A health insurance policy is a contract between the insurance company and the policyholder. Through this policy, an insurance company undertakes to provide for medical expenses incurred by the insured in lieu of premium payments. This premium payment also has an attached tax benefit to it, under Section 80 D of the Income Tax Act. The tax benefit is a sign of government encouragement for the purchase of health insurance plans. However, with every passing year, policyholders see the premium increasing. They, however, cannot fully fathom why do health insurance premiums increase.Calculation of Health Insurance Premiums
To understand why health insurance premium increase, it is important to know how it is calculated in the first place. The Insurance Regulatory and Development Authority of India has laid out certain guidelines, standards for the base premium, and upper limit on premium amount that can be charged by insurance companies.
However, beyond that, insurance companies consider different factors relating to the insurance seeker and calculate the premium accordingly. Insurance companies primarily make use of a process called underwriting to determine the premium costs. The underwriting formula refers to the pricing strategy adopted by an individual insurance company, depending on the number of claims and the quantum of claims received in the previous year in that segment.Factors affecting health insurance premiums
- Gender & Age: This is one of the most important factors considered by the insurance company while deciding on your health insurance premium. For example, men are twice as likely to develop type 2 diabetes as compared to women. Hence, your age and gender would contribute significantly to your premium payments.
- Medical History: Almost all insurance companies would mandatorily require you to undergo a pre-medical test before issuing an insurance policy. Ideally, you should let your insurance provider know of any pre-existing conditions you may have but to be sure, insurance companies get this test done for their information.
- Policy Term: Ideally, a longer-term policy would charge more than a short-term policy because the insurance provider will be bearing the risk for a longer time. But most insurance companies also offer discounts on premiums attached to a long-term health insurance policy.
- Add-ons: These are typically supplementing riders which you can added to your base health insurance plan to further strengthen it. Quite evidently, these will have an upward impact on the premium costs.
When you think about why my health insurance premium went up, you must know that there are two primary causes for it. One which is personal to your own situation and the second relates to the world we live in.
- Rising Age: There are several challenges that come with growing old. With increasing age, the probability of health problems also increases. Insurance companies want to safeguard themselves from providing beyond a certain amount of claim per year. The increase in your health insurance premium is a direct effect of this.
- Medical Cost Inflation: The medical fraternity, across the world, is in continuous search for treatments of incurable diseases, are involved in research and development of medical drugs which can make humans live longer. As treatments evolve to be more sophisticated and effective, the attached medical costs also increase. Based on trends, it is observed that medical costs rise by approximately 15%, which in turn make it more expensive for insurance companies to satisfy claims. The eventual effect of this increase in costs is reflected in your increased health insurance premium costs.
The year 2020 has been a year like no other. Coronavirus or COVID-19 has affected every aspect of how the world operates. In a record increase, the medical inflation reached 19.5% as a result of steady increase in COVID treatments at hospitals.
The underwriters claim that customers have to bear the higher costs because medical establishments refuse to accept standard rates for treatment, be it for Covid-19 or other procedures in this year. The higher costs incurred from such claims is passed on to customers in the form of a premium increase.
The regulatory body, IRDAI, has clarified that it has only permitted insurance companies to change the base premium by +/- 5% from the originally approved rate. Underwriters all across have lamented that 2020 has been a tough year, and they have no option but to increase prices of insurance policies. Owing to this, if you were to complain about the significant increase in your health insurance premium this year, your insurer could present their loss ratio to justify this price increase. Hence, more than any year 2020 has given you clear reasons to answer why are insurance premiums going up.Why incur premiums at all?
Medical emergencies come unannounced and affect one and all. With the prevalent sedentary lifestyle, a large section of the society is affected by lifestyle diseases. While the physical complications are aplenty, the monetary aspects of dealing with these diseases could completely exhaust your life savings. A solic health insurance plan is a means to reduce this burden, mentally and physically. Some of its major advantages are as follows –
- Regular Medical Check Ups: Most health insurance plans have provisions of regular medical check-ups at hospitals, clinics etc. Through regular check-ups, there are higher chances of detecting a disease in its early stage and choosing the correct treatment path accordingly.
- Pre-Existing Conditions: There could be a situation wherein you are already suffering from a disease, and the decision for purchasing a health insurance plan is taken after. Health insurance providers usually have a clause of waiting period, after the lapse of which, they would cover costs related to your pre-existing disease.
- Daily Hospital Cash Benefit: In case of hospitalisation, health insurance companies from a prescribed daily cash inflow to you, over and above the health insurance plan coverages.
- Pre- and Post-hospitalisation: Under this provision, for a certain number of days before and after hospitalisation, the insurance provider would compensate for the expenses incurred relating to the covered illness.
- No-claim Bonus: This can be thought of as a reward for every year that the policy holder has claimed no compensation from the insurance company. Through No Claim Bonus, an increase in the Sum Assured or decrease in the premium payment is granted by the insurance provider.
- Cashless Treatment: Insurance companies typically have a network with hospitals. If you’re admitted in a hospital under your insurance provider’s network, your medical expenses will be taken care of “cashless” up to the sum assured limit of your insurance policy.
While a right health insurance plan can provide your monetary and mental support, a wrong plan can ruin it all. Here’s a quick checklist that you must consider before buying a health insurance policy -
- Cashless Hospital Network
- Coverage Scope
- Claim Settlement Ratio
- Internal Claim Settlement Team
- Premium Loading
- Waiting Period
With medical inflation reaching record highs, it would not be right to blame your insurance provider solely for charging higher premiums. The IRDAI always has the policyholders’ interest in mind and keeps unfair premium pricing in check.
However, to be double sure of your health insurance choice, it is important to compare the various health insurance products available in the market before taking the plunge.
Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.