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Should you rely too much on health insurance provided by your employer? - Outside View by PersonalFN

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Should you rely too much on health insurance provided by your employer?
Dec 11, 2014

As a consideration towards welfare of the employees, quite a number of employers cover their employees under the group health insurance policy. And often, many salaried individuals rely too much on such group health insurance policies.  But it is noteworthy that of late, employers are taking steps to reduce their health insurance cost as insurance companies are in the process of raising premiums on such policies. Some of the steps which employers are taking in this direction are:

  • - Employees are asked to share a part of the premium; or
  • - Sum assured has been reduced; or
  • - A separate plan for parents for which the employee has to bear the full premium (Thus far the advantage for the employee was that the premiums in group health insurance policy were cheaper as against buying a separate health insurance policy for parents.) 
You see, the Insurance Regulatory and Development Authority (IRDA) has issued guidelines to insurers to do the following as a part of the guidelines for pricing of risk:
  • - Calculate the likely cost of claim (based on their number in earlier years);
  • - Take into account the number of people insured;
  • - Recognise the nature of the cover; and
  • - Rate of medical inflation
So by asking insurers to take cognisance of the above, it appears that IRDA does not want that insurers to charge premium rates which are unsustainable in future. It is noteworthy that amidst the fierce competition, until now some player in the industry doled out heavy discount in the endeavour to grab a bigger pie of the market share, but eventually suffered losses. 

What should be your approach?

We have seen that quite a number of individuals do not opt for an individual health insurance policy if their employer provides the same. This thus places heavy dependence on the group health insurance policy to meet your medical emergencies in times when cost of healthcare is galloping. 

PersonalFN is of the view that you must have your own your individual health insurance policy although your employer may be conferring you with a welfare benefit through a group health insurance policy (which may be offering a substantial coverage).  Also, employees should have separate coverage for their parents or dependants even if they (parents or dependants) are covered under the group health insurance policy. This is because; tomorrow if you shift your job it may not be case that the new employer will offer you such a benefit at a comparable coverage. Likewise when you retire, the benefit of group health insurance may cease to exist.  Hence, it is prudent to have a separate health insurance policy (apart from the one provided by your employer). Here too, we recommend that you opt for an 'individual health insurance policy', instead of a 'family floater policy', since it insures you for a full sum assured, unlike a family floater policy where the other members in the family suffer on their insurance coverage, if of one person has a claim (since under the family floater policy, the sum assured is jointly available).    

While you seek recourse at the time of claim, it would be wise to first utilise the one provided by your employer. This way, you would leave your individual policy untouched (at most times) thereby building on a non-claim bonus which can come to your rescue during future medical emergencies. 

Remember, there is absolutely no reason to not have enough health insurance. The costs you would incur on increasing medical expenses (as medical inflation is on a rise) and as you grow older can be greatly reduced by the right insurance policy. And these savings can be channelized towards building a strong mutual fund portfolio to help you achieve your life goals. While buying a health insurance policy undertake proper research, understand the salient features and do a comparative study to have the right one.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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