Health Insurance Inflation in India – Have you planned for next 30 yrs ?

POSTED BY manish ON September 17, 2012 COMMENTS (51)

Lets talk about Health Insurance Inflation today ! . When you decide upon buying a health insurance policy, one of the pertinent questions that crops in your mind is the coverage amount – how much health insurance to buy? One of our readers Saket made an interesting comment on health care inflation, and how a decent cover today might look so small in distant future and raised the issue of “renewal” of policies by companies.

The Health Insuranec companies, eargerly selling policies to younger age group (mostly), are actually giving them a false sense of security about their twilight years. No doubt, the current policy will be good for next 5 years, but not later than that because of the health insurance inflation. So this sense of security has a shelf life of max 5 years. After that my fate will lie in the hands of insurer-whether it finds my policy upgrade worthy or not. Considering a most conservative healthcare inflation rate of 15% , a humble 3L coverage requirement as on date for a 38 yr old would translate into a whopping Rs 130 Lakhs ‘Final Amount’ at the age of 65 , the calculation is fairly simple – 3,00,000*(1+.15)**27 =130 lacs

Health Care Inflation In India
Coming to the question, we can now clearly see that decision of taking health insurance in current moment depends on two points. which are

a) Health insurance is a super looooonnng term investment, which you would need most in your old age, beyond say 60 years of age.

b) It’s common knowledge that Hospital costs are increasingly rising, gradually becoming unaffordable, to the common man.

How much is enough to financially support your family’s healthcare needs, ensuring you have a peaceful retirement life. Let us take this up, step-by-step.

Costs of common surgeries & Hospital Costs In India

The cost of some major surgeries in hospitals across India has gone up in recent years. Going by these numbers, assuming only one surgery is required during a year, per member; a sum insured of Rs. 3-4 Lakhs should be good enough for the year 2012. Major supply deficit with respect to healthcare infrastructure – hospital beds, doctors and nurses, increase in cost of medical equipment’s, land has resulted in an increasing trend of health insurance inflation. Here are the 2012 costs for surgeries, compared with costs in 2007.

Sr. No Treatment 2012 Cost 2007 Cost Increase
1 Cataract 24,000 16,000 50%
2 Angiography 22,000 14,000 57%
3 Coronary Artery By pass Graft (CAGB) 2,35,000 1,65,000 42%
4 Appendectomy 42,000 28,000 50%
5 Heamorrhoidectomy (Piles) 35,000 21,000 60%
6 Cholecystectomy (Gall Bladder removal) 52,000 32,000 63%
7 TURP (Prostate Surgery) 62,000 37,000 68%
8 Angioplasty (PTCA) with 2 stents 2,45,000 1,55,000 58%

The costs of common surgeries have increased by 50-60% in 5 years! This means healthcare costs have increased by 9-10% year-on-year, since the last 5 years. We spoke to Sudhir Sarnobat, CEO at Medimanage. Here’s what he had to say

“The average annual health insurance inflation would be at 5%, if you look at 30 years duration. The hospitals do not increase their tariffs every year. Generally, they increase it by around 15-20% every 2-3 years. This would effectively come to 5% CAGR.” “India is currently having Supply Deficit when it comes to Hospital Beds. But we are seeing a good amount of capacity increase in beds in last 7-10 years which should continue to grow. On the other hand, our population is stabilizing. In 15 years, the equations should change & ease pressure on prices.

India is a developing economy and from credible reports, will continue to be on growth path for next 10 years. After that once the wealth distribution is even, we would see stabilization of inflation (world over that’s been the phenomenon, look at US Medical Inflation for last 5-7 years, it is 4%)” Sudhir added.

Some reports on Hospital infrastructure talk of a major crisis in the making in the Healthcare Industry, due to overflowing demand, coupled with very slow growth in the poor hospital bed to patient and doctor to patient ratio in India, primarily due to deprived participation from the Govt. A Tower Watson Report pegs healthcare inflation in India at 13% for the year 2012.

In my opinion, while costs are bound to rise due to the slow growth in the ratios, on a 30 year horizon they have to plateau somewhere. Looking at this, I suggest, let’s take the inflation year-on-year for the next 10 years at 12%, and then average 5% for the remaining 20 years.

Health Insurance Inflation and Future Costs

Factoring healthcare inflation on Rs. 4 Lakhs of costs expected today, in 10 years, @ 12% inflation, the sum insured requirement would increase to Rs. 12 Lakhs, per member. In 20 years @ 5% inflation, to Rs. 20 Lakhs, and in 30 years to 33 Lakhs. For calculation of floater coverage, take 50% ad hoc for every adult member and 10% for every child, and here’s the kind of cover you will need, for some of the family combinations.

Health Insurance Inflation for Family Floater Policies

So a family of 2 – Self and Spouse will need a cover of Rs. 50 Lakhs year-on-year every year, from the age of 60. This is a huge sum, and looks unaffordable to most of us. So, what does one do? A middle class guy would either have to “afford”, “plan” or “pray” be able to afford such astronomical expenses. Let’s see how we can plan to pay such healthcare expenses.

If you want to compare and buy health insurance products, one of the best resources are coverfox website. Just leave your details and they will help you in choosing the right health insurance for your family.

Solution to the problem

Look at the Present Value of Rs. 50 Lakhs at 10% inflation on 30 years, it calculates to just Rs. 3 Lakhs. So though the problem looks big, it definitely can be resolved by the power of financial planning. Here are the steps we recommend you to create a fool proof plan for your healthcare expenses.

a) Commit yourself to healthy living: Yes, it’s very awkward for a Health Insurance services company, asking you to commit to health, but then we believe that Healthy living is the best form of Health Insurance. Healthy living would of course mean Regular Exercise, Healthy nutrition and No ill-habits. Such lifestyle will simply help avoid huge hospitals bills. Read an excellent article on Health SIP by Nandish.

(b) Given point (a) is a way of life for you, you now need to create a Long term and Short term financial plan, for the unavoidable healthcare expenses, like hereditary ailments (Diabetes, Thyroid), age related (like knee replacement), or infectious diseases (like Malaria), or even diseases like Cancer (which still have many unknown causes. Perfectly healthy people have got cancer, in spite of no ill habits).

Note, if you cannot commit to point (a), your needs for long term and short term funds increases multi-fold, to cover healthcare expenses.

How do you create such fund?

Here’s what I recommend should be your step-by-step health insurance investment plan.

  • Buy Health Insurance, preferably one which covers you for lifetime, and provides a no claim bonus, for the sum insured of Rs. 5 Lakhs individual or Rs. 7-8 Lakhs Floater. If you are buying plans, with Restore options, then the sum insured could be lower at around Rs. 5 Lakhs.
  • Take a good top-up plan, which takes your cover to a floater of Rs. 10-15 Lakhs for the entire family.
  • Invest in a Rs. 5-10 Lakhs critical Illness plan, which covers maximum no. of ailments, especially for the earning members of the family. This will help you get lump sum payment for critical ailments, and compensate for any loss of earnings. You can also explore the option of a more comprehensive benefit plan with your health insurance advisor, with products like Tata AIG Wellsurance, Aegon Religare iHealth, which provide lump sum benefits for large no. of surgeries, in addition to the Critical Illness benefit.
  • Plan a Healthcare Contingency fund, for Rs. 15 Lakhs for individual, and Rs. 25 Lakhs for a family of 4, maturing at age 60. A contribution of Rs. 15000 per annum at 10% return will accumulate Rs. 25 Lakhs in 30 years.

So what’s the total investment for your healthcare financial plan?

Here is the approximate outgo you would incur.

Type of Plan Sum Insured Tenure Costs
Health Insurance Rs 5 lacs 30 yrs Premium Rs 6,000
Top up Plan 5 Deductible/15 SI 30 yrs Premium Rs 5,000
Critical Illness Plan Rs. 5 Lakhs/20 Illness 30 yrs Premium Rs 3,000
Healthcare Contingency Rs 25 lacs 30 yrs Investment Rs. 15000


The plan above is indicative and would have to be customized depending on some of the following factors

  • No. of members you want to cover
  • Their age
  • Their health condition
  • Family history of critical ailments like
  • The city where claims are expected
  • The type of hospitals, rooms you prefer.
  • Your lifestyle.

What do you think about health insurance inflation and your thoughts on renewal decision by the companies. Do you think creating your own health care corpus is a better idea rather than depending on health insurance policies?

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51 replies on this article “Health Insurance Inflation in India – Have you planned for next 30 yrs ?”

  1. MYUNGROSATI says:

    Timely article .The average annual health insurance inflation would be at 5%, if you look at 30 years duration. The hospitals do not increase their tariffs every year. Generally, they increase it by around 15-20% every 2-3 years. This would effectively come to 5% CAGR.” “India is currently having Supply Deficit when it comes to Hospital Beds. But we are seeing a good amount of capacity increase in beds in last 7-10 years which should continue to grow. For my two cents if others a CMS 1500 , We found a template version here “https://goo.gl/LKVGBi”.

    1. Jagoinvestor Admin says:

      Thanks for sharing that MYUNGROSATI

  2. Raj says:

    Hi Manish,

    I have 3 memebers in my family me, my spouse and my brother. Age range for all of us is 24-27. could you please suggest the plan (base+top up) for me?

    Also if you know any good insurance cosultant in Pune city, please let me know.

  3. Prithvi says:

    I am 31 , I have taken floater policy (2Adults+1 child) from ICICI Lombard Complete Health Insurance for 10 lacks. Is this good plan ?

    1. Cant be commented like that . a plan is good or bad depending on your requirement. if it has everytihng you wanted , then its a good plan

  4. Subrato says:

    Good to see people are getting aware about the use of Health Insurance. I look after the insurance coverage for ING Vysya Bank

  5. Parambir Singh Sandhu says:

    Great Work Manish………………….
    You will be on top of the world one day……………..BOL dear

  6. Prakash says:

    Hi,

    Thank you for a very helpful article explained in simplest possible manner.

    I and my family (self-50, spouse-46, sons-20& 12) have a Bajaj Allianz (BA) Health Guard policy which is individual policy and currently have coverage of 3 Lacs each for self and spouse and 2 Lacs for each son. I have not put any claim in the last year and plan to increase the Sum Insured (SI) to the next slab i.e. 4 Lacs each for self and spouse and 3 Lacs for each child, subject to approval from Insurer.

    Last year when I requested to increase the SI (from 2 Lacs to 3 Lacs for self and spouse and from 1 Lac to 2 Lacs for children), it was initially declined on the grounds that I had been (successfully) operated for A.S.D. in 1968. The same was disclosed in the proposal form when I first took the policy. I then argued that the operation was performed when I was 6 and was successful and since then I am on no medication and am perfectly fit and healthy. Yet they did not agree. I then offered to undergo any test that they ask. They then made me undergo a series of tests including Stress Test, 2D Echo, etc. at their designated centre and when all the reports came clean they had no option but to accept my request for the increase in SI.

    I now plan to increase the SI to the next higher slab every year (provided there is no claim) till it reaches 10 Lacs for self and spouse. By then I will be 55.

    My concern is that once I hit 56, BA offers maximum cover of 5 Lacs only. I find this unfair since till 55 yrs I would be covered for 10 Lacs.

    – Is there a solution to this, other than opting for a top-up plan or going for a floater plan ?

    – Can the insurer restrict SI to 5 Lacs from 56 onwards even though I had a SI of 10 Lacs upto 55 ?

    – Can Insurer refuse to increase the SI even though there has been no claim in the preceding year ?

    Also, I find that BA charges higher premium in comparison to it’s peers. But I have had smooth claim settlement (for my son) in 2008 and 2009. It is good that they do not have a TPA and manage claim settlement in-house.

    I await your expert opinion.

    Thanking you in anticipation.

  7. sandhu says:

    can we add one more point under ” solution to the problem “.

    HAVE FAITH IN GOD / ACCEPT HIS VERDICT WITH A SMILE.

    1. The solution was discussed at the end of the article , that how one should design his health insurance portfolio !

      1. sandhu says:

        very right.

        any way care for body (health care) is any way required throughout life and specially at old age.

        also one has to adjust to the changing times of this health care buisness becuse it a BUISNESS more and CARE less.

        why blame this buisness, even our body reacts to this buisness,
        i tell u one true incidence, one of my uncle had a pain in chest, brought to the best in the area hospital, but before i and other relatives could reach hospital, he was already on the way back to his home happily.

        what happened ;
        he was under the impression that he is covered under some insurance in that hospital, so the chest pain felt like heart attack, but when hospital told he is not covered , pain became a gas problem and relived with hajmola.

        all of us must have come across few cases of feelings of oversufferings and hence over treatments of individuals.

        this is happening in advanced countries

        a win win situation for everybody, hospitals , doctors, insurance companies, tpas, bpos handling paperwork for all this etc etc and also most important the patient himself ( with the feeling of free treatment)

        but is any one thinking about the poor BODY

        any time for the peg , three cheers for WIN – WIN buisness

        regards

        1. thanks for your comment and sharing your experience

  8. sandesh shah says:

    our family includes ages 55, 49, 26,23. We have 10 lac floater with 3 lac deductible. which policy should be taken to cover 3 lacs or 5 lacs. is that enough. i dont want limit on room rate. what is the best policy for us.

    1. I dont think there will be any policy which will come with any limit on room rates .

  9. Krishna says:

    Manish,Mahaveer,

    My Company provides me the top up cover option upto 10 lakhs above the company provided 4 lakhs cover. Should I opt for the Critical Illness as well?. If so suggest some good policies

    Krishna

    1. Yes you can opt for critical illness if thats something you feel will add value to your cover

  10. neet says:

    Dear Mahavir/Manish,
    Thank you for writing such a wonderful article on healthcare. We are a family of four( ages 48 ,47, (children) 22 and 18 resp ) and have a family medicare policy from United India Insurance Company for a SA of 10 lakhs and a super top up for 15 lakhs with life time coverage . Is our health insurance planning good ? Do we need a seperate critical illness policy ? Also is any other company offering a better policy in terms of benefits as well as lower premiums.
    This policy has a loading factor if three or more claims are lodged during two preceding policy periods.
    We have held this policy since 2003 but incase we want to change the service provider , do we lose the medical history ? we have a fairly clean medical history and have not ever made a claim so far .
    neet

    1. As of now it looks good to me , Mahavir would be able to reply that in better way !

      1. Neet,

        You have a good plan in place. The only major concern with United India’s plan is the Rs. 4 Lakhs limit for surgeries. This, IMO, handicaps the cover and your planning severely.

        We would recommend you quickly look at porting to another better health insurance policy (which does not have such limits) .

        There are options available, where you wont miss on the credit for your clear medical history.
        Catch hold of a good health insurance advisor

    2. Hello Neet,

      You have a good plan in place. The only major concern with United India’s plan is the Rs. 4 Lakhs limit for surgeries. This, IMO, handicaps the cover and your planning severely.

      We would recommend you quickly look at porting to another better health insurance policy (which does not have such limits) .

      Catch hold of a good health insurance advisor

      Regards,

  11. Anurag says:

    Thank you very much again Manish Ji for this nice eye opening article.

    Will you suggest me a policy for me & my wife with critical illness rider.
    Also a term insurance policy with partial/temporary disability rider as my age is 34 yrs.

    1. Hi Anurag,

      Thanks for the compliments.

      Would suggest you go for a basic medical insurance policy, and take a separate critical illness policy. Note, medical insurance covers hospitalization expenses for critical illness too. Standalone Critical Illness policies are better and more cost effective than riders.

      Regards,

    2. Anurag

      Do you already have a health insurance policy or not ? For term plan you can look at Kotak offline term plan

  12. Gaurav says:

    Hi Manish,
    I need a advice from you.
    I am 29 and married. I need a healthcare policy for me & my wife.
    I am already paying 3500 for 5 lakh SA in my company mediclaim policy.

    Please suggest suitable plan for us.

    Thanks
    Gaurav

    1. You can look at Apollo Optima Restore !

  13. Prasenjit says:

    This is really nice article. I am more concerned how much the hospital bills will stand if i turned 60+. Till 60 employer may provide health insurance cover but after 60+ the benefit will go out and at that point 6lakh cover may not be sufficient and insurance firms may charge you high premiums for any additional top ups.

    1. Yes thats the main point 🙂

  14. Swetank Saroj says:

    Hi Mahaveer/Manish,

    Thanks for this great article.

    I would like to know your view about the ICICI Healthsaver ULIP. It is a family floater plan of 5 lpa with no claim bonus of upto 6 lpa. Can be increased upto 20 lpa; which I will increase in next 7-8 years.

    Thanks,
    Swetank

    1. Mahesh Patil says:

      Hi Mahavir,

      Thanks for this eyeopening artical.

      Could you please suggest some of Good mediclame plan.

      Details are below.

      my Age-33, spouse-30, child-5, daughter-2. mom-55or 56, father- 64.

      I have company medicalme policy which cover me and my spouse and child but no parents.

      For parents I have to pay additonal premium of 15 K to 1 lac, both are medicaly fit.

      I am also looking for critical illness plan for me your guidence will much appericiate.

  15. Mohsin Mirza says:

    I have ICICI lombard 4 Lakh cover mediclaim with 8 Lakh Top up. I want to increase cover should I switch?. If yes where?. Will the benefits of pre existing disease etc erase if I swith?

    1. Check is the health insurance portability will help you or not , which company you want to switch to ?

    2. Mohsin Mirza says:

      I have made severat claims under my policy and all the claims were fully honoured by company. I do not want to switch, but do i require here.
      Also my father is concerned he is suffering from Diabetes and he has Max Bupa insurance where we have disclosed every thing.

  16. Samir says:

    Thanks for eye opening article –

    General Question –
    1) What is top up plan? Can we have some good examples/recommendations

  17. Jassi says:

    Very nice article and gives a good idea on how should one plan for medical expenses keeping future in mind.
    We had purchased a policy – Oriental health silver, from Medimanage earlier this year and it was quite easy to do so from their site/UI.

    Though I have understood from the article that one needs to plan for medical inflation in coming years, I am unaware of the Top-up plans and Critical Illness plans.
    Cant we just increase our premium amount every year by 15-20%, till we achieve a comfortable cover (say by 40 years of age)?
    And with it, plan for Healthcare Contingency cover from now, which anyways shall be used after we reach 60 years of age.

    Whats do Top-up plans do?

    In my case, both me and my wife work and we have Individual health insurance cover ALSO from our employer.

    Thanks and Rgds,
    Jassi/Priya

    1. Jassi

      You can always enhance the cover if company allows it . But top up plans also do the same thing . Top up means on the top of the base cover you get additional 5-10 lacs of cover at a small premium . BUt the point is most of the times you will not even use so much , so the premiums are cheaper, its like you can eat maximum Rs 200 worth of good in a hotel and hotel says UNLIMITED Food at just Rs 299 .. .

      Its like by charging 99 extra , they are offering you 10 times more food which you could eat, but in reality , it will not happen 🙂

      Manish

    2. Hi Jassi/Priya,

      Top-ups basically are health insurance policies which take effect after the claim amount for a hospitalization has passed a certain threshold amount (jargon: deductible). So if you have a policy of Rs. 5 Lakhs Deductible/10 Lakhs. This policy is claimable, after your hospital bill goes above Rs. 5 Lakhs, upto Rs. 15 Lakhs.

      Looking at the healthcare inflation discussed, these policies are cost effective investments for the future.

      The Hospital’s “appetite” of charging you is ever expandable.

      They often work out to be better option than buying a large basic cover.

  18. Prasoon says:

    Manish,

    Religare Care Plan comes up with following features –

    1) 50L S.A. at 26,000 for 35 year old couples with Lifelong Renewability
    2) With recharge option, above amount equals to 1 Cr.
    3) Recharge option rectifies one of the major drawback of Restore – S.A. gets reinstated whenever it gets exhausted. While in Restore it will be available for next claim only
    4) Abroad treatment are covered for >=50L cover
    5) Free annual health check-up

    Is it ‘too good to be true’? Or, is it solution to (almost) all of the problems mentioned in this article?
    Will we see a consumer-friendly competition in health insurance now, just like AR started with the term insurance?
    What are your views?

    Prasoon

    1. I think it needs a good discussion 🙂 . Please start a thread on https://www.jagoinvestor.com/forum/

  19. Pankaj says:

    @ Manish — I got to know about importance of HEALTH INSURANCE during Action Month started by Jagoinvestor.com for this I thank you Manish, Nandish and team for this awareness.

    I insured myself and my family with – a) Oriental Happy Family Floater for Self, Spouse and one kid with SI of 6 Lakhs b) Critical Illness plan from Bharti Axa for SI of 5 Lakhs c) Accidental Insurance from Apollo Munich with a SI of Rs. 25 Lakhs.

    @ Mahavir — Kindly suggest should I increase the SI at time of policy renewal and also suggest about Healthcare Contingency fund as I would prefer health insurance policies over creating my own health care corpus.

    1. Thansk for your appreciation Pankaj !

  20. RD says:

    Manish,

    I had a health insurance and knew its importance but after reading article i came to know that my health insurance is very less in the long run. Thanks Manish to woke me up.

    I had a recent experience where my health insurance had saved my money. My wife had malaria and i had to hospitalized her for 4 days. I used cache less facility and it had taken care of around 92-94% my medical expenses only Admin charges i had paid. After this incidence i realized that how important is to have a Health insurance.

    I will call this artcle a ‘Burfee’ articl. Its classic and very very usefull article. If you do not have Health insurance then only one medical emergency can spoil your all hard earned money.

    1. Thanks for appreciation . You should get some more insurance in that case considering it will be less in coming years !

  21. Santanu says:

    Superb analysis. Just let me share my latest experience here : My wife is going to admit next week for Gall Bladder removal operation. I have my insurance with TTK. I have applied for cashless and completely surprised with the amount they have approved for this operation with 3 days in hospital. It’s 65000/-. I don’t know what ll be the exact figure, but feel completely strange where our medical costs will go in next few year….. Really not able to figure out how to get prepared for that.

    1. So you feel 65,000 is less or more ? I am sure it will be less at a good hospital !

      1. Santanu says:

        I don’t know exactly…because few of my friend said it will cost around 35000 to 40000/-. Even Doctor said around 30,000/-. Its a very good and well known hospital in kolkata, AMRI. Even in this post also you mentioned its near about 50000/- plus.

        1. Ok , then that 65,000 must be maximum they will sanction !

        2. Hi Santanu,

          The figures we have taken above in the chart are average costs across good hospitals charge throughout the country. Rs. 65000 definitely looks to be on the higher end.

          This amount approved is not the maximum, but what the hospital has estimated, and what the TPA has approved.

          TTK is the TPA which is managing the claims servicing.

          As per historical data, hospitalization does cost 20-25% more through cashless, than out-of-pocket/reimbursement.

          BTW, Is this your own personal health insurance or employer facilitated?

          Regards,

        3. Hi Santanu,

          Thanks for the kind words…

          The figures we have taken above in the chart are average costs across good hospitals charge throughout the country. Rs. 65000 definitely looks to be on the higher end.

          This amount approved is not the maximum, but what the hospital has estimated, and what the TPA has approved.

          TTK is the TPA which is managing the claims servicing.

          As per historical data, hospitalization does cost 20-25% more through cashless, than out-of-pocket/reimbursement.

          BTW, Is this your own personal health insurance or employer facilitated?

          Regards,

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