Yesterday, someone in the neighbourhood told me that her sister has exhausted her savings on health issues and it is her children who are supporting her now and picking up the bills. The sister has lived to a ripe old age of 90, and her health insurance cover was meagre.
This is a morbid (and very unfortunate) reality; that the health insurance cover of individuals is turning out to be insufficient to cover their medical expenses.
Deepak Khemani, personal finance expert, health insurance advisor, and author of Compounding: The 8th Wonder, narrated the following incident. A client thought she was sufficiently covered when she bought a policy of Rs 20 lakh in 2015. She was diagnosed with cancer later and is currently undergoing treatment. She has already spent Rs 35 lakh on her treatment, and it is far from over. Besides the emotional turmoil, the financial burden is adding to her stress.
Here is Deepak Khemani's advice:
We all deserve to have access to quality healthcare without worrying about the financial repercussions. But the reality is that when individuals take a health insurance policy, they do not consider healthcare inflation. The cost of healthcare is rising rapidly, and your policy may be woefully inadequate. You may feel that a Rs 25 lakh policy is sufficient. Taking inflation at around 12% to 15% will show that the cost of treatment doubles every five years. Even Rs 1 crore covers are available for a premium of Rs 1 lakh (the actual premium will depend on your health and age, this is for a 40 year old).
- Do NOT terminate your policy.
Over the past two years there has been an increase in medical insurance premium. This increase can be attributed to the pandemic. 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.
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.
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.
- Do NOT reduce the Sum Insured.
Some individuals are not terminating their policies but reducing the sum insured.
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.
- Do NOT ignore investments to augment your health kitty.
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. The S&P BSE Healthcare index was at 8,166 on January 1, 2013. It has now crossed 23,000. Over a decade, 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.
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. If you are not comfortable with a sector fund, a diversified equity fund, a hybrid 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 be 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.
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Larissa Fernand is an Investment Specialist and Senior Editor at Morningstar India. You can follow her on Twitter
