The recently introduced 5 percent Goods and Services Tax (GST) on hospital rooms, excluding intensive care units, with a rent of over Rs 5,000 will inflate healthcare costs for patients.
Health insurers are likely to treat this tax as part of the total bill amount, but policyholders who own plans with room rent sub-limits will be affected. “Health insurance policyholders are unlikely to be affected, as the insurer will typically pay the claim as applicable (including the GST charges) to the insured if the policy has no capping on the room rent,” says Nikhil Kamdar, Appointed Actuary, Digit Insurance.
Overall health insurance premiums across age groups could also go up further. “From a policyholder's point of view, this will also result in higher premiums as room rent accounts for 15-20 percent of the overall hospital bill,” says Biresh Giri, EVP, Actuary and Underwriting, ACKO Insurance.
Adverse impact on room-rent sub-limit policies
Higher effective room rent due to GST will mean higher out-of-pocket expenses for policyholders who have policies with room rent sub-limits and proportionate deduction clauses.
“Earlier, healthcare was out of the GST ambit. The 5 percent levy on hospital room rent will push up the cost of hospital stay for policyholders who have health insurance policies with the room rent sub-limit clause. This, despite the fact that insurance companies are likely to pick up the GST tab,” says Satish Gidugu, CEO and Whole Time Director, MediAssist TPA.
This is because of the proportionate deduction clause in such health insurance policies. “Since all other charges (such as consultation fee, and operation theatre charges) are linked to room rent, the overall bill will be inflated. And, the entire eligible claim amount will get reduced proportionately,” he adds.
Patients who do not prefer smaller hospitals or shared rooms could face a higher out-of-pocket burden. “When a medical condition necessitates hospitalisation, most people prefer larger multi-speciality hospitals, where room rent is way higher, resulting in increased cost of hospitalisation, including a higher GST bill,” says Giri.
Usually the room rent is capped at 1-2 percent of the sum insured. For example, the standardised Arogya Sanjeevani health policy specifies a limit of 2 percent of the sum insured or Rs 5,000 a day, whichever is lower. Then, there are policies where the holders are eligible for single private rooms and ones that do not specify any limit at all.
The proportionate deduction clause
Health insurance policies with room rent restrictions are cheaper than those without any limits. However, if you own such policies, the claim amount paid to you will be lower than the actual bill amount because of this clause that goes hand-in-hand with the sub-limits.
If your room rent exceeds the limit specified, your approved claim amount, which also includes doctors’ fee, operation theatre charges, etc, will be scaled down proportionately.
For example, suppose your health cover is Rs 5 lakh and the room rent sub-limit is 1 percent (that is, Rs 5,000) of the sum assured. But, you end up getting hospitalised in a room with a daily rent of Rs 6,000 and your final bill comes to Rs 1.5 lakh. Now, though your bill amount is less than the sum insured, you may have to shell out up to Rs 30,000 from your pocket because of the proportionate deduction clause. The insurer could approve a claim of only Rs 1.2 lakh, in line with the room rent sub-limit clause in your policy.
As the room rent was 20 percent higher than the policy cap, the claim amount for the linked expenses would be proportionately reduced by 20 percent. This calculation does not factor in expenses payable at actuals or not linked to room rent.
What can policyholders do?
For one, you can buy or port to policies without sub-limits, provided your budget permits it and insurers accept your proposal. This is because those in older age–groups or adverse health history may find it difficult to buy such policies at affordable premiums.
“Most of the health insurance plans that are sold in the market today have no room rent capping. This means that the policyholder can get any room of their choice in the hospital for the treatment without any maximum room rent limit,” says Amit Chhabra, Head, Health Insurance, Policybazaar.com.
Therefore, those who have restriction-free policies need not worry. “For new customers, it is advisable to buy a policy which has a single private room capping at least and not a policy which says that your coverage for room rent expense is restricted to Rs 5000,” he adds.Do note that while a single private room may seem like a solution, it may not necessarily be the case. For instance, if your policy specifies single private room non-deluxe but your hospital only has deluxe or suite rooms vacant, you will have to the proportionate deduction clause to face.