What is subrogation in a health insurance plan?

What is subrogation in a health insurance plan?

The term, ‘subrogation’, refers to the legal right of insurers to recover costs following claim coverage from the third party that caused injury to the insured.

Most people are unaware that the principle of subrogation exists in all indemnity policies—yes, it is part of your health insurance plans as well. Therefore, if you own an indemnity policy of any kind, it is important for you to understand the concept of subrogation. At this point, it would be a good idea to read the fine print in your health insurance policy document carefully in order to understand how and why subrogation could affect you in the future.

Applies only in the case of third-party injury

The point of insurance is to compensate the insured in the case of loss. In the area of health insurance, the insurer protects you from the financial burden of hospitalization, diagnostic tests, visits to the doctor, medicines and so on. In return for this service, you pay an insurance premium each year. Let us now assume that you are injured in an accident. The insurer will pay for your medical treatment costs (to the extent of the coverage available), even if the accident occurred due to, for example, the negligence of a third party. 

Ideally, the third party should pay for these costs. Thus, in the case of car insurance, for instance, your insurer will follow-up with the insurer of the at-fault party. Negotiations will go on behind the scenes and your insurer will attempt to recover the amount that was paid to you as a claim. In this case, your insurer acts on your behalf and pursues the third party (or his insurer) to recover the claim amount.

Although most subrogation-related negotiations take place behind the scenes between insurers, things could work a little differently in the case of health insurance. You might pursue a legal suit against the at-fault party. Assuming that you eventually won the suit and received compensation, your insurer would then seek to recover the claim amount directly from you.

The rationale behind the concept of subrogation

You might question why the insurer should at all seek a share from your legally won compensation; after all, you are paying an annual premium for the policy. But this is not a situation of your insurer being greedy. As mentioned above, the purpose of insurance is to indemnify you against the extent of loss, and nothing more. Thus, if you are receiving compensation from the third party, it is no longer a loss, and the insurer now has every right to demand the amount that was paid to you as claim settlement for the same loss at an earlier date. Receiving compensation for the same loss twice—once from the insurer, once from the third party—leads to a profit, and that is not the aim of insurance.

Waiving the subrogation

At times, the insured may sign a subrogation waiver, whereby he gives up all rights of recovering incurred losses against the at-fault party. But before taking this step, find out if your insurance policy allows it. Moreover, it might be helpful to contact a lawyer if conversation about a subrogation waiver comes up, and the other party should waive their rights against you as well.

What is ‘no-claims bonus’ in a health insurance plan?

What is ‘no-claims bonus’ in a health insurance plan?

A no-claims bonus is offered to the policyholder as a reward for making no claims during a premium-paying period of the policy. A few insurers offer the bonus as additions to the sum assured; in most cases, however, the bonus takes the form of a discount on the annual premium. Although the offers differ across insurers and policies, in the former, the sum insured increases to the extent of prescribed percentage limits—10 percent, 20 percent, and so on, up to as much as 50 percent in the fifth year. In the latter case, policyholders usually receive a five percent discount on the premium per claim-free year. This discount amount can increase to up to 50 percent if no claim is made over a 10-year period. Thus, you can see why the no-claims bonus is frequently referred to as a cumulative bonus.

The bonus is a reward for low-risk customers.

Why do insurers offer the no-claims bonus to policyholders who make no claims during a given period? They do so because such policyholders represent lower risk for the insurer. The insurer generates more profit if the policyholder does not claim against his/her policy. The insurer then rewards this profitable customer by offering the bonus. This bonus does two things: (1) the possibility of a discount or of an increase to the sum assured at no extra cost appeals to the customer and buys his/her loyalty, and (2) it encourages him/her not to claim for smaller and more manageable expenses.

What happens if you file a claim?

Previously, filing a claim usually meant that your entire accrued bonus was wiped out. But the IRDA has recently issued guidelines seeking standardization in the no-claims bonus. Insurers are now required to explain in their policy documents exactly how the bonus works. Moreover, the IRDA recommends that claims should not erase the bonus entirely, but that it should rolled back year on year just as it was granted in the first place. 

Is it worthwhile to claim against your health plan?

To claim or not to claim—this is where it all becomes murky. The concept of no-claims bonus is used successfully in the field of auto insurance, but involves some pitfalls in the area of health. For instance, you might decide not to repair a dent on your vehicle because you do not want to risk your bonus. This would not harm anybody. But choosing not to treat a nagging fever for fear of losing your bonus should not even be an option.

Clearly, a no-claims bonus is a good thing: you are either paying less for the same sum assured or paying the same amount for a higher sum assured. In both cases, you are getting more than your money’s worth. But in order to maintain the no-claims bonus, you need to avoid making claims, which defeats the purpose of health insurance. At this point, evaluate whether the cost of maintaining the bonus exceeds the cost of paying for your medicals on your own. If maintaining the bonus is cheaper than paying out of your own pocket, then not making claims is a good idea; however, if the reverse is true, it becomes worthwhile to submit a claim.