Health is wealth and conversely, ill-health is erosion of wealth. Conventional wisdom says this is where health insurance comes in. Until health insurance itself becomes a large drain on the pocket, ironically.

Things have been taking this direction in the last few years and now we have entered a stage where many are questioning the high premiums for reasonable levels of cover. And, by extension, wondering about health insurance economics and what it will become in the future. We will come back to this question in a bit but first let’s take specific examples of premium increases.

Steep increase

A ₹10 lakh hospitalisation policy for a 45-year-old costs ₹20,000 to 25,000 today compared with about ₹18,000 to ₹20,000 a year ago. As much as 15% increase in a year is quite a shocker but still tame compared with the 25- 30% increases for older people. Premium rates vary quite a bit by coverage, age, location and definitely insurance company, but the direction is clear, namely upwards, steeply. Before you think the premium jump is due to age 45 when you enter a new slab with higher rates, that was the case until last year. Annual increases have started across insurers and there are differentiations by zone as well.

Rising medical inflation

The reason offered is rising costs, centrally, medical inflation which is reportedly about 15% in recent years. The customer is still left wondering where this is all going. Going by this trend, in six or seven years our 45-year-olds would be paying double the premium for the same coverage. Or, her premium today will get her only half the sum insured. (Today’s 45-year-old, at 52 will be looking at a more intimidating premium situation!).

All this if today’s morbidity trends remain the same. Cancer diagnoses are growing, as are lifestyle diseases and God forbid another pandemic.

Sure, top-up policies help increase coverage for relatively much lower premiums and has been the portfolio tweak many have taken. It has taken the heat off those who want higher coverage but cringe at the premium rates of basic hospitalisation policies. Coming back to the basic policy, questioning the worth of insurance is an inadequate response. What about the cost of medical care WITHOUT insurance? Here is a creative idea — suggested in CoverNote a couple of years ago — which is now becoming the topic of family conversations and even decisions. Why not have only a top-up cover with a ₹10 lakh threshold and desired sum insured and be ready with funds to meet the first ₹10 lakh?

I know families that opted for this. Perhaps because paying an average of ₹1,00,000 a year for a ₹10 lakh policy for 10 years with no claim means you have paid the entire sum insured as premium and are set to keep paying.

Also, perhaps as they were denied hospitalisation cover due to age or medical reasons and they did not have much of a choice. In this situation, the top-up policy takes care of peak risk and the emergency medical fund pays bills of up to ₹10 lakh. Can this work? Yes and No. Let us see some scenarios in the next installment of CoverNote.

(The writer is a business journalist specialising in insurance & corporate history.)