Rising cost of healthcare is not a new thing. But since most people in present generation are young, they don’t discuss it often. But still, the idea of health care inflation cannot be ignored now.
Lets see why?
Suppose you have a health insurance cover of Rs 5 lac today.
But after 5 years, if you still have the same policy, i.e. with coverage of Rs 5 lac, then does it make any sense?
If you can answer this question, then it means you know what are the risks here.
But if you can’t answer, then have a look at the example below:
A small surgery costs about Rs 4 lac today. Now considering a very conservative medical inflation of 15% (yes, its conservative), the same surgery will cost more than Rs 8 lacs after 5 years.
So the difference between the cost of surgery in future (Rs 8 lacs) and your insurance cover (Rs 5 lacs), i.e. Rs 3 lacs will have to be paid out of your pocket. And that is assuming that your health insurance provider pays 100% of the sum assured amount.
A Rs 4 lac surgery can be covered easily with Rs 5 lac cover today. But like everything else, price of healthcare is also rising with time (due to inflation). So cost of this surgery will also rise in future.
This sample health care inflation chart clearly shows that given a health insurance policy with fixed sum assured, chances are high that your health cover might not remain adequate with time. And this is a very important point that most people forget.
Not buying a health insurance is not an option for most of us. Ignoring health insurance can easily set you back by a few lacs!
And even if you can afford to pay the medical bills, why do you want to spend several years’ saving on it? Why do you want to dip into your savings and disturb the process of compounding?
Health insurance allows you to transfer the risk of paying large future medical bills from yourself, to the insurance company – that too for a very small price (premium). It makes perfect sense. Do read why Health Insurance is your Wealth Insurance if you still have doubts. And if that’s not enough, in India, you get tax benefit for buying health insurance under Section 80D too.
Lets come back to the discussion of health insurance inflation.
A policy bought today might not be sufficient tomorrow.
Another unfortunate truth is that medical inflation in India is much greater than regular inflation. Some estimates put it at 15%.
But health care inflation definition (%) can differ as treatment costs of different medical ailments increase at different rates – depending on individual ailment-specific medical advancements and various other factors. It can be 30% in some cases and maybe 10% in others.
But in general, the cost of medical treatments is going up. I couldn’t find but there are bound to be some healthcare or medical cost indices, which track the rise of healthcare costs in India. My guess is that these index would be based on parameters like Hospital charges (which includes room rent, other expenses), doctors and technicians fees, drugs, equipments, nursing, etc. Do let me know if you find one.
Another point to note is that government hospitals (which have the potential to offer cheap healthcare services) are in pretty bad shape. So most people (in middle class) prefer going to private hospitals, which in turn increases the cost of treatment for obvious reasons.
It is for these reasons that one must prepare to deal with rise in healthcare costs.
What To Do Then?
So what should you do if you now understand that your current health insurance cover might not be as helpful to you in future, as it is today?
Lets see…
I think building multiple levels of protections is the key here. It might sound strange but hear me out:
Step 1
Ensure that you have a Health Insurance plan, which preferably covers you for lifetime. If you do not have a policy till now and are solely depending on the medical insurance cover provided by your employer, then you are making a big mistake.
Don’t do it. Don’t take chances.
Go and buy a policy for yourself (and your family) immediately. And don’t worry about finding the perfect policy. There are many health insurance plans in India and you will easily find a good enough policy for yourself and family.
Step 2
Next is to ensure that your cover rises roughly inline with rise in medical costs (inflation). Some policies allow increase of coverage for every claim-free year. This can work to an extent. Better would be to go in for top-up or super top-up policies. They are cheaper and financially efficient.
Step 3
Purchase some critical Illness cover too. Such covers payout lumpsum amount in case of critical ailments like cancer, heart diseases, etc. This can be of great help and offset the loss in income, in case the insured person is unable to remain employed in future. You should also consider buying accident (partial/complete disability) covers.
Step 4
Once you are through with above steps, think seriously about building a medical emergency fund. Yes. This is not the same as your regular emergency fund.
Its more about creating a backup to deal with unexpected medical expenses in future, which might not be covered under plans bought in steps 1 to 3.
Where to put this fund is the question now. If you think that current plans will keep you adequately covered for next few years (ideally more than 5 year), then you can consider investing small amount every month in some well-diversified large cap or index mutual funds.
This will act as a health corpus, which if not disturbed in near future, can help you save up a big amount for your health-care needs in post-retirement years. Now this might not fully cover all your medical costs in future. But it will help you cover some of the costs anyway. This effectively means that you are indirectly reducing your dependence on your health insurance policy, which is a good thing.
Note – You might want to use your regular emergency fund in case of requirement. Though you can do it, I suggest you don’t – unless it really is an emergency. If you can manage without dipping into this emergency fund, then its great. And if you plan well and in line with steps 1-4, then you can actually do it.
That’s it about how to layer your medical costs contingency plan.
You should also make sure to check actual costs of various surgeries and medical procedure in your city/locality to get an idea about the adequateness of your current coverage.
And please don’t think that since you are healthy today, you don’t need a health insurance. There is absolutely no guarantee that you will remain healthy in future. Though I pray that you and me do. 🙂
This brings me to another suggestion, which is ofcourse a no-brainer.
Stay healthy. More importantly, understand the importance of being healthy. That way, you can enjoy the life as it is meant to be enjoyed and ofcourse, it won’t hurt you financially too. 🙂
So take some time off and call up your doctor friends / clinics / hospitals. Get an idea about current medical costs. You will immediately know whether you are on the right track or not.
Medical inflation is a reality that cannot be ignored now. And we are not in a country where healthcare is free. Isn’t it?
So every man for himself and God for us all.
Go and do what is necessary.
Hi Dev Ashish,
Is it true that once a claim arises, the insurance company will not allow you to increase the coverage amount? How does the top up work in this case?
Thanks a lot for your extremely useful articles.