Impact of room rent limit on health insurance claims: A comprehensive guide
Room Rent limit is one of the least understood eligibility in a health insurance policy. Most policyholders are unaware how room rent limits impact their financial liability in a claim. In this article, we will discuss this in detail.
Room rent limit or room eligibility is defined in many different ways in an insurance policy. Some of these are:
- Mostly given as 1% or 2% of Sum Insured (SI)
- Eligibility for Semi-private room, Single Private A/c or non-A/C room of the lowest rent
- No capping on room rent
- In a few cases, it may be a mix of factors – 1% of Sum Insured or Rs 4500, whichever is lower
- In very few policies we have also seen limit defined as 2% of SI when the hospital is in metro cities and 1% of SI in non-metro cities
Why is the limit defined in policy?
In our experience, frankly, there is no logic to it. In retail health insurance policies where the customer pays to buy insurance, the rule of thumb is to charge a higher premium to provide higher category room eligibility. Room rent limit of 1% of SI in Rs. 2 lakh SI policy will allow you Rs 2000 per day, while in Rs. 4 lakh cover, this same limit will translate to Rs 4000 room rent. But even there, it has been observed that many plans still put an upper limit on room rent once you cross a certain sum insured.
The same structure is seen in many group health insurance policies too. And yet there are some policies of 2 or 3 lakh sum insured which have no cap on room rent eligibility. It is hard to fathom why someone would encourage policyholders to go for a higher room category when the base sum insured is so small.
Hospital pricing mechanism
Most hospitals charge their patients differently for the same treatment based on the room category they occupy. Treatment in a General Ward costs lower than the same treatment taken in Single Private Ward. Why is that? Because hospitals tend to cross-subsidize treatment in lower category wards from higher charges in upper category wards.
Let us look at an example to understand this. Ms. A and Ms. B get hospitalized for fever and undergo similar treatment for next 5 days. Both have same insurance policy with sum insured of Rs 2 lakhs and room limit of Rs 3000 per day. Ms. A occupies general ward whose per day rent is Rs 2000 whereas Ms. B takes admission in private ward where room rent is Rs 5000 per day. Here is how their expenses will look like.
Except for medicines, which are charged as per MRP, all other service components will become more expensive for Ms. B since the same services are priced higher in private ward compared to general ward.
How does room rent limit hurt you at the time of claim?
Insurance companies have no way to crack the logic of how hospitals price their services based on room categories. So they have developed a simple formula – With room rent as the base eligibility, if your choice of room crosses the rent limit, then the amount of room rent over and above the defined limit is computed as a percentage of the rent of the room chosen by you. This percentage is deducted from the services component of the bill. This is called pro-rata deduction. Pro Rata deduction is not applied to MRP items.
In the example given above, Ms. B’s room rent is Rs 2000 more than the limit. This difference of 2000 divided by rent of room, i.e. 5000, is 40%. Therefore, Ms. B will have to pay 40% of the services component from her pocket while insurance will just pay 60%. This is how the table will look like.
Ms. A will get most of her expenses from insurance because she was within her room limit.
Ms. B will end up paying Rs. 20800 out of her pocket because the rent of her chosen room category was way beyond the limit.
Ms. B got Rs 7200 extra in her claim by paying Rs. 20800 additional cash! Ms. A’s full treatment expense got covered by her insurance.
Check your room rent limit or eligibility whenever you need to claim
The moral of the story is that it can hurt you financially if you get admitted to a hospital ward whose rent is higher than your room limit. It makes sense to always check and be sure about your room eligibility before getting admitted.
Other claim scenarios
- When you have more than one insurance policy
At the time of hospitalization, most people worry about their policy sum insured. If they have Policy 1 with sum insured of 2 lakhs and Policy 2 with 3 lakhs sum insured, there is very high likelihood that they will choose Policy 2 to cover their treatment. This selection criterion falls flat when room eligibility is higher in Policy 1 than Policy 2. But most people give this criterion a miss.
If it happens to you that you apply a claim in one policy where room rent is lesser than another of your policy, and due to hospital room tariff you end up paying from your pocket on prorata basis, you can claim this amount from your second policy because the room limit is higher in that policy.
- Cases with co-payment from patient in claim
Remember that the hospital charges go up with higher room categories. If your policy has a co-payment clause (in most claims of senior citizens or parental claims in group health insurance), you end up paying anywhere between 5 to 30 percent of the bill amount. In such a scenario, it is advisable to look at treatment estimate per room category and check your own liability given the co-pay percentage. Based on your affordability of this cash liability, pick the appropriate room category.
