Decoding Colour Code in Health Insurance Plans

Posted on: Sep 21, 2023 | | Written by:

Decoding Colour Code in Health Insurance Plans

Published on September 18, 2023. EST READ TIME: 3 minutes

Picture this: you’ve just acquired a health insurance plan that’s supposed to provide you with a safety net in times of medical emergencies. You flip through the pages of your policy document, only to find an overwhelming flurry of terms, conditions, and clauses that could leave even the most savvy individuals scratching their heads in puzzlement. Enter the Colour Code – a clever solution designed to put an end to health insurance confusion. Much like the familiar colours of traffic signals, the health insurance colour code allocates a specific hue to each health insurance policy, representing its level of complexity. It’s a thoughtful attempt to make the fine print not-so-fine anymore. Explore this user-friendly initiative to unravel the confusion and bring clarity to your insurance journey.

What is the Colour Code?

To help customers understand the complexity of health insurance plans and buy the right plan that meets their specific needs, the IRDAI introduced the health insurance colour code for individual healthcare plans indicating their level of complexity. Three colours – green, orange, and red – will denote the complexity of health insurance products. The product with green colour would imply that it is simple, easy to understand and comprehend, orange will signify moderate complexity, and red would indicate that the product is complex and needs to be understood properly.

A score will be assigned to each product based on certain parameters. Products with a score of 2 or less will have a green colour, a score of more than 2 but less than 4 will be orange, and those with a score of more than 4 and up to 6 will have a red colour.

How do Insurers Calculate the Score?

The score is calculated based on seven parameters; all parameters will get an equal weightage of 14.28 per cent. They are:

• Waiting period

• Number of optional covers offered

• Co-pay percentage

• Number of treatments/procedures with sub-limits

• Deductibles

• Number of permanent exclusions

• Simplicity of terms and conditions

Score for Optional Cover and Co-pay

For every optional cover, a score of 0.6 is assigned. So, if a health insurance policy has 5 optional covers, then this parameter would get a score of 3.0. As for co-pay, the score is 0.3 for every 1% rise in co-payment beyond 5%. Co-pay is the percentage of claim amount that the policyholder has to pay from his/her pocket at the time of settling claims. If the co-pay is 15%, the insurer will pay 85% of the claim amount, and the policyholder will pay 15%.

Score for Waiting Period

A score of 0.15 is given for every one-month waiting period. This means if a policy has a 36-month waiting period, this parameter will get a score of 5.4.

Sub-limit Score

Every disease under the sub-limit is given a score of 0.6. So, if a health insurance policy has 8 diseases under sub-limits, the score would be 4.8.

Scores for Deductibles and Permanent Exclusions

For every 1% of the deductible in a policy, the score is 0.3. A health insurance policy with a 4% deductible will get a score of 1.2. The deductible is the amount a policyholder must pay before the insurance provider starts paying up.

Coming to permanent exclusions, one permanent exclusion is assigned a score of 0.6. So, if the policy has 6 permanent exclusions, the score for this parameter would be 3.6.

The final score of a policy is the sum of the weighted average score of all seven parameters.

How does colour coding help?

The health insurance colour code will help consumers understand the complexity of the policies and enable them to buy the right plan as per their medical needs. Health insurance is a relatively complex area for a layman, and colour coding will help curb mis-selling of plans and help people understand them better to avoid any unpleasant surprises at the time of claim settlement. It will also increase faith and transparency in health insurance companies.

Conclusion

Before buying a health insurance plan, it’s important to understand the policy to know whether it will meet your specific needs. So, to simplify buying and understanding insurance terms, the IRDAI introduced colour coding for individual health insurance plans based on their level of complexity. The health insurance colour code will help customers make the right decision. The colour coding applies only to individual health insurance plans and not group policies.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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