Proportionate deductions

Suppose that Mr. A has a policy with a sum insured of Rs.5 lakh. The policy has a restriction of 1% of sum insured per day on room rent.

Mr. A is hospitalized for five days and stays in a room where the daily charges are Rs.7500.The total hospital bill amounts to Rs. 210000 out of which Rs.10000 have been spent on medicines.

What will be the amount actually payable by the insurer to the insured?

Expense Head         Claim Amount        Deductible Amt      Payable Amt

Medicines                10000                      0                              10000

Rent                        37500                      12500                      25000

Balance claim amt   162500                    54161                      108339

Total                        210000                    66661                      143339                   

Nothing has been deducted from the amount spent on medicines.

Room rent amount has been deducted as per tariff (7500*5=37500); (5000*5=25000); 37500-25000=12500.

Proportionate deductions clause will apply on the balance amount of Rs.162500 (210000-10000-37500) .

Proportionate deductions formula applied by the insurer:

((Actual Rent-Eligible Rent)/Actual Rent)*100

In this case,

((7500-5000/7500))*100=33.33%.

162500*33.33%=54161.

162500-54161=108339

Clearly Mr. A has lost Rs.66661 of his genuine claim just by staying in a higher category room.

Remarks:  Cost of medicines and implants (stents etc.) are not subject to the proportionate deductions clause. Of course, the cost of implants has to be reasonable.

Note: IRDAI guidelines effective from 1st October,2020 stipulate that insurers can apply proportionate deductions clause only if the hospital has differential pricing for services offered in separate category of rooms.