Planning for health insurance for a family in India involves several steps and considerations to ensure you choose the right coverage that meets your family's health needs while being cost-effective.
Factors to Consider
Coverage Needs
Evaluate the health needs of your family. Consider any existing medical conditions, potential future health risks, and the type of medical facilities you prefer. For example the ABC family in Delhi has a history of heart disease. Mr. ABC, the primary breadwinner, is looking for a health insurance plan that covers cardiovascular treatments. They would also want coverage for wellness programs that promote a healthy lifestyle to mitigate future risks.
Sum Insured
Choose a sum insured that can cover high medical costs in private hospitals, especially in metropolitan cities. It's advisable to opt for a higher sum insured considering medical inflation.
Example: Given the high cost of medical treatments in cities like Mumbai, Mrs. XYZ decides to opt for a health insurance plan with a sum insured of Rs. 20 lakhs. This is to ensure that expenses for any advanced surgeries or treatments at private hospitals like A or B are adequately covered.
Network Hospitals
Look for insurance providers with a wide network of hospitals, ensuring you have access to cashless treatment across many locations.
Example: Mr. ABC lives in a smaller city, Indore, but travels frequently across India for work. He chooses an insurer with a broad network, including hospitals like X and Y, so he can avail cashless treatment in most of the big cities he visits.
Premium Amount
While the premium should not be the sole deciding factor, it's essential to choose a plan that offers comprehensive coverage at a reasonable premium.
Example: The ABC family in Bangalore compares several health insurance plans and selects one that offers a balance of comprehensive coverage, including daycare procedures and AYUSH benefits, at a competitive annual premium of Rs. 15,000.
Inclusions and Exclusions
Understand what is included and excluded in the policy. Some policies may not cover certain diseases, pre-existing conditions from the start, or specific types of treatments.
Example: Ms. XYZ in Ahmedabad is considering a health plan but notices that it excludes coverage for alternative treatments like Ayurveda. She prefers a plan that includes alternative medicine, as she frequently uses these services.
Waiting Period
Check the waiting period for pre-existing conditions and certain specified ailments. Opt for plans with shorter waiting periods.
Example: Mr. ABC in Kolkata is diagnosed with type 2 diabetes. He selects a health insurance plan with a waiting period of only one year for pre-existing conditions as opposed to the standard two or three years offered by most policies.
Claim Process
The insurer’s claim settlement ratio and the simplicity of the claim process are crucial factors.
Example: Mrs. XYZ in Pune checks the claim settlement ratio of insurance providers and chooses a company with a ratio of 98%, indicating a high likelihood of claim approval. She also values that the insurer offers an easy online claim submission process.
Riders/Add-ons
Consider additional coverages like critical illness riders, maternity benefits, and accidental coverages based on your specific needs.
Example: Mr. ABC in Hyderabad is purchasing a base health insurance plan. However, recognizing his family's potential for specific health issues, he adds a critical illness rider that covers illnesses like cancer and stroke, and opts for a maternity benefit for his wife, who is planning a pregnancy in the next year.
Pitfalls to Avoid
Underinsurance: Opting for a low sum insured to save on premiums can backfire during medical emergencies. Example: Mr. ABC in Chennai chooses a health insurance plan with a sum insured of Rs. 3 lakhs to keep his premium low. Unfortunately, when he has to undergo an emergency bypass surgery, the total cost comes to Rs. 5 lakhs. The policy falls short by Rs. 2 lakhs, forcing him to dip into his savings, which could have been avoided with a higher sum insured.
Ignoring the Fine Print: Not reading the policy terms and conditions can lead to surprises during claim settlement. Example: Mrs. XYZ from Jaipur buys a health insurance plan without reading the exclusions and limitations. She is later surprised to find out that her plan does not cover outpatient department (OPD) expenses when she files a claim for her son’s dental treatment, which was an excluded expense.
Overlooking Waiting Periods: Failing to consider the waiting period for certain conditions can result in out-of-pocket expenses. Example: A new health insurance policyholder in Kochi needs knee replacement surgery and learns that his policy has a 4-year waiting period for orthopedic procedures. As a result, he has to pay for the surgery costs himself, which he could have avoided by choosing a policy with a shorter waiting period or by continuing with his previous health cover.
Not Comparing Plans: Not comparing various plans and their features might lead to choosing a less beneficial policy. Example: Mr. ABC in Lucknow quickly purchases a health insurance policy recommended by a friend without comparing other options. Later, he discovers that there is another policy with a lower premium and better benefits, including no room-rent capping and a global cover, which he missed because he did not compare the plans available to him.
Popular Providers and Plans
Some of the popular health insurance providers in India include:
HDFC ERGO
Max Bupa
Star Health Insurance
Each provider offers various plans catering to different needs, such as family floater plans, individual plans, critical illness plans, etc. It's essential to compare these plans on aggregator websites or consult with insurance advisors.
Calculating the Right Insurance Plan
Use online health insurance calculators available on insurers’ or financial advisory sites. Input details like age, medical history, preferred coverage, and number of family members to get an estimate of the suitable sum insured and premium.
Riders to Consider
Critical Illness Rider: Provides a lump sum amount on the diagnosis of certain specified critical illnesses.
Maternity Benefit Rider: Covers expenses related to childbirth, including pre and post-natal care.
Accidental Death and Disability Rider: Offers coverage in case of death or disability due to an accident.
Hospital Cash Rider: Provides daily cash benefit for each day of hospitalization.
Best Practices
Review and reassess your health insurance needs annually.
Disclose all pre-existing conditions and health issues accurately to avoid issues during claim settlement.
Keep all medical documents organized for a smooth claim process.
Modelling and Simulation
To simulate potential future medical expenses and calculate the adequacy of your health insurance coverage, you can use a combination of statistical methods and actuarial models. This involves:
Estimating Medical Inflation: Research the average medical inflation rate in India and apply it to current medical costs to project future expenses.
Assessing Risk Factors: Factor in family health history and lifestyle to estimate the likelihood of common illnesses and their treatment costs.
Simulation: Use Monte Carlo simulations to model the probability of different health scenarios and the associated costs, considering various variables such as age, health condition, and inflation.
For a specific example, let’s model a basic simulation considering medical inflation and a common illness scenario.
Based on the simulation considering a 10% average medical inflation rate in India, the cost of a common surgery that currently costs INR 300,000 is projected to increase to approximately INR 778,123 in the next 10 years. If there's a 50% chance of this illness occurring within the same timeframe, the expected expense due to the illness is approximately INR 389,061.
The solid line with circles represents the projected medical expenses for a common surgery, starting from INR 300,000 and increasing to approximately INR 778,123 due to inflation.
The dashed line with crosses shows the expected expense due to illness, considering a 50% chance of occurrence, which is approximately INR 389,061 at the end of 10 years.
This model illustrates the importance of selecting a health insurance plan with a sufficient sum insured that also accounts for medical inflation and the probability of health issues arising. It's a basic example, and actual modeling would incorporate more variables and scenarios for more precise planning.
Here are some keypoints to consider
India has the highest medical inflation rate in Asia, at 14%, which is higher than China (12%), Indonesia (10%), Vietnam (10%), and the Philippines (9%). The global average is 20%.
The high medical inflation in 2022 led to a 16.5% increase in retail premiums and a 31% increase in group health insurance premiums. However, demand for medical insurance in India increased by 25% in 2022.Â
Various factors contribute to medical inflation, including advancements in medical technology, increased demand for healthcare services, the effects of the COVID-19 pandemic, rising costs of raw materials, and changes in the cost of treatment per person.
Let me simulate again with medical inflation rate =15%,
With the average medical inflation rate adjusted to 15%, the projection of medical expenses over the next 10 years shows a more pronounced increase.
With a 10% average medical inflation rate, the cost of a common surgery that currently costs INR 300,000 is projected to increase to approximately INR 778,123 over the next 10 years. This represents a 159.37% increase from the original cost.
When considering a 15% average medical inflation rate, the projected cost rises significantly to approximately INR 1,213,667, marking a 304.56% increase from the original cost.
Unfortunately, I wasn't able to obtain a detailed historical record of India's medical inflation rates to enhance our prediction accuracy.
The sum required for Individuals to Family Projected
Below is a table that illustrates the effect of a 14% medical inflation rate on the required sum insured for healthcare coverage. It presents a snapshot at different life stages—when one is 40, 50, and 60 years old—and for varying family compositions, from an individual to a family with two kids.
Age | Year | Self | Self + Spouse | Self + Spouse + Kid | Self + Spouse + 2 Kids |
40 | 2022 | 4 lacs | 6 lacs | 6 lacs | 7 lacs |
50 | 2032 | 15 lacs | 22 lacs | 24 lacs | 25 lacs |
60 | 2042 | 55 lacs | 82 lacs | 88 lacs | 93 lacs |
As depicted, the sum insured needs to grow substantially to keep pace with inflation, emphasizing the necessity for long-term financial planning for healthcare costs.
Managing the rising costs associated with medical inflation requires strategic planning, especially for group health insurance premiums. Some strategies include introducing co-pay options for parents or parents-in-law, disease-wise capping on coverage, and considering the reduction of the sum insured to balance adequacy and affordability.
For individual or retail insurance premiums, purchasing health insurance at a younger age and opting for policies that offer a no-claim bonus can help manage costs more effectively.
On Porting Policies
Porting your health insurance in India means transferring your policy from one insurance provider to another while retaining your credit gained for pre-existing conditions and waiting periods. Here’s how you can do it and what you should know about the benefits:
How to Port Health Insurance:
Timely Application: Initiate the process at least 45 to 60 days before your current policy's renewal date.
Compare and Choose: Research and compare different policies and insurers. Choose one that fits your needs better than the current one.
Contact the New Insurer: Reach out to the new insurer with an intention to port your policy. You will have to fill out a portability form along with a proposal form.
Disclosure: Provide complete and correct details of your previous policy, medical history, and claims.
Documents: Submit copies of your old policy documents, claim history, and any other required paperwork.
Insurer's Underwriting Process: The new insurer will review your application based on its underwriting policy. During this, they might also request medical check-ups.
Proposal Acceptance: If the new insurer accepts your portability request, they will propose their terms, premium, and sum insured.
Decision Making: Carefully review the terms offered. If you agree, the new insurance policy will be issued.
Benefits Carried Forward:
Waiting Periods: The time you’ve already spent in waiting periods for pre-existing conditions under the old policy will be transferred to the new policy. However, if the new policy has a longer waiting period, you might have to serve the difference.
No-Claim Bonus (NCB): The NCB from the previous policy is often carried forward, but it depends on the new insurer’s policy. Some insurers may allow you to retain or enhance the NCB, while others might offer an equivalent benefit.
Exclusions: Permanent exclusions in your old policy will likely be carried forward to the new policy.
Points to Consider:
Terms and Conditions: Review the new policy's terms and conditions, as these will govern your coverage going forward.
Benefits and Coverage: Ensure that critical benefits and coverage from your current policy are not lost during the transition.
Premium and Features: Sometimes, the new policy may have a higher premium for similar or enhanced coverage due to the insurer’s underwriting criteria or additional features.
Validity: Remember that portability is a feature available only within similar types of health insurance policies, for example, from one indemnity-based policy to another.
Pitfalls to Avoid:
Coverage Gap: If there’s a delay from the new insurer in accepting your proposal, you may find yourself temporarily without cover. To avoid this, do not cancel your old policy until the new policy is confirmed.
Reduced Coverage: Be cautious of any reduced coverage or enhanced exclusions in the new policy.
Always ensure you understand the new policy thoroughly before making the switch to avoid any unforeseen gaps in your health insurance coverage.