Are you insured enough
to meet all your health needs..?
By
Mr. Manish Shah,
Health
is wealth holds true across age groups. But what happens when old age
and ailments catch up faster than you expected, taking a toll on your
lifestyle & savings? While you can’t prevent falling ill or
avoid the necessary trips to the doctor, planning ahead can
definitely help meet those escalating medical expenses.
Two
years ago, my mother was admitted in one of the best hospitals in
south Mumbai for an emergency hip replacement surgery. Once the
medical side of the problem seemed addressed, we turned to the
financial one.
We
expected the surgery to cost Rs.3 lakh to 4 lakh and thought we were
doing fine given that my parents had health insurance covers of Rs.3
lakh each.
A
couple of weeks and some complications later, we were presented with
a final bill of Rs.9 lakh. Mind you, this did not happen because the
hospital suddenly increased its the cost of room rent or surgery. It
happened because the surgery caused an infection that needed
additional treatment.
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| Manish Shah, BigDecisions.com |
The
entire treatment & process had my mother in bed for several days,
which, in turn, lead to the formation of blood clots that had a
separate treatment, and none of which came cheap. And finally, Rs.6
lakh of the Rs.9 lakh came out of our family’s savings.
I
started to wonder, why my father, a meticulous and financially
conservative man, had not planned for such an eventuality. Thinking
it through, I realized the following:
(1) When
I was still in a regular, corporate job, my parents used to be
covered as part of my family health insurance plan, which could be
clubbed with their own plans. But once I started out on my own, this
was no longer the case, and they had only their health insurance
covers to rely on.
(2) When
my father retired, in 1990, a Rs.3 lakh in health insurance seemed
like a good enough amount. In the years since, my parents were
healthy enough not to discover that healthcare treatment costs had
witnessed high double-digit inflation over the past two decades.
Thus, they had no idea what treatment costs had risen to.
(3)
And, at the age of 80, increasing health insurance cover is extremely
expensive.
We,
at BigDecisions, then took a closer look at our users to see if my
family was an exception or whether having lesser health insurance
than required is a more widespread problem. Even anecdotal evidence
suggests people, especially those that have some coverage from their
employer, rarely have as much as they actually need.
We
looked at about 5,000 users and narrowed down our consideration set
to about 3,000 valid users. We then split them into age groups to see
if behaviour differed. The table below illustrates our findings.
(1)
The second column of the table lists the average health insurance our
users in that age group currently have.
(2) The
third column shows the amount of insurance they should have as per
our calculations and healthcare treatment cost data taken from
Paramount Healthcare Management Pvt. Ltd (a third-party
administrator). We pegged the amount as one where the 95th percentile
of all ailment treatment costs in a given year would be covered.
(3) While
we saw that users under all age groups were underinsured, the need
for health insurance goes up with the age of the oldest earning
member of the household until about 50 years after which—while the
need goes up for the oldest member—a reducing number of dependants
reduces the overall amount of health insurance required for the
family.
The
problem of underinsurance..!
As
you can see for yourselves, underinsurance is indeed a chronic
problem across age groups in the country. People have less than half
of what they actually need to have, irrespective of their age.
Current
health insurance amounts hover about the Rs.2 lakh to Rs. 4 lakh mark
- which is often the amount employers also provide their employees.
Not only is this inadequate across age groups, it is also a ‘benefit’
that depends on one’s continued employment.
Even this amount will
cease to exist when the employee either leaves the organization or
retires. Those who do not have their own health insurance and who
only have 50% of the required cover today, might soon find themselves
underinsured by 100%.
Often,
we only realize that we are underinsured when a health problem crops
up and the actual costs hit home. And as it turns out, getting or
increasing your health insurance when you don’t need it is the best
time to do it, as most health plans have waiting periods before which
certain treatment costs cannot be claimed. This means that buying a
health plan around the time a problem occurs does not help at all.
Someone
once told me that health insurance is not just a means of protection,
but is also (and more) a wealth preservation tool. Explaining it
further, he said that when you are underinsured, not only do you have
to pay for the treatment yourself, you also divert the money that
would have otherwise been used towards investments for your future
goals.
So, instead of that money forming the building blocks for your
future, it ends up being the cost of you being ill-informed at best
or being careless at worst.
Mr.
Manish Shah, co-founder and chief executive officer,
BigDecisions.com.
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