a “network hospital”(see below) across the country. The insured can get themselves admitted in these specified network hospitals and take treatment for the disease contracted without any cash payment to the hospital at the time of discharge.

However cashless mediclaim settlement is subject to the limits and sub-limits which is subject to the sum insured of the policy.

As the term suggests, the insured can claim benefits like hospitalization or surgery and the entire hospital bill without paying a penny from his pocket at the time of discharge. The insurer or its Third Party Administrator have tie-ups with the network of hospitals, and nursing homes called a “network hospital”(see below) across the country. However cashless mediclaim settlement is subject to limits and sub-limits which is subject to the sum insured of the policy.

Coverage Amount

Coverage amount is the maximum amount payable in the event of a claim. It is also known as “sum insured” and “sum assured”. The premium of the health insurance policy is dependent on the coverage amount selected by you.

Critical Illness Policy

A Critical Illness is a serious possibly terminal disease, which is strictly defined by the insurer. Conditions such as cancer, multiple sclerosis, major organ transplants are deemed as “Critical Illness”. Most critical illness policies provide for the payment of a lump sum benefit if the policyholder is diagnosed as suffering from one of a number of specified terminal conditions.

Cumulative Bonus

Each claim free year ensures that you get a benefit known as “cumulative” bonus - it is similar to “no claim discount”(see below) in concept. The only difference being, that instead of giving an upfront discount, the health insurance company adds more benefits for the same premium paid. However, the overall amount of these benefits will not exceed a certain percentage as specified in the policy.

Disability Insurance

Disability insurance is a form of insurance that pays a monthly income to the insured when he suffers from total or partial disability. This disability could have been caused due to either illness or injury, but affects his capacity to work and consequently earn.

Domiciliary Hospitalization

Domiciliary Hospitalization is the treatment of the patient is carried out at home. This needs to be as per the doctor's recommendation. Most health insurance companies do cover domiciliary hospitalization subject to a certain limit depending on the sum insured.

Exclusions

Exclusions are diseases and conditions for which medical expenses are not covered by the health insurance policy. Exclusions can be of two types – Permanent and First year. Permanent exclusions are never covered by the policy for example, AIDS or expenses incurred on cosmetic surgery.

First Year exclusions are ailments which are not covered for the first year of health insurance cover, but are covered subsequently for example surgery for cataract is usually not covered in the first year but is covered starting the second year.

Floater Policy

A floater policy is issued with a single sum insured covering the number of individuals. Simply put, it is a one premium and one policy for all members of the family. The cover can be used any member of the family any number of times.

For example, there are four members of your family - you, your spouse and your two children. You purchase a family floater policy with a sum insured of Rs. 500,000. This means that if you fall sick and utilize Rs 200,000 in treatment - the remaining Rs. 300,000 can be utilized by any member of the family including yourself. Your total expenses across the family would be, however, capped at Rs. 500,000.

Good Faith

Good Faith is a minimum standard to get into a contractual arrangement. It requires both the buyer and seller in a transaction to act honestly toward each other and to not mislead or refrain from providing critical information to the other party. In the context of health insurance in India, it requires you to disclose all relevant personal information like previous disease history to the insurer before buying insurance.

Health Insurance Fraud

It is described as an intentional act or deceiving, concealing, or misrepresenting information that results in healthcare benefits being paid illegitimately to an individual or group.

Group Insurance

A firm or an association may buy a policy to insure members of a group. For example, a Company may take a policy to cover a large group of its employees.

Insurance

Insurance is a contract in which an individual or entity, pays the insurance company in return for the insurance company bearing the risk of loss against specified conditions. The individual receives reimbursement against losses from an insurance company. The company pools the clients' risks to make payments more affordable for the insured.

Insurance Regulatory and Development Authority (IRDA)

IRDA stands for “Insurance Regulatory and Development Authority”. It was established in 1999 under an act of Parliament to promote and regulate the insurance industry in India including all its constituents like Insurance Companies, Agents and Brokers.

Underwriting

It is a process of assessing the risk appropriately and deciding the terms on which the insurance cover is to be granted. It is a process of risk selection and risk pricing.

Moral Hazard

Moral Hazard is a term used in insurance to describe the phenomena where the customer may seek an undue advantage, as a result of buying insurance or where the customer has not acted in good faith and has provided misleading information to the insurance company.

Network Hospital

Network Hospitals are hospitals and nursing homes which are associated with the “Third Party Administrator” (see below). Cashless mediclaim is facilitated through this network of hospitals as the TPA directly pays these hospitals.

No Claim Discount

No Claim Discount is a discount on the Basic Premium if there is a claim free year of the policy. If the insured does not make any claim on his policy, then he gets a discount from 5% to 25% on basic Premium for every claim free year.

Overseas Medical Policy (OMP)

An overseas mediclaim policy is issued to persons who undertake trips abroad for business or pleasure or for educational purposes. The policy terms are similar to plain vanilla mediclaim policy with no pre-existing disease coverage and similar exclusions as well. The only difference being that it is applicable in the country of travel and not India.

Personal Accident Policy

Personal Accident Policies are issued as fixed benefit policies whereby specified sums are paid on the occurrence of specified events. These events could be death or disability. This payout is not related to the expenses incurred. For Example: Shyam has a personal accident policy. He meets with an accident and is permanently disabled. He would automatically get 100% of the sum insured and this would be in no way linked to the expenses he has incurred in the treatment of the same.

Policy

A policy is a stamped document which is evidence of the contract of insurance between the insurer and the insured. The policy encapsulates the benefits and features of the policy.

A policy is a stamped documented evidence contract of the insurance between the insured and the insurer. It encapsulates the benefits and features of the policy.

Pre-existing Disease

A pre-existing disease is any ailment or disease that a person is already suffering from at the time of purchasing health insurance.

Premium

Premium is the amount paid by the insured (the buyer) to the insurer for the policy. Simply put, it is the cost of the insurance policy.

Proposal

Proposal forms are used to give the insurance company full particulars of the risk against which insurance protection is desired. This proposal form is the basis of the health insurance policy. Any misrepresentation or non-disclosure of facts would make the insurance null and void.

A proposal form is the basis of the health insurance policy. Proposal forms provide full particulars of the risk to the insurance company against desired insurance protection. Any misrepresentation or non-disclosure of facts would make the insurance null and void.

Proposer

A Proposer is the insured who seeks protection against loss he may suffer due to the happening of a contingency.

Renewal

Health insurance policies are usually annual contracts. At the end of the policy period, the policy has to be renewed by the insurers. However, renewing a contract of insurance is at the discretion of the insurer. There should be a continuous renewal of the policies. If there is a break in insurance, the insured would lose the benefits of insurance in the event of any contingency.

Reimbursement

Under a Health Insurance policy, the cost of various hospital charges (such as bed charges, medicines, lab tests, surgeon's fees and so on) are paid back to the insured who makes the claim. In other words, the insured pays the (hospital) expenses incurred, but thereafter gets reimbursed by the insurance com.

Third Party Administrator (TPA)

Third Party Administrators (TPA)are the authorized claim settling agents of the Insurer. They scrutinize the expenses incurred vis-a-vis coverage under the policy. They ensure compliance with the policy terms and conditions and warranties and subject to the limit of sum insured.

The insured needs to interact with them for settlement of claims. The TPA also empanels hospitals to be part of the network to facilitate cashless settlement of claims.

Five Important Tips on Health Insurance

  • Define your requirements of health coverage. Select a health insurance according to the requirements of your health coverage.
  • Choose which members of your family need to be part of the health insurance policy which covers your family members - you might find splitting policies to be beneficial.
  • Confirm the insurance package premium with regards to your personal health needs. Decide the total amount of health coverage needed.
  • Read and understand through the list of exclusions of the health insurance policy - both permanent and first year.
  • Check the network coverage of the Third Party Administrators (TPAs) being employed by the health insurance company.

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What is Loading of Premium. As I understand from my policy document, if there are claims paid in preceeding 2 consecutive years and average of the claims amounts is more than 100% of premia paid so far, then in the next year premium will be increased by certain percent; that percentage if loading. For example, there are claims paid in 2009 and 2010, then for 2011 policy premium will increase by that certain percentage. If there are claims paid in 2010 but not in 2009, no loading is applicable to 2011 premium. Please clarify. A. Raza : Email: armoulvi@gmail.com

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