So you own a health insurance policy? Congratulations! That is indeed a good first step in securing yourself and your loved ones from the rising cost of medical treatment. But an oft-asked question from both current policyholders and those who are contemplating purchasing a health plan is “How much coverage do I really need?” In other words, does your current health insurance plan suffice to cover the cost of treatment – including expensive medical treatment – given the rising cost of medical treatment?
One must consider several factors before determining the health cover to be opted for:
Inflation: There are several pre and post hospitalization expenses that are not paid for by insurers. With increasing inflation, out of pocket expenses related to the above are bound to go up. Also, inflation leads to the overall cost of treatment to increase with each passing year.
Medical Advancement: With advancement in medical technology, several diseases that were hitherto considered incurable; are now curable. With this medical advancement, the cost of treatment has also increased dramatically. Thus requiring a higher health insurance cover
Major Ailments: Having a health insurance policy is good. It is definitely the first step in securing oneself against emergencies and unforeseen health concerns that might arise. In India, most policyholders take a policy coverage for around two to three lakhs for family floaters. The average cover under individual plans is even lower. Major ailments such as cancer treatment, health problems requiring organ transplant, etc cost anywhere between 20 – 30 lakhs – depending on the hospital the cost could go up substantially. Given this, an average cover of 2 – 3 lakhs is grossly inadequate.
A large cover does not necessarily mean the insurer will pay all your bills. If the treatment is not obtained from a network hospital, the insurer could reject or only pay part of the expenses incurred. You should also go over your insurance policy thoroughly to understand factors such as sub-limits, exclusions, and waiting period.
This brings us to the question “Is there a “Right” amount when considering purchase of a Health Insurance?” There is no one-size-fits-all answer to this question. It totally depends on factors such as your preference when it comes to the type of hospital you prefer to get yourself treated, your current age, health conditions of yourself and your family members, affordability, etc. If you are young, do not have a family history of illnesses, you can choose a relatively lower coverage. Here are two general rules of thumb when determining your health cover. First, your health cover should be at least 50% of your annual income. Second, the insurance cover should be equal to the cost of treating a bypass surgery in a hospital of your choice. As a matter of fact, most personal finance experts recommend a health insurance cover of not less than Rs.5 Lakhs. Given the cost of medication and treatment, this is perhaps the lowest one should opt for. You should consider extending a floater to include your family members for a similar amount.
Pitfalls of High Value Cover:
There are certain pitfalls of high value cover that one should consider:
i. If you have subscribed to health insurance cover upwards of Rs.60 lakhs, the entire sum assured is unlikely to get utilized even in high-end hospitals in metros.
ii. As mentioned earlier, a large cover does not ensure all expenses will be taken care of or reimbursed.
iii. If your objective is to go for a large cover to receive treatment internationally, please note that insurers permit treatment abroad only if such treatment is absent in India.
iv. High-value plans come with a large premium (which most people can ill-afford). Further, premium revisions are frequent – almost on a yearly basis – unlike other health plans where premium revisions occur every few years.
v. Most high-value plans have a co-pay clause at 20% for senior citizens.
vi. While most of these high-value plans do not have room categorization, they only allow the lowest category in high-end hospitals.
As discussed, high-value plans are expensive and in general a large number of ailments do not cost as much as to require a high-value plan. Therefore, it will suffice to go for a health cover that meets the rules of thumb discussed above. Going for a top-up to reach this health cover is an option one can consider. Given the high cost of treatment, inflation and other factors discussed, your health insurance cover, considered adequate a few years ago, may not suffice today. Therefore, it is important to review your health insurance plan from time to time and consider upward revision as might be appropriate.