Why Is Selection Not Allowed In Group Health Insurance?

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Health Insurance

The purpose of insurance is to transfer the policyholder’s risk of suffering a monetary loss to an insurer should an unpredictable event happen. If there is a 1 percent chance that you will have an unexpected treatment during the year, which will cost Rs.5 lakhs, then the expected loss is equal to 1 percent of Rs.5,000 per year. Insurance companies help the individual spread this risk over hundreds of thousands of people.

The problem of adverse selection

Adverse selection increases the chance for a person/organization to take insurance because they believe their immediate health risk is higher than what they would pay as an insurance premium.

Imagine an incidence where a person doesn’t have a health insurance policy and is diagnosed with a disease. The doctor suggests him/her go for surgery which is quite expensive. Looking at the problematic situation, he/she would buy a health insurance policy without disclosing the disease and get the treatment covered under insurance.

Waiting periods to solve adverse selection

To avoid this problem of adverse selection, retail insurance products add four types of waiting periods. A waiting period is a time an insured must wait before some or all of their coverage comes into effect.

Initial waiting period

If the person gets hospitalized in the first 30–90 days from the start of the policy, he/she won’t receive any claim benefit from their health insurance policy if they fall sick or gets hospitalized.

Disease-specific waiting period

There is a specific waiting period between one year and three years for ailments like a tumour, ENT disorder, hernia, cataract, piles and sinusitis.

Pre-existing disease waiting period

Pre-existing disease means any condition, ailment, injury, or related condition(s) for which the insured had developed signs or symptoms and/or were diagnosed and/or received medical advice/treatment within 48 months prior to the first policy with the company. Most insurance products either do not cover pre-existing diseases. If they cover, they add a waiting period from 2 to 4 years of continuous policy coverage.

Maternity benefits waiting period

Some health insurance products provide maternity benefits. However, these benefits also come with a waiting period from 9 months to 36 months.

Group health insurance

A group health insurance is a health insurance plan that covers a group of people who work in the same organization. A group health insurance plan can additionally cover the family members of the employees, including spouses, children and parents.

The three most significant advantages of group health insurance are:

  1. It can cover all pre-existing conditions and maternity
  2. GHI waives off all four types of waiting periods, i.e. one can make a claim on day 1 for any condition
  3. It offers lower per-member pricing compared to retail health insurance because it assumes that the group will be a mix of healthy and unhealthy individuals

Insurance companies provide the above benefits for group cover because it assumes that the group will have no selection in terms of who is getting covered in the policy. Hence insurance companies have strict requirements that need to be met.

Requirements that you need to meet for a group cover

As an organization, you have three policy design options:

  1. E plan: Covers employees only
  2. ESC plan: Covers employees, spouse, and upto 4 dependent children
  3. ESCP plan: Covers employees, spouse, upto 4 dependent children, and 2 parents

Here are some standard requirements.

  1. You will have to cover all your employees who work with your organization. The only exception to this is not to cover employees who are covered under ESI (Employee State Insurance) scheme.
  2. If you choose the ESC-plan, you will have to cover spouses of all married employees and all dependent children.
  3. If you choose the ESCP-plan, you will have to cover spouses of all married employees, all dependent children, and parents of all employees.
  4. You have a minimum of 100 members in the group.

Group health insurance for start-ups

The last requirement that your organization has a minimum of 100 members has been a roadblock for many SMEs and startups to provide group health insurance to their teams.

With Plum, we have reduced that limit to 7 members. You can now get all the benefits of group health insurance even if you are a company of 4 employees and have 3 dependents (i.e. a total of 7 members).

Additionally, we have ensured that even a small startup with as few as 7 members can get the advantage of volume pricing without any negotiations. We provide startups with pre-negotiated and transparent prices.

If you are an organization that hasn’t set up a health cover yet for your employees, this is a good time for you to start taking care of the health of your team and give your team peace of mind.

To get started, just visit www.plumhq.com and get started. All you’d have to do is share your details, and what kind of cover you’re looking at, and our instant premium calculator will give you an estimate within 2 minutes. Try it now at https://app.plumhq.com/estimate.

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