A group health insurance is a health insurance plan that covers a group of people who work in the same organization. A group health insurance plan can additionally cover the family members of the employees, including spouses, children and parents.
One of the advantages of a group health insurance plan is that it allows organizations to customize the plan as per their need. But that also means that the organization needs to figure out the last possible detail of the plan.
Most of the leaders setting up group health insurance plans do so for the first time and hence need to be aware of common insurance parlance. Hence they rely heavily on the insurance company’s recommendation. With the intent of minimizing the cost of insurance, many a time, they end up choosing an insurance design that will severely restrict the employees (and their family members) from using the insurance.
One of the most common design mistakes we have seen organizations make is choosing an insurance plan where the room rent & ICU limits need to be improved. Either too low that severely restrict employees from using the insurance or too high that it shoots up claims cost as much as 2x.
How do room rent limits work
Insurance plans usually have a limit on room rent and ICUs, generally between 1% to 2% of the sum insured. Here is how the room rent limit works.
Typical room rent for a private ward in a category-A hospital (such as Fortis, Manipal, etc.) in Bangalore is ₹8,000 per day. Let’s say I get hospitalized for 5 days, and my per day room rent is ₹8,000, and my total hospital bill is ₹2 Lakhs (i.e. ₹40,000 for room rent, and ₹1.6 Lakhs for the surgery and other expenses such as diagnostics, pharmacy).
Let’s say you have set up health insurance with the sum insured (SI) as ₹2 Lakhs, and the room rent submission is set as 1% of SI, i.e. ₹2,000 per day.
The employee would naturally think that he would need to pay ₹6,000/day (₹8000 — ₹2000) for room rent, i.e. ₹30,000 for 5 days, out of his pocket, and the rest ₹1.7 Lakhs will be covered by the insurance company.
But most of us don’t know that room rent and ICU limits come with a “proportionate deduction”. Proportionate deduction comes into force when you pick a room with a tariff above the allowed room rent limit in your policy. It means that the insurance company will cover you for the associated medical expenses in proportion to the room rent limit to the actual rent paid.
In the above scenario, since the room rent limit was 25% of the actual room picked, the insurer will pay only 25% of the entire bill except for the MRP products, such as medicines. That is, the insurer will pay only ₹65,500, and the rest ₹1.34 Lakhs will be borne by the employee, despite having a policy of ₹2 Lakhs. This generally comes as a big surprise to employees when they eventually make a claim and hence is the most significant source of dissatisfaction.
What limit should you choose?
Plum recommends all organizations consider what kind of hospitals their employees (and the family members) go to and accordingly decide the proper room rent limit for their plan. Here are a few common scenarios.
Tier-1 hospitals, low-sum insured
Tier-1 hospitals’ room rent for the private wards is in the range of ₹6,000/day to ₹10,000/day. If you take a sum insured of ₹2 Lakhs, you need to have a minimum room rent limit of 3%-4%. Most of the insurance plans offer room rent limits of upto 2%. Hence if you are choosing a low sum insured, and your employees tend to visit Tier-1 hospitals, you should take an insurance plan with no room rent limit.
Tier-1 hospitals, high-sum insured
In contrast, if you have taken a sum insured of ₹5 Lakh, you can choose a room rent limit of 2%, and your team would have no challenge.
Let’s say your team members generally go to smaller & less-expensive hospitals. The room rent for a private ward would range from ₹2,000/day to ₹5,000/day. Hence a 1% to 2% room rent limit (depending on your sum insured) would be enough for your team.
One of the other considerations is the ongoing Covid-19 pandemic. Covid-19 treatment requires patients to choose a private ward (instead of a semi-private ward). Hence your employees may only have the option to go for a cheaper room if they want to.
Plum’s insurance design
With Plum, we have built a guided insurance design flow for organizations. It helps organizations choose the right insurance design that ensures you don’t compromise your employee experience. If you are an organization that hasn’t set up health coverage yet for your employees, give Plum a shot.
Earlier, we wrote about How group health insurance work is a must-read if you haven’t already.