Wednesday, April 26, 2017

Must Know: Differential Premiums

Health insurance premiums vary based on the city you reside and not just your age and health condition

By OLM Desk

Insurance may seem funny. But as insurance is all about probabilities and statistics, the fun quotient is completely lost. An aspect of health insurance which seems funny is the differential pricing charged by insurers based on the city you reside. So, someone residing in Chandigarh with the same age and profile as someone based in Delhi, may actually be paying a lesser premium on the same policy cover from the same insurer.

The reason for lower premiums is based on the fact that healthcare costs in some cities are lower than what it is in other cities. For instance, the cost of treatment for the same medical condition could be higher in a metro compared to a smaller city. Moreover, people living in Tier-2 and Tier-3 cities often have lower claim ratio than those in Tier-1 cities according to reports on the Insurance Information Bureau of India website. In a way insurers are right in charging those in smaller cities a lower premium over those in the bigger cities.

Understanding the difference

Although insurance is all about pooling money; the risks signed by the insurer are all the same. By charging both the city dweller and the smaller town resident the same sum, the insurer would be penalising the small town policyholder for their good health. Almost every health insurer has a zone-based pricing today, and it is in the interest of the policyholders.

Indicatively, zones are classified 1, 2 or 3, which means metros fall under Zone-1, Tier-1 cities in Zone 2 and the rest under Zone 3. The premium difference could be up to 10-15 per cent. What this means is that those in metros would be paying as much as 10-15 per cent higher premium than people living in smaller cities and towns.

Policy benefits

What this arrangement fails to factor is that someone may be travelling from Jaipur to Delhi and then fall sick and be hospitalised. While the policyholder may undergo treatment in the bigger city hospital, they may lose out on the full claim settlement. The reason for this approach is that the premiums were based on hospitalisation in the city they live in and not a bigger city hospital cost, which may be higher. Many insurers do not extend cashless facility when the policyholder falls sick, needing hospitalisation in a different city.

You may also need to pay higher co-pay when you are in Zone 2 or Zone 3, which means that you agree to contribute a higher sum when a claim is raised, when you are being treated in a bigger city. These are all part of the policy terms and conditions, which you should definitely read and understand before taking on the policy. Else, chances are on a hospitalisation bill of Rs 50,000 in Delhi which you may incur when travelling from Jaipur, the insurer may just agree to pay you Rs 40,000 and that too not as part of a cashless facility.

If you are thinking if you can move up the Zone classification – the answer is yes. At a cost you can go up the ladder. However, this shift would cost you a higher premium and the need to get the change mentioned in your policy document. Weigh your options before moving the policy from one zone to the other. Do not be blinded when planning to shift to a higher zone from where you are without evaluating the medical care available in your city of residence. 

 

olmdesk@outlookindia.com

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