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How Does Health Insurance Work ?

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Are you spending a large portion of your savings on healthcare each year? Protecting yourself and your loved ones with health insurance is essential. A health insurance policy is a financial safeguard that helps cover medical expenses, allowing you to rely on your insurer during emergencies. If you don’t yet have coverage, investing in a policy sooner is a smart decision.

This article explains how health insurance works in India and what you need to know to make informed choices.

What is Health Insurance?

Health insurance provides financial assistance to policyholders during medical emergencies and planned procedures. It covers a range of medical expenses, including hospital bills, pre- and post-hospitalisation expenses, home healthcare, daycare procedures and alternative treatments. However, the scope of coverage can vary from policy to policy.

When you have adequate health insurance handy, you can opt for timely treatment at a reputable healthcare facility without worrying about paying huge bills from your pocket. Therefore, health insurance makes healthcare affordable, especially now when medical costs are rising rapidly.

Key Components of Health Insurance

The key components of health insurance are:

1. Coverage

Policy coverage is one of the most important components of health insurance. It tells you about the inclusions and exclusions of a health plan and helps you file claims accordingly.

2. Premiums

A health insurance premium is the amount you must pay to the insurer to cover your risk. Depending on policy terms and conditions, you can pay premiums annually, semi-annually, quarterly, or monthly. Since these premiums renew your health plan, they are also called renewal premiums.

3. Copayment

A copay, or copayment, is an important clause in health insurance that helps reduce policy premiums. According to this clause, the policyholder must bear a pre-determined percentage of the health insurance claim amount, and the insurer will pay the remaining amount.

For example, if your claim amount is INR 1 lakh and the copayment is 10%, you must pay INR 10,000, and the insurer will pay the remaining INR 90,000.

4. Deductible

This is an important health insurance component that helps divide the risk between policyholders and insurance companies. If you take health insurance with a deductible, you must pay the deductible against your health insurance claim before the insurer starts to pay for your medical expenses. Deductibles also help reduce health insurance premiums.

5. Coinsurance

The term coinsurance refers to the amount you must pay after the pre-determined deductible.

For example, you have taken health insurance for INR 10 lakh. The policy has a deductible of INR 1 lakh and a coinsurance of 10%. If you file a claim for INR 3 lakh, you must pay the deductible of INR 1 lakh from your pocket. Once you have paid this, the coinsurance of 10% will be calculated on the remaining claim amount, i.e., INR 2 lakh. Therefore, you must pay another INR 20,000 from your pocket, and the insurer will pay the remaining claim amount of INR 1,80,000.

6. Sub-limits

These are the monetary caps insurance companies place on certain expenses, such as hospital room rent, ambulance charges, and medical expenses.

7. Waiting period

This is the initial period you must wait before you can start filing health insurance claims. While the initial waiting period is up to 30 days, the waiting period for pre-existing conditions and specified diseases can be up to 3 years.

Types of Health Insurance Plans

The following are the main types of health insurance plans in India:

1. Individual health insurance

This policy covers the insured individual's medical bills.

2. Family floater

This health insurance policy is suitable for families. It can cover the immediate family members under one plan, i.e., husband, wife, children and parents.

3. Senior citizens’ health insurance

This policy is suitable for individuals over 60 years of age.

4. Group health insurance

This is a health plan offered by employers to their employees.

5. Critical illness insurance

This is a special insurance policy that covers life-threatening conditions, such as cancer, heart disease, and kidney disease.

In addition to these, insurance companies may offer the following health plans:

◦ Personal accident cover

◦ Top-up health insurance

◦ Maternity health insurance

◦ Disease-specific plans

Coverage and Benefits of Medical Insurance

The coverage and benefits of a healthcare policy are:

1. Hospital bills

If you get hospitalised for a covered medical procedure, the insurer will reimburse the bills. Hospital bills can include the following:

◦ Doctor’s fees

◦ ICU or intensive care unit charges

◦ Hospital room rent

◦ Cost of diagnostic tests

◦ Surgery charges

2. Pre- and post-hospitalisation expenses

In addition to your hospital bills, a health insurance policy covers the expenses that you incur before and after hospitalisation. Pre-hospitalisation expenses may include doctor’s consultation fees and the cost of diagnostic and imaging tests. Post-hospitalisation expenses may include the cost of medicines and follow-up treatment.

3. Daycare procedures

Health insurance also covers daycare procedures or important surgeries and treatments that require less than 24 hours of hospitalisation.

4. Home healthcare

If your doctor advises home healthcare due to the non-availability of hospital rooms or for another reason, the insurer will cover the bills.

5. Alternative treatments (AYUSH)

If you opt for alternative treatments, such as Ayurveda, Yoga, Unani, Siddha, or Homeopathy, the insurance company will reimburse the bills. However, coverage may be subject to the policy's terms and conditions.

6. Road ambulance charges

Insurance companies also cover road ambulance charges during medical emergencies.

7. Organ donor expenses

If the insured is to receive a major organ, the insurer will cover organ donor expenses or the cost of harvesting the organ from the donor’s body.

8. Preventive health check-ups

Many insurance companies offer complimentary preventive health check-ups to policyholders. The frequency of these check-ups can vary from insurer to insurer.

9. No-claim bonus

If you don’t raise a claim during the policy period, you can earn a no-claim bonus in the form of reduced policy premiums or increased sum insured.

10. Income tax rebate

Under Section 80D of the Income Tax Act, 1961, you can earn a tax rebate of up to INR 25,000 or INR 50,000 (senior citizens) annually on the premiums you have paid toward your health insurance policy.

How to Renew Health Insurance

You can easily renew your healthcare policy either online or offline. Here’s how:

Online Renewal

◦ Visit your insurance provider’s official website and tap on the health insurance renewal option.

◦ Enter the policy number or registered mobile number and the required details.

◦ Select a suitable payment option, such as debit card, credit card, or net banking, and make the payment.

Offline Renewal

You can also renew your health plan offline by paying premiums via cheque or demand draft. If you are paying through a cheque, fill in the payee and premium amount correctly. You must also write your policy number on the back of the cheque.

Make sure you renew your health insurance before or within the grace period to prevent a policy lapse.

Factors Affecting Health Insurance Premiums

The following are the factors that affect health insurance premiums:

1. Sum insured:

The higher the sum insured of your health insurance policy, the higher the premium amount. Therefore, it is important to choose the right coverage amount to keep premiums affordable.

2. Age:

Health insurance premiums increase with age as older people are prone to health conditions. Hence, it is advisable to buy health insurance at an early age to cover your medical bills at a nominal premium.

3. Current health:

If you enjoy good health and have no pre-existing conditions, the policy premiums will be quite affordable. On the other hand, if you get diagnosed with a pre-existing condition before the policy purchase, the insurer will charge higher premiums to cover the risks.

4. Family history

Having a family history of health conditions, such as cancer, heart disease, diabetes, or high blood pressure, will also increase your health insurance premiums by a significant percentage.

5. Profession

If you have a high-risk job, insurers will charge higher premiums to cover the risks.

6. Smoking status

Smoking poses several health risks and increases the chances of hospitalisation. Therefore, smokers must pay higher premiums for their health insurance policies.

7. Geographical location

If you reside in a city where healthcare costs are high, you may have to pay higher health insurance premiums.

Tips for Choosing a Healthcare Policy

If you are planning to buy health insurance, the following tips can help you choose a good plan.

1. Policy coverage:

Look for a health plan with more inclusions and fewer exclusions. Make sure the policy covers hospital bills, pre- and post-hospitalisation expenses, home healthcare, daycare procedures, organ donor expenses, AYUSH treatments, and more. Opting for a comprehensive health plan will ease your financial worries during medical emergencies.

2. Sum insured

Although a high sum insured will provide better financial protection for expensive medical procedures, it will increase policy premiums significantly. Therefore, calculate the premium amount and choose an affordable sum insured.

3. Policy type

If you want to cover yourself and your loved ones under health insurance, it is wise to choose a family floater plan rather than individual health plans. This will save you from the hassles of maintaining separate policies. Moreover, a family health insurance policy will be more affordable than individual health insurance. However, it is wise to cover senior citizens under a separate plan.

4. Network hospitals

Choose a reputed insurance provider with a long list of network hospitals, with some good ones in the vicinity. If there is a medical emergency, you can reach the nearest network hospital without worrying about paying the bills from your pocket.

5. Waiting period

All health insurance policies come with an initial waiting period of up to 30 days. In addition, you may have to serve a waiting period of up to 3 years for pre-existing conditions and

specified diseases. Therefore, when you are buying health insurance, choose a policy with a shorter waiting period for these conditions.

6. Claim settlement ratio

This is an important thing to consider while buying health insurance. The claim settlement ratio is the percentage of claims settled by the insurance provider out of the total claims received in a financial year. It is wise to opt for an insurance provider with a high claim settlement ratio, as it offers reassurance that the insurer will settle your claims.

7. Sub-limits:

While sub-limits may help reduce policy premiums, they may also prevent you from making the most of your health plan. Therefore, look for sub-limits at the time of policy purchase and, if possible, opt for insurance coverage without sub-limits.

Claim Process of Health Insurance

To understand how health insurance works, it is important to know the claim settlement process. Here’s how insurers typically handle claims:

◦ Cashless Claims

If you receive treatment at a network hospital listed by your insurer, inform your third-party administrator (TPA) about your hospitalisation. The TPA coordinates with the insurer regarding your medical expenses. Once your bills and medical reports are verified, the amount is directly settled with the hospital. In rare cases, if claims are rejected due to policy exceptions, you may need to pay out of pocket.

◦ Reimbursement Claims

For non-network hospitals, you pay your medical expenses upfront and then submit a claim to your insurer. Complete the claim form with details like your name, policy number, and treatment information, and attach original documents such as medical bills, discharge summaries, and doctor authorisation letters. Once verified, the insurer reimburses your expenses. If a claim is rejected, you will receive an EOB (Explanation of Benefits), allowing you to correct errors and resubmit. Understanding this process gives you clarity on how medical insurance works.

How Does Health Insurance Renewal Work?

To understand how does health insurance work, it’s also crucial to know about policy renewals. Health insurance policies have a fixed tenure, after which coverage stops unless renewed. Timely renewal ensures continuous protection against planned and unplanned medical costs.

You can renew your policy through your insurer’s website, mobile app, or by contacting the company directly. Typically, you provide your policy number and pay the renewal premium. Choosing a 2- or 3-year policy tenure reduces the hassle of annual renewals.

Conclusion

A health insurance plan is essential to protect yourself and your family from rising medical costs. Knowing how health insurance works in India and understanding inclusions, exclusions, claim procedures, and renewal processes are critical. Regularly reviewing your policy ensures coverage aligns with your medical needs and budget.

Thorough knowledge of policy terms is the first step to understanding how does health insurance work in India and securing continued financial protection against medical expenses.

FAQs

1. I am young and healthy. Do I need health insurance?

Yes, it is important to stay covered under adequate health insurance for financial protection during medical emergencies. Accidents and illnesses can happen at any age and take away a part of your savings. Therefore, it is wise to stay prepared for the uncertainties with the right health insurance policy.

2. Should I take separate health insurance for my parents?

It is advisable to cover your parents under a separate health insurance policy. The premium for a family floater depends on the age of the oldest member covered. Therefore, covering your parents under the same policy will increase policy premiums by a significant percentage.

Moreover, when you cover senior citizens under a separate health insurance policy, they can use the entire sum insured to cover their medical bills. You can also claim tax deductions of up to INR 50,000 on parents’ plan and INR 25,000 on your individual health insurance or family floater.

3. What is a no-claim bonus in health insurance?

A no-claim bonus is an important benefit offered by insurance companies to policyholders. If you don’t make health insurance claims in a policy year, the insurer will give you a no-claim bonus in the form of an increased sum insured or a discount on policy premiums. You can earn a maximum no-claim bonus of up to 50% after five consecutive claim-free years.

4. Can I buy more than one health insurance policy?

Yes, you can buy more than one health insurance policy for better financial security during medical emergencies.

5. Can I add an immediate family member to my health plan?

Yes, you can add immediate family members, such as your spouse, children, or parents, to your health plan at the time of policy purchase or renewal.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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