Rising Costs of Health Insurance - What should you do?

Health Insurance is an essential policy that we recommend all our clients to get coverage for. Health issues often come up with increasing regularity and for professionals an insurance policy ensures that you get cashless treatment or reduces the total amount of expenses you may incur, in case you fall ill.

We were approached by our friend with the problem of very high insurance premium for his existing health insurance policy. It needs to be brought to the attention of our readers that health insurance premiums have increased by nearly 50% over the past year. The health insurance companies are increasing the premium by modifying the policies & then forcing the insured to migrate to the new policy or face loss of insurance coverage. In most cases the insured switch over to the new plans without reviewing whether the new policy rules are still favorable or not.

When we review the health insurance policies, we find that they have a plethora of benefits which may not make sense for you. Typically insurance is taken to cover a risk of high medical bills in case of illness. It is supposed to cover a prohibitive cost in an unexpected event, such as cancer treatment expenses and so on. These days, a typical health cover has OPD benefit, daily allowance in case of hospitalization, ambulance expenses etc. We find that the premium charged for such services do not make sense considering the minimal expenses which are involved. As a result, we think you are better off by excluding such services from your policy and lowering your medical premium

You must be wondering why are objecting to the benefits. Dear reader, there is a simple thing you should keep in mind – No insurance company pays anything from their own pocket. It estimates the cost of each benefit & builds it in the premium. Over this basic cost it adds a percentage of administrative expenses, the cost of selling (which is quite high) & this gets loaded with GST. The high premium we see now, are a result of all this given above.

What is our recommendation?

We think of insurance as a simple thing – Insurance for what you cannot afford & with a reasonable plausibility of the illness being incurred. Diseases like cancer, renal, nervous disorder or a major accident are such events for which we would prefer a health insurance policy.

For a couple with husband (aged 58) about to retire; he can take a policy for 2 for the sum insured as follows:

Insured amount (in Lakhs)	Premium for 2 (Age: 55 to 60)	Premium for 2 (Age: 61 to 65)	Comments
5	30,757	37,931	Do note the way premiums are increasing with age. They will increase at a higher rate in later years
10	37,577	46,274
15	44,610	54,870
25	55,006	67,649

We suggest that one goes for a top up policy where, expense above a specified amount, will be borne by the insurer.

The premium for such a policy are as follows –

Insured amount in Lakh	Deductible in lakh	Age Bracket – 55 to 60			Age Bracket – 61 to 65
		Premium for 2	Premium for coverage from above table	Annual Saving	Premium for 2	Premium for coverage from above table y	Annual Saving
5	5	8,732	30,757	22,025	11,800	37,931	26,131
10	5	14,868	37,577	22,709	20,060	46,274	26,214
15	5	18,644	44,610	25,966	25,193	54,870	29,677
25	10	13,924	55,006	41,082	18,821	67,649	48,828

With the savings done the saving of approx. Rs 30,000 per year will become ~ Rs 60,000 in 5 years and Rs 1.21 Lakh in 10 years. Although, the cost of normal sickness would primarily be borne by you (the insured), the risk of high bills will be covered by the insurer. However if you feel that your medical bills will be high annually then we recommend you go for normal policy and not the top up only.

Health insurance for those who have health insurance from employers

Many employers provide health insurance to their employees & their family members. Now there are 2 issues:

1)    The cover is limited to some amount. The concern is who will bear the expenses over & above this cover.

      2)   In case of loss of employment what happens in between & if the other employer does not provide health cover, then how will accidental expenses be met.

We, hence, recommend to the insured to take a top up policy over & above the amount provided by employer for their family. This has 2 advantages. If the expense goes above the limit specified by the employer, they are covered. In case of the second event they are covered for high medical expenses. We have already clarified earlier that the top up policy cover costs much lower and should not be a big drain on family expenses.

Do let us know your thoughts.

Happy Investing