What is Proportional Deduction and Why is it extremely important to know its details

Insure My Team
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November 17, 2021
Proportional deduction illustration

It is important for employees to know about their health insurance plans

Offering health insurance is the key to securing your employee’s health and increasing job satisfaction. People are valued assets and therefore it is important to educate the health insurance benefits to your employees. When employers are flexible, receptive, and communicative about the workplace benefits they offer; both businesses and employees prosper. Insurance terms are complex and it is important that employers understand the insurance benefits in detail before opting for an employee health insurance plan. Let’s talk about Proportional Deduction and how it impacts the employee healthcare benefits during hospitalization. 

What is Proportional Deduction in health insurance?

How much you can get reimbursed for hospitalisation bills depends on the room rent limit of your policy. So, when you are hospitalised and take a room with a daily rent higher than the policy's eligibility, the Insurer will deduct the proportionate amount by which the room rent is higher than the permissible rent from the hospital bill. Also, the amount of other medical expenses incurred is increased in the same proportion at the time of reimbursement. This is done because often the cost of various medical procedures, doctors' visits etc. is billed more for rooms with higher rent as compared to those with lower rent.

In essence, if you choose a higher room rent, you are charged higher for a lot of other medical components in most of the hospitals. Therefore, you must know that the room rent limit impacts your health insurance claim. Hence companies should be careful when choosing a health insurance plan for their employees as some policies do not impose sub-limits.

For example: 

If your policy Sum Insured is Rs 1 Lakh, then your room eligibility is 1% of the SI. i.e. Rs 1,000/day. However, if the insured chooses a room rent of Rs 2,000/day, then all the associated billing heads (e.g. Doctor’s fees, nursing charges, lab investigations etc), except pharmacy bills will be deducted proportionately by the Insurer.

Majority of health insurance policies have sub-limits and that is the reason why your claims are partially paid if you opt for a hospital room (during hospitalisation) with rent higher than what is covered/provided for in the policy.

Sub-limits in a health insurance policy means the maximum coverage that the insurer is liable to pay for different associated medical expenses during the hospitalisation which includes room rent, nursing charges, operation theatre charges, fees of medical practitioner / surgeon / anaesthetist / specialist conducted within the same hospital where the insured person is admitted. However, the below expenses are not part of associate medical expenses in Sub-Limits;

a. Cost of pharmacy and consumables

b. Cost of implants and medical devices

c. Cost of diagnostics

The sub-limits are so called because they limit the amount that is reimbursable by the insurer for a particular type of expenditure forming a part of the total hospital bill.

This way, the insured has to pay up the difference as an out-of-pocket expense because the insurance company doesn't reimburse the amount exceeding the 

sub-limits.

IRDAI's proposed guidelines state that the insurer shall ensure that proportionate deductions are not applied in respect to the hospitals which do not follow differential billing based on the room category. Towards this, the policy conditions shall specify that the proportionate deduction would be applied only in case of a hospital that follows differential billing practice based on the room category occupied by a patient.

As per these draft norms, insurers shall ensure that proportionate deductions are not applied in respect of the hospitals which do not follow differential billing based on the room category. Towards this, the policy conditions shall be specified that the proportionate deduction would be applied only in case of a hospital that follows differential billing practice based on the room category occupied by a patient.

We hope this article has shed some light on proportional deduction and how it can help employers understand the benefits and choose the right health insurance plan for their employees. This is a simple way to make sure employees and employers alike get the most out of their healthcare benefits. If you’re still uncertain if proportional deduction is the right fit for your benefit plan, get in touch with our healthcare experts at Insure My Team and we shall guide you through.

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Insure My Team
Insure My Team provides accessible and affordable group healthcare to Startups, SME's and Corporate organizations.