I have been seeing a lot of comments on Twitter about how difficult it has become for senior citizens to pay the premiums for their health insurance policies, or Mediclaim as we know it. In fact, a number of them have decided to discontinue the policy as the inflated premiums are turning out to be unaffordable, something they never considered.
I reached out to Deepak Khemani, a personal finance expert and author of Compounding: The 8th Wonder. Having been an insurance advisor for 38 years, I was keen to know his opinion.
In his own words, here goes.
The reality
It is a fact that over the past two years there has been an increase in medical insurance premium. This increase can be attributed to the pandemic.
At least 20 senior citizens, my clients, have stopped paying the premium on their health insurance policies as they simply cannot afford the hike. In my conversations with other advisors, I can see that these are not isolated examples. It is turning out to be a common issue across the country.
In extreme cases, it ranges from a 100-150% hike. So to renew a policy that had a premium of Rs 35,000 (pre-pandemic) now costs Rs 75,000 to Rs 85,000 depending upon the age of the insured.
The reaction
So what are individuals doing?
Some decided to dump their policies. This is a frightening scenario, being old with no insurance.
Others are compensating for the increase in premium by opting to reduce the Sum Insured. A very bad idea.
Let’s look at the 1% clause for room rent. If you have a Rs 2 lakh Sum Insured, you will be eligible for only Rs 2,000 as daily room rent (1% of sum insured). Try getting a room in a reputed hospital in any city for that amount!
It is not just room rent, but everything else like nursing charges and doctor visits are paid proportionately less too.
NEVER decrease your Sum Insured.
NEVER discontinue your medical policy.
- With age, you need the coverage.
Individuals tend to have more health issues and require more medical care as they age. Without insurance, the cost of medical treatment can become financially overwhelming. Without insurance, seniors may delay or avoid seeking necessary medical care, which can lead to poorer health outcomes.
- The past is no indication.
Just because you did not need it in the past, doesn’t mean you won’t need it in the future.
Most health insurance policies that are active for senior citizens in India were taken 20-25 years ago, mostly through the four nationalized general insurance companies: United India, New India, National Insurance, and Oriental Insurance.
All of them had near identical policies and similar premium tables. Also, 20 years ago, people were comfortable with the maximum amount of Sum Insured being Rs 2-3 lakh. Rarely did anyone opt for a 5 lakh cover then.
Very few decided to increase their Sum Insured in line with medical inflation, partly out of ignorance and partly because they never fell ill. The claims were predominantly for a cataract or other such procedures which was taken care of by the insured amount.
Knowing that you have health insurance can provide peace of mind, especially in the event of an unexpected illness or injury which are extremely common during old age and with those having limited mobility.
The solution
What must you do?
Manage your finances in a way that can help you plan for higher premiums. This is what I have planned for myself and my clients.
If they have the money, I suggest a lumpsum, but even a systematic investment plan (SIP) will suffice. This amount will be invested in a pharma or healthcare fund with a minimum tenure of 10 years. I chose a pharma fund with the logic that these pharma or healthcare companies will keep profiting and the rise in earnings will benefit the stock price. The S&P BSE Healthcare index was at 8,166 on January 1, 2013. A decade later (December 31, 2022), it stood at 23,033. That amounts to a return of 10.93% per annum (CAGR). This is just to give you an idea. Specific funds in this sector have delivered even higher returns.
If one is not comfortable with it, a diversified equity fund, a balanced fund, a balanced advantage fund, or even a 10-year fixed deposit can work. Today, the latter can generate 7.5% assured returns.
This is NOT to confused with the Emergency Fund, which is a separate expense fund for other contingencies. Neither is this to be confused with your Retirement Fund.
This investment is extremely focused to serve only specific purposes.
- To pay for higher premiums in old age.
- To pay hospitalisation bills if the cashless facility is not approved.
- To serve as a medical fund if the health insurance policy gets discontinued.
Think about this
Just like Death and Taxes are a certainty in life so is an exponential increase in Health Insurance Premiums. Here’s a link to the HDFC ERGO website where they clearly explain why insurance premiums are up and will keep on going up.
You’ve heard from the horse’s mouth. What's your plan?
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