HEALTH INSURANCE

Health insurance is defined as ‘coverage that provides for the payments of benefits as a result of sickness or injury. It includes insurance for losses from accident, medical expenses, disability or accidental death and dismemberment’.

Health insurance is a safeguard against rising medical expenses. A health insurance policy is a contract between the insurer and an individual/group in which the insurer agrees to provided specified health insurance at an agreed premium. Premium can be paid as lumpsum or in instalments. Health insurance mainly covers two types of benefits:

Related to the reimbursement of medical expenses related to specific diseases

Related to hospitalization

Globally health covers operate in two ways: cashless and cash reimbursement.

In India, health insurance is provided mainly in the form of Mediclaim policy to individuals or groups, associations or corporate bodies. Besides Mediclaim the other popular covers in India are Bhavishya Arogya Bima for post retirement medical cases, Jan Arogya Bima for small covers of the lower income groups and cancer policies. With the advent of the private sector, both cashless and cash-reimbursement systems of claim settlement are available. Hospitals, nursing homes and medical practitioners are increasingly seeking tie-ups with insurances to offer their service under health and medical insurance plans.

CHARACTERISTICS OF HEALTH INSURANCE

Health insurance known as Mediclaim offers protection against unforeseen and unexpected medical emergencies.

The health insurance takes care of cost of treatment, hospitalization and other medical services. Some schemes provide support for pre and post hospitalization. E.g. cost of medical tests, purchase of medicines.

The health insurance contract may be renewable annually or monthly.

As per section 80D of Income Tax Act 1961, the premium paid for Health Insurance Plan is deductible from taxable income. Maximum deductible limit for individual is Rs.15,000 to Rs.20,000 in case of senior citizens.

Health insurance my be provided through a government sponsored social insurance program or by private insurance companies.

It may be purchased on a group basis e.g. manufacturing company takes policy to cover its workers.

The type of health insurance policy, amount of premium and claim details are specified in the beginning.

A critical illness rider option to cover medical expenses may be added whereby the amount insured in the policy will be given to the customer, in case he/she encounters that critical illness during the time period of the policy.

BENEFITS OF HEALTH INSURANCE

Benefits to individuals:

Risk cover: Health insurance helps to cover various risks related to health. It covers disability, long term nursing or custodial care needs.

Protection against rising health expenses: In view of the increase in the cost of health care and treatment, health insurance is become increasingly essential. A majority of private hospitals are beyond the reach of normal middle class families, here, insurance companies provide financial assistance to individual/groups for medical treatment.

Daily hospital cash allowance: Insurance companies provide additional financial protect to take care of expenses not covered under the policy like food and travelling. For e.g. SBI’s Hospital Daily Cash Policy provides daily cash benefit of Rs.2000 (Rs. 4000 in case of ICU/Accidental hospitalization) per day.

Peace of mind / Minimizes worry: Health insurance along with many other forces contributes to the wealth creation of a policy holder as he is relieved from worry and it will increase his/her efficiency.

Tax benefit: It provides tax benefit under section 80D of IT Act 1961. This will help reduce the tax burden on individual tax payer.  

Expenses related to organ donor: Most of the health insurance companies cover organ transplant surgery as a part of their regular health insurance plans. Very few companies put a cap on these expense or offer it as an add-on benefit.

 

Benefits to society:

Health insurance benefits society too as it assists economic development.

Mobilization of savings: Each individual in the pool pays relatively small insurance premiums, from his/her savings. Such pooled funds are then let to business, governments in the form of loans.

Substitution of government security program: Health insurance acts as a substitute for government security programs as it directly provides the same security at a cost to the insured. Health insurance policies relieve pressure on social welfare systems. Hence, the Government reveal this fact by granting tax relief to policy holders.

Effective use of Capital Allocation: Insurance facilitate economies of scale in investment. Large investment projects require huge financial capital. Insurers provide funds to those projects whose prospects are bright. Insurers often meet the financial needs of such large projects from their accumulated premium collections.