What you need to know about health insurance portability

The Insurance Regulatory and Development Authority (Irda) had in February 2011 instructed insurance companies to provide health insurance portability from July 1, 2011.

This was subsequently deferred and now is all set to get implemented from October 1, 2011.

Health insurance portability will help policyholders to change their insurer without losing any credit or benefit for the period of cover with the existing insurer.

This helps the most in cases of pre-existing diseases since for every new policy pre-existing diseases are excluded from the health insurance cover for a certain period from the date of commencement of the policy. With portability in place, the policyholder will get the benefit of the period served under existing insurance policy when he changes the insurer.

How portability works
The final guidelines issued by Irda states that in case a policyholder wants to change the insurer, he has to apply to the new insurer 45 days before his policy with the existing insurer is due for renewal. Otherwise, the insurer has a right to reject the offer for portability. This ensures that the new insurer has reasonable time to verify history of claims which shall be available on common database to all insurers. This database shall contain two years history of any claims made by the policyholders. On receipt of application for portability, the new insurer shall furnish the portability form along with proposal form and other relevant product details. The policyholder has to fill in all the forms and submit the same to the new insurer.

Within 7 days of receipt of the completed portability and proposal form, the new insurer, if required, can ask the existing insurer additional information about the policyholder in the prescribed format. The existing insurer is bound to provide such data within 7 days of receipt of such request.

Based on the information received, the new insurer shall decide to issue health cover to the policyholder. In case, the new insurer does not communicate its decision within 15 days, then it is assumed that the application has been accepted and later on it cannot reject such application.

Where on the date of renewal of existing insurance policy, the outcome of acceptance of portability is still pending with the new insurer:

If requested by policyholder, the existing policy shall be allowed to be extended for a short period (at least one month) by accepting pro-rata premium for such period,

The existing policy shall not be cancelled until such time a confirmed policy from new insurer is received or if otherwise instructed by the policyholder,

The date of commencement of risk of the policy issued by new issuer shall match the date of expiry of the short period in such cases, and,

In case, for any reason, the policyholder subsequently chooses to continue the cover under existing insurer, it shall be allowed to continue by charging a regular premium and without imposing any new conditions.

Thus, it can be seen that ample safeguards are provided in the guidelines to ensure that the policyholder has adequate options and is not without cover at any point of time while the portability is in progress.

Treatment of pre-existing diseases
It is important to understand how the pre-existing diseases shall be treated after the portability to the new insurer. The waiting period to be served for allowing pre-existing diseases to be covered with new insurer shall be calculated after including the number of years of insurance cover with existing insurer.

For instance, in the health insurance policy of the new insurer, if the pre-existing diseases have waiting period of 3 years and the policyholder has completed two years of insurance cover with existing insurer, he has to wait for additional one year to ensure the pre-existing disease is covered. The guidelines ensure that such additional waiting period is explained by the new insurer to the policyholder.

Treatment of no-claim bonus
In case a policyholder does not make any claim in a particular year, he is entitled to no claim bonus at the time of renewal. This no claim bonus can be either by way of reduction of next year’s premium or by increase in the amount of sum assured. In case of portability, policyholder has the option to club cumulative bonus acquired under previous policy with the sum assured and treat such higher amount as revised sum assured. However, in such cases, it shall lead to high premium charges.

For instance, assume a policyholder having health insurance policy of Rs1 lakh. He has also earned cumulative bonus of Rs25,000 over the years. Now if he decides to change the insurer and opts to club the cumulative bonus of Rs25,000 with Rs1 lakh, Rs1.25 lakh shall be treated as revised sum assured and premium shall be based on such higher revised sum assured.

There is one more thing to be aware of in such cases. Suppose the new insurer provides the health insurance cover for Rs50,000 and in multiples thereof. Then in our above example the sum assured shall automatically stand increase to Rs1.5 lakh, since the insurer cannot provide cover for Rs1.25 lakh. The premium one pays shall be based on cover of Rs1.5 lakh. However, portability benefits shall be available only up to Rs1.25 lakh and not on the entire cover of Rs1.5 lakh.

Group mediclaim policy to individual health policy
Individuals, who are covered under group mediclaim policy, such as one provided by the employer, shall have the right to migrate from such a group policy to an individual health policy with the same insurer. One year after such migration, they can migrate to any other non-life insurers.

Thus, it can be seen that guidelines have tried to cover all possible scenarios and simultaneously tried to minimise trouble to the policyholder. We need to wait and see how this is being implemented by the insurers and how much the policyholders are benefited.

But for policyholders who have bad experiences with their current health insurance provider, portability is a good option to avail of.

One should keep in mind that portability does not means the premium shall remain the same.

The premium applicable to the scheme of new insurer chosen by the policyholder shall be applicable. Further, the new insurer also has the right ‘to load’ the premium based on the claim history of the policyholder.

The writer is a chartered accountant.
He blogs at http://bachhat.blogspot.com