The hospitalisation-only aspect of health insurance has long been a pet peeve of policyholders. The idea of paying premiums for an uncertain and even unlikely future event puts many off health covers altogether. Enter outpatient department (OPD) covers from ICICI Lombard, Apollo Munich and, more recently, Cigna TTK, which pay for doctor's consultation, dental treatment, pharmacy bills and so on. Cigna TTK also offers a 'return' of 5% as a bonus if any unutilised balance is carried over to the next year.
So should you opt for them? Financial planners and health insurance experts say the purpose of health insurance is to mitigate risks emanating from huge expenses like hospitalisation bills. "OPD expenditure is not a catastrophic loss and hence, covering the same through insurance is not a sensible decision. If you want a separate fund for such expenses, opt for mutual funds that offer a higher return on investments," says Sudhir Sarnobat, CEO, Medimanage.com, a health insurance consultancy firm .We weigh both options to help you decide.
Opting for OPD plans
These plans are primarily meant to help policyholders claim expenses not paid for under regular policies and maximise tax benefits under Section 80D, which allows them to claim deductions on health insurance premiums paid.
You can consider such plans if maximising tax savings is your key objective. Not only will the premium paid be eligible for deduction, claims will also not attract tax. These plans also suits the needs of those who run up sizeable pharmacy bills every year. For instance, diabetics or parents with infants or young children prone to ailments require over-the-counter medicines frequently.
However, those suffering from diabetes or hypertension have a slim chance of getting a cover in the first place, as insurers tend to turn down such proposals citing adverse medical history. Even if the insurer approves such applications, the premiums will be substantially higher. Take for instance Cigna TTK's new plan, where a family of four, with two adults aged 44 and two children will have to shell out an annual premium of close to Rs 36,000 for a Rs 5.5 lakh cover, with Rs 20,000 as the OPD limit.
In the vanilla variant, the same family would pay only Rs 15,000. Essentially, they will be paying a higher premium equivalent to the sum they hope to recover through claims during the year. However, nearly half the customers forget to make OPD claims and are unable to extract benefits out of the plan, says Mahavir Chopra, Head, health, accident and life insurance, Coverfox.com.
Cigna's bonus carry forward feature could resolve the issue, but experts still recommend an independent reserve fund over such plans. "If one is still keen on an OPD plan, I suggest they wait as more insurers are going to launch OPD plans in 2016," says Chopra.
Creating a health fund
Given that even conservative insurance industry estimates peg medical inflation at 15-18% per annum, the advice of financial planners advise is for clients to build a healthcare fund, particularly for those who cannot buy a health insurance policy due their medical history.
"We calculate the net present value (NPV) of growing health insurance premiums and suggest a corpus that will take care of OPD expenses on retirement," says financial planner Dilshad Billimoria. Her suggestion is not confined to out-of-pocket expenses alone. "Paying high premiums after you cross 60 is not as economical as creating a health corpus to take care of both hospitalisation and regular medical bills," she adds.
Moreover, in the case of a selfcreated fund, you retain the freedom to draw from it for any emergency, not just medical. "Not only will it cover all risks, but will also allow you better control over the deposit and its interest," says Chopra.
If you do decide to build a health corpus, it would be wise to focus on low-risk and liquid instruments like fixed deposits or debt mutual funds. Some fund houses like ICICI Prudential provide a facility to use your investments to directly pay for hospitalisation or diagnostic test expenses on a cashless basis. "Investors in ICICI Prudential Savings Fund, which is an ultra-short-term debt fund, can opt for this feature.
It can help investors who cannot avail of health insurance due to preexisting medical conditions," says Amar Shah, Head, Retail Business, ICICI Prudential AMC. You can also consider investing in equity funds through the systematic investment plan (SIP) route to create a fund. However, you cannot escape the tax implications when you make premature redemptions.
"The tax impact remains unchanged with the inclusion of the medical advantage feature and it will be treated like usual redemptions," says Shah. That is, any short-term capital gains made on redemption before three years will be added to your income and taxed as per your slab rate.
However, health advisers believe higher returns yielded by mutual fund investments can offset their limitations. This, despite the twin advantages of tax deductions and tax-free claims that OPD plans offer. "These benefits don't hold water when you look at returns earned through mutual funds on similar investment amounts," says Sarnobat.
The Economic Times Wealth New Delhi,25th April 2016
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