The cost of medical inflation: How much health cover should you buy?

The deviation in estimated expenses versus actual hospital bills is quite common. Agarwal’s is a case in point. In some cases, particularly where it concerns emergency treatments such as neuro-trauma, organ failure and infection management, this deviation could even be as high as 20-25%. It could be 10-12% for planned surgeries related to cardiology, oncology, orthopaedics and transplants, according to health-tech platform HexaHealth. And in some cases, it may even exceed 100%. While this highlights the importance of health insurance, it also warrants the question: how much insurance does an individual or a family need.

Admissions to a private hospital even for a couple of days can easily burn a ₹3 lakh hole in your pocket. Treatment of major cases, such as those related to liver or kidney transplants and cancer treatment can be extremely costly depending on the severity of illness and ICU (intensive care unit) needs. Yet, typically, people tend to buy policies that cover ₹3-5 lakh of hospital expenses and none if they are covered by medical insurance provided by their employer. An employer insurance usually provides coverage of up to ₹5 lakh unless an employee opts for a top-up to avail higher cover.

“A standard cover of ₹5 lakh or below only helps with covering episodes like minor surgeries that don’t require more than a couple of days of hospitalization. Any trauma, cardiac, orthopaedic, or chronic ailment treatment can exhaust the basic ₹5 lakh cover in merely four days of hospital stay," says Ankur Gigras, co-founder, HexaHealth.

Bharat Gandhi, an insurance agent, recalls that his customer, Jalan, who too did not want to be identified by her first name, was diagnosed with breast cancer and admitted to Tata Medical Centre in Kolkata. She had upgraded to a ₹25 lakh cover from a private insurer four years before her hospitalization, from a ₹5 lakh cover earlier.

The treatment, including surgery, cost her ₹12 lakh. She had already spent nearly ₹1.5 lakh for pre-hospitalisation. Post the surgery, her chemotherapy lasted for more than six months and cost around ₹50,000 per session.

“Jalan’s policy makes her eligible for ₹1 crore cover in a year thanks to its restoration benefit," says Bharat Gandhi. Most health insurance policies come with such a restoration benefit. It automatically raises the sum insured by a pre-specified percentage after a policyholder has raised a claim. This is done once a year or multiple times in a year after the policyholder exhausts the cover completely or partially, depending on the insurance product. Some insurers allow it only for different diseases in a year while others may offer it for the same illness.

You may also buy a super top-up that enhances your policy cover at a reasonable cost. Super top-ups come with a deductible amount. For example, if you buy a super top-up of ₹20 lakh cover with a deductible of ₹5 lakh, you need to pay for the initial ₹5 lakh expenses before the ₹20 lakh super top-up cover gets activated. In this case, a base policy of ₹5 lakh can take care of the deductible after which the super top-up will get activated.

It doesn’t, however, mean that you can go for a lower base cover deliberately. “Insurance should not be looked at as a measure to reduce cost. It is for the costs that you cannot bear. If you can bear the cost of say ₹5 lakh on your own, go for a ₹10-25 lakh cover," says Gigras.

Do note that health covers in India don’t take into account inflation. Rajat Agarwal, principal officer, Achintya Insurance Broker, makes an interesting point. “We buy insurance taking into account the cost of treatment today, but it’ll be much higher in 20-30 years. Insurance regulator Irdai must ensure that insurers offer an in-built feature that enhances your policy cover every year taking into account the medical inflation in the country. Some insurers do offer it as a rider but offering it at a pan-India level will keep the premium cost lower." Member of Parliament in Rajya Sabha, P. Santhosh Kumar, had in December introduced a private member bill ‘The National Commission for Controlling Medical Inflation Act, 2022’ in which he highlighted that India’s medical inflation was at 14% in 2021, the highest among Asian countries. It means that hospital expenses of ₹10 lakh today would cost you ₹1.37 crore in 20 years.

Funding hospital expenses

Notably, non-life insurance penetration stood at around 1% in FY22 in India out of which health insurance comprised just 0.34 percentage point, informed minister of state for finance Bhagwat Karad in a written reply to a Lok Sabha question in 2022. Also, a major part of India is without medical insurance.

Here is what you can do if you are uninsured or underinsured? Avail zero-cost medical equated monthly instalments, or EMIs. Many non-banking financial corporations (NBFCs) such as Bajaj Finserv, Early Salary (Fibe), Liquiloans, GMoney, Axio, and LoanTap offer it in a tie-up with hospitals such as Fortis, NH, Manipal, Apollo or healthcare service providers such as HexaHealth and Pristine. Early Salary says its research found that only 7-8% patients pay hospital expenses with their medical cover (including corporate insurance), while 13% use government schemes and 80% pay in cash from their savings or by borrowing or liquidating assets.

Under no-cost EMIs, a patient or an immediate family member can opt for a personal loan for medical emergency. “Eligibility criterion works in the same way as any other personal loan. The interest component is charged as a fee to the service provider instead of the patient. Once the loan is processed, the NBFC disburses the amount to the service provider," says Girgis. EMIs get activated after 15 to 30 days. Multiple family members can seek loan for one patient as per their income. The duration of EMIs can be around two to 24 months. “We lend a minimum of ₹7,000 to an average of ₹35,000 for various treatments. The loan amount can go up to ₹10-20 lakh or more depending on the type of illness and treatment cost," says Parvaiz Hussain, business head- Healthtech & BNPL, EarlySalary.

Are there hidden charges in medical EMIs? There could be a processing fee of 1% of the loan amount or a fixed amount. However, if you fail to pay the EMIs on time, interest is levied at 10-12% per annum.

Medical EMIs also come in handy when you are in need of very expensive treatment. It also helps when a big chunk of the hospital bill remains out of the scope of insurance due to consumables and other exclusions. . “Among the insurance cases handled (33%+ of our overall case volume), we have witnessed ~18% of the overall bill value being borne by patients on their own. This is because of condition capping, room rent capping, proportionate deduction, co-pay rider, non-reimbursable medical expenses, etc," says Girgis.

Medical EMIs are available for non-insurable treatment such as dental surgeries, weight-loss programmes, and beauty treatments, among others. “Data from WHO says that the healthcare expenditure will triple by 2025. Health loans as a category have the lowest default ratios between 2-5% as the end use is non-speculative and well-defined. Also, health loans are the fastest growing category in the country," Hussain of EarlySalary says.

Alternatively, one may reach out to district health authority for government grants and foundations such as Milaap and MOHAN for crowd-funding options in which anonymous donors come together on social media to raise funds and earn tax exemption in return. “Crowdfunding takes time but has become an effective source to fund medical cost for those who can’t afford it," says Girgis.