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Mental health insurance- the need of the hour

A report of 2017 directed that about 197.3 million Indians suffered from varying severity of mental disorders. Even now, the novel coronavirus pandemic triggered a rise in cases of depression and anxiety.

Until 7 April 2017, mental illness was not covered under health insurance coverage. The enactment of the Mental Healthcare Act (MHCA) in 2017 changed the scenario. Section 21 of the act, states that all insurance companies will be required to provide medical insurance for the treatment of mental illness on the same basis as for physical illness.

While the act was passed in 2017, the concern was whether the insurance companies were abiding by it or not. Following this, in August 2018, India’s insurance regulator- the Insurance Regulatory & Development Authority of India (IRDAI) issued a circular directing all insurance companies to comply with section 21 with ‘immediate effect’. Section 21 of the MHCA is based on the principle of parity. It implied that there shouldn’t be any discrimination in the type of policies, coverage, and terms of insurance coverage, including both mental and physical illnesses.

Despite the circular being issued, insurance companies are still following discriminatory practices and denying customers their rights. One of the reasons for this is the lack of regulation by the IRDAI. The fault in regulation has also forced people to approach courts for redressal of their grievances.

Below is one such case witnessed by the Delhi High Court, where it delivered a judgment on the liability of insurance companies and the IRDAI. The petition was filed by a woman who had been denied health insurance for treatment of her mental health condition.

The case of Shikha Nischal vs. National Insurance Company Limited & Another

  • The petitioner Shikha Nischal, had purchased a National Mediclaim Policy from the National Insurance Company Limited (‘NIC’) on 29th May 2020 for a sum assured of Rs. 3,95,000 valid for one year.

  • She was later diagnosed with schizoaffective disorder and was hospitalized incurring expenses to an amount of Rs. 5,54,636.

  • The petitioner later submitted her insurance claim to recover the expenses.

  • The NIC rejected the same, citing an exclusion clause from the policy which stated that no coverage would be provided to Psychiatric Disorder, and intentional self-inflicted injury.

  • This made the petitioner file a complaint with the Insurance Ombudsman, stating that the NIC was violating section 21(4) of the MHCA.

  • The Ombudsman passed an order against the petitioner and in favor of NIC stating that she was bound by the terms of the policy and its exclusion clause.

  • She then filed a writ petition in the Delhi High Court challenging the order and NIC’s decision to reject her claim.

  • During the court hearings, the NIC highlighted the IRDAI's guidelines on product filing in the health insurance business. The guidelines implied that the maximum period within which a new product approved by IRDAI can be commercially launched is six months. Beyond this, the insurance company has to re-seek IRDAI's approval.

  • NIC contended that the IRDAI had approved its product covering mental illnesses on 27th March 2020 and the product had been launched within six months on 1st July 2020. Since the petitioner had renewed her Mediclaim policy before the launch of the new product she was bound by its exclusion clauses.

  • The Delhi High Court rejected NIC's contention. The reason stated for the same was that the 2016 Guidelines could not be interpreted to postpone the implementation of the Act which was in force since 2018. The guidelines had to be interpreted in light of the MHCA which was in force when the petitioner purchased the Mediclaim policy and sought reimbursement.

  • Soon after the petition was filed, the IRDAI directed NIC to pay the petitioner’s claim. Moreover, they were asked to submit a report on the status of pending claims, stating in its letter to NIC that the latter had violated Section 21(4).

  • Finally, the Court concluded that NIC did not implement Section 21(4) of the MHCA. Following which they were liable to pay the petitioner’s claim.

  • The NIC had already paid the petitioner’s claim of Rs. 3,95,000 in compliance with the IRDAI’s directions, the Court ordered NIC to pay an additional Rs. 25,000 to the petitioner as litigation costs for having to take recourse to litigation for her claim to be honored.

  • The Court also asked all the insurance companies would be liable to give effect to Section 21(4) of the MHCA from the date it came into force and that all health insurance policies since this date will be bound to include mental illness irrespective of any considerations.

Though insurance policies are bound to abide by this act, each insurance company provides differential coverage for mental illness. Such as longer waiting periods or lower provision of sum assured.

  • The United Family Medicare Policy has restricted the amount of claim for mental health conditions to 25% of the sum assured subject to a ceiling of Rs. 3,00,000.

  • The Future Varishtha Bima Yojna has a waiting period of 48 months for mental health-related claims as against a waiting period of 12 months for pre-existing physical health conditions.

Currently, the Delhi High Court is hearing another petition in the matter of Subhash Khandelwal v. Max Bupa Health Insurance Company Limited. The outcome of this case is yet to arrive. The Delhi High Court’s observations are made to emphasize the crucial role played by the IRDAI in ensuring that insurance companies comply with Section 21 (4) of the MHCA.


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