The purpose of insurance is to transfer to an insurer the policyholder’s risk of suffering a monetary loss should an unpredictable event happen. If there is a 1 percent chance that you will have an unexpected treatment during the year, and it 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.
Problem of adverse selection
Adverse selection is defined as an increase in the chance for a person/organization to take an insurance because they believe their immediate health risk is higher than what they would pay as 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 to go for a surgery which is quite expensive. Looking at the problematic situation, he/she would choose to 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 the amount of 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 get hospitalized.
Disease-specific waiting period
There is a specific waiting period varying between one year and three years for particular ailments like a tumour, ENT disorder, hernia, cataract, piles and sinusitis.
Pre-existing disease waiting period
Pre-existing disease means any condition, ailment or injury or illness or related condition(s) for which 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 do cover, they add a waiting period that usually ranges from 2 years to 4 years of continuous policy coverage.
Maternity benefits waiting period
Some health insurance products provide maternity benefits, but these benefits also come with a waiting period varying 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 spouse children and parents.
Three biggest advantages of group health insurance are:
- It can cover all pre-existing conditions and maternity
- It waives off all the four types of waiting periods, i.e. one can make a claim on day 1 for any condition
- 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
The reason insurance companies provide above benefits for group cover is that it assumes that the group will have no selection in terms of who is getting covered in the policy. Hence the insurance companies have strict requirements that needs to be met.
Requirement that you need to meet for a group cover
As an organization, you have three policy design options:
- E plan: Covers employees only
- ESC plan: Covers employees, spouse, and upto 4 dependent children
- ESCP plan: Covers employees, spouse, upto 4 dependent children, and 2 parents
Here are some common requirements.
- You will have to cover all your employees who work with your organization. The only exception to this is to not cover employees who are covered under ESI (Employee State Insurance) scheme. with no exception.
- If you choose to take the ESC-plan, you will have to cover spouses of all married employees and all dependent children.
- If you choose to take the ESCP-plan, you will have to cover spouses of all married employees, all dependent children, and parents of all employees.
- 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 team.
With Plum, we have reduced that limit to 7 members. You can now set up your group health insurance, and get all the benefits of group health insurance even if you are a company of 4 employees and have 3 dependents (i.e. total 7 members).
Additionally, we have made sure that even a small startup with as few as 7 members can get 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 signup.