Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

Low insurance is as bad as none

Healthcare inflation also signifies availability of advanced medical assistance

There are a few economic parameters whose growth rate could beat the general inflation rate in India. Healthcare cost inflation, unfortunately, has this dubious distinction. Estimates for the increase in healthcare costs in India range from 15% to over 20% per annum. The impact of this, while not apparent in the ordinary course of life, can be extremely painful when the need for healthcare shows up.

Sedentary lifestyle has made conditions such as diabetes, hypertension and cancer more prevalent. Medical technology advancements have played a good catch-up game so far. But new medical advancements have come at a cost, which, in turn, has driven up treatment costs. This, along with the huge demand-supply gap for healthcare services in India, have become the key drivers of healthcare inflation.

The primary reasons behind rising medical costs are increasing input costs, and increasing disease burden because of affluence. It is important to remember that healthcare inflation also signifies availability of advanced medical assistance. Innovation is expensive and will only continue to be. Life-saving medical technology, laparoscopy-based procedures and better diagnostics technology are being churned out by research labs, entrepreneurs and medical technologists.

The story of healthcare inflation would only continue though the rate might vary. It will only help to be prepared and insured for the unanticipated inevitable. A side effect of increasing affluence in India has been an increased incidence of lifestyle diseases which were hitherto insignificant. These diseases are chronic and managing them requires longer time horizons, and therefore, costs more.

Healthcare inflation works differently than general inflation. General inflation eats away at your savings over a period of time. In contrast, healthcare inflation’s impact is akin to a shock. Say, someone in a household falls ill and requires hospitalization. At the time of signing up for health insurance, a cover of 2 lakh was considered sufficient. However, the cost of treatment is now estimated to be 10 lakh. This gap of 8 lakh can be difficult to fill for most households, especially in a short period of time. One can imagine the painful saga which unfolds—running around asking for help at the cost of self-esteem, taking on debt and exhausting all household savings. The worry, hassle and ignominy of asking for monetary help does not go away completely in the absence of adequate cover, thereby defeating the entire purpose of health insurance.

Costs of simple procedures such as hernia treatment have more than doubled in the past few years. Treatment for marrow transplants, heart valve repair surgery, open heart surgery, liver transplant and others can set one back by several lakhs.

A comprehensive cover is the only solution against healthcare inflation. As a health insurance consumer, what does the permanency around healthcare inflation imply? What are our options? Perhaps, one could increase savings or enhance the part of savings allocated to healthcare. Yes, but that is inefficient and difficult to do. Accumulating large savings takes time and allocating more towards future healthcare expenses can only come at the cost of something else, say, a house purchase. Using health insurance is a better option, but how could we choose products which are inflation-proof?

Go for a larger cover: An efficient method would be to go for health insurance with sufficient coverage, ideally over 10 lakh. This is better than stashing a large amount in anticipation of healthcare costs! While calculating the coverage amount, it is prudent to take into account the future costs of common procedures and not just what it is today.

Get coverage for entire family: Protecting a few in the household and leaving out the others is imprudent. Having a cover for the entire family through a family floater option and a higher coverage makes sense in an inflationary environment. Also, it’s more economical to cover the full family than owning several individual policies. The fact that risk is spread over a larger number of family members ensures that despite the higher coverage, the premiums are relatively low.

Have a holistic view of the insurer: Taking a holistic view of health insurance—coverage, service and provider network—can help one come up with the optimal set of insurers to choose from, and leave out the lesser beneficial options. Consider factors such as hospital network, no sub-limits, coverage for critical illnesses, and maternity, which do not directly safeguard from healthcare inflation but help with unforeseen costs at the time of claim. These might make your plan slightly more expensive but a comprehensive product is better than a product that you cannot use when you need it the most.

Early health insurance: The rising cost of healthcare should push more and more people to buy health insurance. The reality is that most people in India are not insured and more than 70% healthcare expenses are self-funded. Even in other poor and developing countries, the ratio is not this high. To protect yourself and guard against rising medical inflation, you should buy the policy early in life, say, by 30 or 35 years. This is primarily for two reasons: not only will you serve the waiting period at a much younger age, there is also little risk of being refused a policy. Buying at an older age may lead to the application being rejected or even many exclusions. Every 3-4 years, you should review and revise the cover based on changing needs.

Major health insurers are introducing products with larger coverage, over 5 lakh, and with family floater options.

Nevertheless, insurance business is the art of selling promise and providing financial security. Consumers, too, have recognized the need for such products, especially in urban cities where the impact of healthcare inflation is more pronounced. The industry should gear up to create products for the future—with more coverage, better access and more convenience.

Manasije Mishra, chief executive officer, Max Bupa Health Insurance Co. Ltd.