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Working model of Employee Funded (or Self Funding) Health Insurance in India


Summary

employer funding

Health insurance is an agreement between the insurance company and the insured customer in which the insurance company agrees to settle the hospital bills of the insured customer up to the sum insured limit mentioned in the policy, in return for a nominal amount known as Premium. Insurance companies provide the insured customer with health cards which can be utilized to avail cashless claim settlement facility at any of the network hospitals. The health cards can also be utilized to avail the reimbursement claim settlement facility. 

The premium to be paid on a health insurance policy depends on the coverage required, age of the applicant and health condition of the insured. Group health insurance policy is a type of health insurance which provides financial assistance to the members up to the sum insured limit mentioned under the policy. The premium for the group health insurance policy is paid by the employer, whereas the benefits are available to the employees. Employees can also contribute the premium towards the group health insurance policy. Health cards are given to the members of the group health insurance policy to avail a cashless claim settlement facility during the policy period up to the sum insured limit. 

  • Self funded insurance: Health insurance as discussed above is an agreement between the insurance company and the insured customer in which the insurance company agrees to settle the hospital bills of the insured upto the sum insured mentioned under the policy. Self funded health insurance is a health insurance policy in which a part of premium or full premium would be paid by the employee. 

There are two cases of  the self-funded or employee-funded health insurance policies: 

  • Group health insurance– In group health insurance policy which is taken by the employer, employees can either make a part premium contribution or full premium contribution. The premium paid by the Employee under the group health insurance policy would be eligible for tax exemption under the income tax act. The self funded group health insurance policy works in the same way as the employer funded group health insurance policy. But the advantage of self funded or employee funded group health insurance policy is that the employees can avail income tax exemption on the premium paid towards the health insurance premium. The insurance company provides health insurance cards to the members of the group health insurance policy in case of self funded or employee funded policy which can be utilized to avail cashless claim settlement facility in any of the network hospitals. 
  • Personal/ Retail health insurance –  Personal health insurance is a policy in which the premium is paid by the employee and the benefits are availed by the employee whereas in group health insurance the premium is paid by the employer and the benefits are enjoyed by the employee. The retail health insurance is self funded insurance good for employees. The retail health insurance can be availed by the employees in self funding mode in addition to the group health insurance. The personal health insurance can be extended to cover the family members of the employees as well. 
  • Pros of Self Funded insurance: Self funded health insurance pros are mentioned below:-
  • Income tax exemption: Income tax exemption under the section 80D of the income tax is one of the self funded health insurance pros in which the employee can avail up to Rs.1 Lakh exemption. The exemption is available for the premium paid towards the group health insurance policy which covers the self, family and senior citizen parents as well. The maximum benefit can be availed if the health insurance premium is paid for senior citizen parents of the employee. 
  • Coverage for parents: The other self funded health insurance pros is that the coverage can be availed for parents as well. Most of the health insurance plans in the market mandate pre policy medical checkup for parents whereas the self-funded or employee-funded group health insurance plans do not require any medical checkup. The other self funded health insurance pros is that the senior citizen parents can avail health insurance coverage in the same floater sum insured as that of the employee’s. 
  • Day 1 coverage: The advantage of self funded employee insurance is that it can be used to avail health insurance benefits from day 1 without waiting for a certain period of time. The day 1 coverage for elder parents and other employees having pre existing diseases would be possible only in the self funded group health insurance policy. There are other advantages of self funded employee insurance such as the free medical check-up during the policy period and other facilities such as doctor on call etc., can be availed through the group medical health insurance policy. 
  • Cons of Self funded insurance: There are certain problems with self funded health insurance policy which are explained below:-
  • Limited coverage: The group health insurance policy is taken and decided by the employer and therefore the policy cannot be customized as per the needs and requirements of the employees. For example if an employee wants to avail air ambulance, it would not be possible to give the facility for one employee as the insurance company mandates at least a few employees to avail the facility or the one employee availing this facility has to bear the cost. The limited coverage and benefits is the main problem with self funded health insurance policy
  • Double insurance: The other problem with self funded health insurance policy is that it would lead to double insurance if you have taken a retail or personal health insurance policy already. There would be group health insurance policy as well as the retail or personal health insurance with the employee which leads to double coverage insurance. Employees would be paying the premium for both the retail or personal health insurance policy as well as the group health insurance policy. The share of the employee in the self funded health insurance policy depends on the employee and employer understanding. 
  • Complications: There are other problems with the self funded health insurance policy which leads to complications such as the cashless approvals at the time of hospitalization. For example if an employee is having a self funded group health insurance policy as well as a retail health insurance policy, there might not be the same cashless hospitals in both the policies and this might lead to complications at the time of claim settlement. Even if both the policies are from the same insurance company also there might be complications at the time of claim settlement as the approval needs to be taken for both the policies if the claim amount exceeds the sum insured in the group health insurance policy. 

For more understanding on the self funded or employee funded health insurance policy please book a call with Ethika insurance to get expert advice from the health insurance experts. It is important to get the correct advice while opting for self funded or employee funded health insurance policy as the self funded health insurance has both the pros as well as cons which are to be weighted carefully before taking the self funded policy.

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Susheel Agarwal

Namaste. I'm Abhinay Nedunuru, a Fellow of the Insurance Institute of India with a passion to make insurance simple and crisp. I write mostly on insurance and investment. I have a passion for teaching and training in particular to insurance. I'm currently doing my PhD from IIM in Marketing Management.