What are the Deductibles in Health Insurance - Features & Benefits

The purpose of a health insurance plan is to provide coverage against the risk of sudden medical costs to individuals and their families. However, while most health insurance policyholders consider factors such as premiums, sum assured, waiting period, and hospital network, there is another important aspect that is often misinterpreted.

The deductible is an important component that affects the extent of your financial liability before the insurer reimburses you for medical costs. It is one of the most common terms in almost all top-up and super top-up plans, and it can affect both your premium cost and the entire claims process.

Before buying a health insurance plan, it is important to understand what a health insurance deductible is. If you wish to buy a policy or calculate your medical bills, knowledge about the deductions will be useful for you.

Health Insurance Deductible Meaning

The health insurance deductible is the amount the insured must cover out of pocket before the insurance company pays the remainder.

Simply put, it refers to the part of your claim that you accept on your own. Until you make the payment of this predetermined sum, the insurance company would not be obligated to pay the remaining amount.

The deductible amount is frequently incorporated into insurance policies to shift some risk to insured individuals. Because the insured individual shares his or her costs, insurers provide their services at relatively low cost.

Let us understand what is deductible in health insurance with example: When an individual's deductible is ₹50,000 and his or her medical bill is ₹2 lakh, the insured pays ₹50,000, and the insurer covers the remaining eligible costs under the terms of the contract.

Such an arrangement makes insurance policies cost-effective while still providing policyholders with protection against high medical costs.To avoid confusion between these two cost-sharing features, it's also helpful to understand the difference between co-payment and deductibles before choosing a health insurance policy.

Why Do Health Insurance Policies Include Deductibles?

To reduce the number of small claims, insurance companies include a deductible clause, which discourages abuse of medical services. Through this clause, the policyholder can be very careful about how they use their insurance cover.

However, deductibles enable insurance companies to provide more coverage at reduced rates. This is especially applicable to top-ups and super-top-ups, where the deductible serves as a threshold for accessing additional coverage.

For customers, deductibles may be an efficient way to reduce premium costs while still accessing adequate medical cover.

How Does a Deductible Work During Claim Settlement?

Once a claim is made, the first step is to consider the total medical expenses covered by the plan. This is followed by adjusting the deductible on the claim before computing the liability.

Let’s take an example of a hospitalisation claim worth ₹5 lakh with a deductible amount of ₹2 lakh.

In such a scenario, the policyholder pays ₹2 lakh out of pocket. Then the insurance company will settle the remaining ₹3 lakh after analysing the claim.

It does not matter whether the case is settled via reimbursement or cashless hospitalisation. In any case, the insured individual should pay the deductible out of pocket before any coverage is provided.If you're opting for cashless treatment, it's also helpful to understand how cashless claims in health insurance work to ensure a smooth claim settlement process.

This method allows the individual to handle smaller claims and share the cost of larger medical expenses with the insurer.

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Types of Deductibles in Health Insurance

There are mainly two types of deductibles in medical billings are available under health insurance policies, namely:

Compulsory deductibles: Compulsory deductibles are determined by the insurer and are a part of the policy that the insured person cannot alter. This kind of deductible is common in top-up and super top-up health insurance policies.

Voluntary deductibles: In this case, the insured selects the deductible amount. The higher the voluntary deductible, the lower the premium payable under the policy. This is because, by agreeing to pay more out of pocket in the event of a medical emergency, the insured person reduces the risk borne by the insurance company. As the insurance company bears less risk of claim expenses,  customers pay lower premiums. 

However, voluntary deductibles must be used judiciously. If the insured person cannot afford them, it will result in financial loss.

Deductibles in Top-Up and Super Top-Up Plans

Both the top-up insurance plan and the super top-up insurance plan provide additional coverage beyond the deductible. The top-up insurance plan covers any excess above the deductible on an individual claim, while the super top-up insurance plan covers all medical expenses incurred in a year of the insurance period.

It must be noted that deductibles play a vital role in top-up or super top-up health insurance policies.

The top-up plan covers excess medical expenses over the deductible set by the insurer after the claim is filed. Thus, for instance, if the top-up plan has a deductible of ₹5 lakh and the total hospitalisation expenses amount to ₹8 lakh, the plan will cover the amount above ₹5 lakh under its rules.

However, a super top-up plan works differently. While in the case of top-up plans, the hospitalisation event matters, in a super top-up plan, total expenses throughout the insurance period do matter.

Thus, if an insured party spends ₹3 lakh on one hospitalisation and ₹4 lakh on another within the year, the total expenses amount to ₹7 lakh. Given a ₹5 lakh deductible, the insurer might cover expenses exceeding this amount, depending on the contract terms.

The above is one reason super top-up policies are an economical way to improve health insurance plans.If you're comparing these two options, understanding the difference between top-up and super top-up health insurance policies can help you choose the right additional coverage for your needs.

Deductible vs Premium: Understanding the Relationship

Understanding the correlation between premiums and deductibles is crucial when planning for health insurance.

The optimal selection should take into account the individual's overall health status, history, financial strength, and risk appetite. It might not be the ideal choice to make a decision just to save premium costs.

Benefits of Choosing a Health Insurance Deductible

Selecting a higher health insurance deductible is one way to reduce premiums and make high-level coverage more affordable. Deductibles are flexible and can offer several advantages when selected carefully. 

• The first one is cost-effectiveness. Insurance policies with deductibles have relatively low premiums, making comprehensive insurance available to more people.
• Another benefit is the cost-effectiveness of high-value health insurance. For instance, a person can obtain more health insurance coverage through a top-up or super top-up plan with deductibles without incurring high costs.
• Flexibility is another important benefit of using deductibles. The policyholder can easily select a deductible based on their financial capacity.
• In addition, deductibles can help a person save a considerable amount of money if he/she does not often use hospital services.

Things to Consider Before Choosing a Deductible

It will be prudent to take stock of your healthcare needs and financial readiness before choosing a deductible.

• If you have recurring illnesses or regular hospital stays, it would be wise to avoid deductibles that are too high, as they will increase your cost burden.
• Those with young children or older family members may also consider the potential costs before choosing higher deductibles.
• Consider the amount of money you have managed to save for your emergency fund, as this is the amount you will require to cover yourself until your insurance policy starts paying. Before renewing your policy, it's worth reviewing the points to remember during health insurance renewal.
• Your deductible should help optimise your costs while maintaining your health status.
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By understanding the health insurance deductible meaning, insured individuals can reduce premiums without losing any medical coverage. The deductible works well for those who enjoy good health and can save enough to cover their initial medical expenses. Nevertheless, you must understand which deductible is right for you based on your healthcare needs and financial capacity.