Health Insurance premiums - How they rise, as you grow older?

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Let’s face it. Most of us are “deal hunters”. We want the maximum “juice” from a product/service in the minimum price. No wonder the big branded stores, in that flashy mall are full with the so called “end-of-season dhamaka sale”

OK. Agree, buying a short term product (like clothing, accessories, electronics), in an off-season sale can help you save huge money, but what about buying a long term product or service?

Buying a long term paying product or service based on short term costs and benefits can be one big blunder. A blunder, you may not even realize till it is too late to migrate from the product.

Let's look at Health Insurance. Health Insurance is a complex long term product, where both premium and benefits rise, renewal after renewal. While health insurance premium increases on a change of age bracket, you cross over the waiting periods or time bound exclusions in your mediclaim policy for specified illness and pre-existing illnesses, making for a wider health insurance cover. 

Health Insurance products in India are under a free price market. Prices are not governed by any government or quasi government body. Health Insurance companies price their products based on the design and construct of the policy, and their internal pricing guidelines/philosophy. The same product with the same features could be priced differentially by two Health Insurance Companies. Moreover the pricing methods could be different as the customer's age progresses. 

As recommended in our earlier blog posts on Health Insurance, we therefore always recommend that you look at future premiums of your selected health insurance policy, besides comparing current year premiums. This gives you a flavour of the price increase you can expect in the future.

Health Insurance Premiums -  How they increase?

We have attempted at making this exercise easy for you. We plotted the current premium of top health insurance products on a graph,  and here’s what came out.

Premium below is for a Rs. five lakhs family floater for Self + Spouse + 2 Kids, 35 years of age, living in Mumbai.

Notes to the chart:

  • In case where health insurance plans convert into individual plans at older ages (Oriental & Star) we have taken a Rs. 3 Lakhs Individual cover plan for each member till 75 years of age.
  • All Premiums above, are inclusive of service tax. 

What do you make out of this trend?

We observe the intensity of change of premium is not the same for all health insurance policies. We noticed that some health policies had very steep premium rise, post 45 years. If you look deeper, it seems that the premium rise was drastic for all the mediclaim policies that have no limits, lower restrictions vis-à-vis mediclaim policies that had limits (room rent limits, surgery limits) and more restrictions. 

Are you surprised by the drastic premium rise? You shouldn’t.

Health Insurance, by design, is a community fund, where the healthy pay for claims of the sick, through premium. If the claims made are even slightly extravagant and unreasonable, in terms of choice of hospitals, choice of rooms, by the community members, just because the policy is “no limits”, it is but natural that the premiums, in turn, would be unreasonable. Frequent jack-up of premiums, could be the price you pay for a “no limits” product. On the other hand, when you buy a policy which has so short term restrictions or limits on expenses, you take a call that you would take care of such deductions from your own pocket. [edit 29/11/2012: We deliberately added Star Health Comprehensive into the comparison, which has lifetime cover, no room rent limits, no surgery limits, restore option, maternity covers etc. Comparing Star's Family Optima with this plan, will help you understand this better]

What should you do?

You should either be prepared to pay for a premium product you have purchased, or you should settle for a balanced product, one which requires you, (rather forces you) to be prudent in your hospital expenditure, your selection of hospital, room etc. 

Here's what I recommend:

  • Do not buy your health insurance policy only based on comparison of the current features and premiums, ensure you look at how the health insurance premiums rise in the older ages. You now need to take a call between a top-end product with super benefits but coupled with steep rise in premium in old ages, or settle with a health insurance policy with basic core benefits, some restrictions on claims, but with more stable rise in premiums. This is a personal choice you need to make looking at your preferences, and expected capacity to pay in the coming years. {edited on 23-11-2012, post comment from @shrikant}  Calculate the present value of the future premiums, factoring inflation and then evaluate, whether it is affordable, viable in the family income you expect you will earn.]
  • If you are already holding a health insurance policy, and find the premium unaffordable, with the above calculation, explore the possibility of using health insurance portability to port the policy into a more balanced plan.
  • If you aren’t able to port your policy, due to old age, or a past claim, do not get upset, and discontinue your policy, as even at the price you pay, you will definitely be better off than being without a health insurance cover, facing all the healthcare expenditure of your old age, on your own savings.

Caveat: The health premiums we have plotted are from the current premium charts of the products, as on 25th October 2012. Insurance companies can change their premiums charts with approval of IRDA. It goes without saying, that if the chart is revised, the trends reflecting above would also change.  The exercise, particularly the graph above was to give a flavor of what to expect from your health insurance policy, while choosing or renewing it. 

What is your reaction to this article? Did you find it useful? Are you stuck with a product which has a very steep rise in premium in later age groups. Write to me in the comments section below, and I will respond to you. 

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