A major change has been proposed for health insurance in India, which could alter how policyholders share hospital expenses. Under this proposal, being considered by non-life insurers, policyholders may have to pay 10% of the admissible hospitalisation cost themselves for retail health insurance claims, while the insurer would cover the remaining 90%.
In return, the annual premium could be lower. However, families may need to keep more money aside to cover their share of the bill at the time of hospitalisation. This means looking at the sum insured alone may not be enough; the actual out-of-pocket cost of the policy will also matter.
Let us understand the proposed 10% co-payment rule and how it could affect health insurance policyholders and their medical expenses.
What Exactly Is the 10% Co-Payment Proposal?
According to the proposal, a 10% co-payment could apply to retail health insurance claims from 1 January 2027. This could cover inpatient hospitalisation, accidents, cashless treatment and reimbursement claims. However, a cap of Rs 5 lakh per claim has been proposed on the policyholder’s share.
For example, if the admissible hospital bill is Rs 5 lakh, the policyholder will pay Rs 50,000 as co-payment. If the total bill is Rs 5 lakh but the admissible amount comes to Rs 4.5 lakh after applying the policy conditions, the co-payment will be Rs 45,000. Similarly, on an admissible claim of Rs 50 lakh, the policyholder would pay Rs 5 lakh, or 10% of the amount. For a claim of Rs 60 lakh, the 10% share would be Rs 6 lakh, but the proposed cap would limit the policyholder’s share to Rs 5 lakh.
Why Do Insurers Want This Change?
The proposal comes amid concerns about rising healthcare costs and hospital billing practices. Insurers believe that patients whose treatment is fully covered by insurance may be less likely to question the cost of expensive tests, additional procedures, longer hospital stays or higher-category rooms, as most of the expense is covered by the insurer. This could encourage provider-induced demand and overbilling.
The proposal goes beyond co-payment. It also includes common empanelment for more than 4,300 hospitals, standard benchmark tariffs, contracts linked to clinical and procedural outcomes, and a formal mechanism to resolve disputes between hospitals and insurers. The aim is to standardise hospital billing and improve control over claim costs.
Higher Out-of-Pocket Expense in Exchange for Lower Premium
The most obvious benefit of this model could be a lower annual premium. However, in exchange for the savings, policyholders would have to pay 10% of the admissible claim themselves at the time of hospitalisation.
According to LiveMint, expenses arising from room-rent limits, deductibles, disease- or procedure-specific sub-limits, exclusions and non-payable items could push the total out-of-pocket cost beyond the co-payment amount. Therefore, policyholders will need to look beyond the 10% figure and understand how much of the hospital bill the insurer will actually cover after applying the policy conditions.
There are also concerns about consumer choice. Even if a customer is willing to pay a higher premium for full coverage, they may still have to accept mandatory co-payment. Questions have also been raised about competition if policies without co-payment are no longer available across the industry.
Which Policies Will Be Affected and What Will Be Necessary to Check?
The proposal could apply to retail indemnity health policies, retail group health policies, the indemnity component of combination products, and policies involving internal migration or portability. Outpatient claims are proposed to remain outside this arrangement.
Another important point is that the 10% co-payment could not be removed, reduced or changed through a rider or endorsement. The proposal also does not allow policyholders to recover this amount through another health insurance policy.
While buying or renewing a policy, it will be important to check room-rent limits, deductibles, sub-limits, exclusions, waiting periods, non-payable expenses, the available sum insured, restoration benefits and how the co-payment is calculated after other deductions.
Why Could an Emergency Fund Now Become Even More Important?
Even with health insurance, the proposed arrangement could create an immediate need for cash at the time of hospitalisation. According to NDTV Profit, families may need to reconsider keeping an emergency fund equal to three to six months of expenses to help cover co-payment and other non-covered costs during a medical emergency.
The proposal essentially involves a trade-off between a lower premium and greater personal responsibility. Policyholders could pay less for their insurance each year but contribute more when making a claim. If the proposal is implemented, choosing health insurance will require looking beyond the premium and sum insured to consider potential out-of-pocket expenses and the savings available to cover them.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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