The Plainspeak / Insurance

A belief · pairs with the super top-up guide

A room-rent cap limits far more than the room

One line in your health policy can shrink most of your claim, not just the hospital room. Most people learn this at the discharge counter, at the worst possible time.

By 37xBetter · a banker's view

Ask people what health cover they hold and they will tell you the sum insured. Almost none of them can tell you their room-rent limit. Most policies carry one, corporate and group policies especially, and it is usually tied to the sum insured: about 1% of it a day for a standard room, 2% for the ICU. It reads like a small clause about which bed you get. It is the most expensive sentence in the policy.

Take a 5 lakh policy with a 1% room-rent cap. The insurer will pay at most 5,000 a day for the room. You are hospitalised, the only bed free is 10,000 a day, and you take it, expecting to simply pay the 5,000 difference out of pocket. That is the trap. The cap does not only limit the room line on the bill. It scales down most of the other charges on the bill in the same proportion.

Here is what that does. A three-day stay with surgery comes to 3,00,000: room 30,000, surgery 2,34,000, consultation 6,000, tests 15,000, medicines 15,000. You expect the insurer to settle everything except half the room, roughly 2,85,000. The settlement comes back at 1,65,000. Because your room cost twice the allowed limit, the insurer applies that same one-half ratio to the charges linked to your room category, here the surgery and the consultation. Under IRDAI’s rules (in force since 2020), medicines, consumables, implants, medical devices and diagnostic tests must be paid in full, so only the tests and medicines escape the cut. You pay the other 1,35,000, on the day you can least argue about it.

That mechanism is called proportionate deduction, and it is doing far more damage than the room line ever suggested. A cap on the cheapest part of the bill scales down the most expensive parts along with it.

So the rule is simple. Buy a health policy with no room-rent limit. If the premium worries you, do not fix it by buying a bigger sum insured that still carries a cap. Buy a smaller sum insured with no cap, and lift the total with a super top-up. A cap reaches into most of a claim. A cover that is smaller but clean does not.

A room-rent cap does not limit the room. It scales down most of the claim.