Factors of Health Insurance Inflation & Solution

Healthcare inflation is on the rise! However, add the medical inflation cover to your health insurance policy and you won’t have to worry anymore. See why!

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Today, we are more keenly aware than ever of the many vulnerabilities in our healthcare systems. A global pandemic spreading like wildfire is just the right impetus to reevaluate the adequacy of your healthcare plan. One of the most important, yet also often ignored, aspects of any healthcare plan is whether your medical insurance makes space for medical inflation. Inflation is what causes health insurance premiums to rise.

Is your insurance plan is not adjusting for inflation? It may as well leave you unprotected. It is in the best interest of insurance companies to manage medical inflation because otherwise, they will struggle to keep their plans competitive. Both the public and private medical sectors are expensive when it comes to big health problems. It is smart to plan for the future by ensuring that medical inflation will not undermine the efficiency of your health insurance plan.

But what is medical inflation exactly? And why does it affect you?

Importance of Looking out for Medical Inflation

What is medical inflation? Well, defining medical inflation is simple. The term refers to an increase in the average cost of healthcare services over time. However, sometimes medical inflation refers to the increase in the usage of medical services and the cost of those services.

The reason this is important is to ensure that your health insurance can cover the cost of the medical bills you rack up. If your health insurance is not adjusting the insured sum to match what healthcare services cost - it leaves you vulnerable to financial strain. The very problem that health insurance was supposed to help you avoid.

Overall inflation has been rising consistently, but that is still within the single digits. Medical inflation has famously been in the double digits or close to it for a while. With hospital services (like nurses, beds, ambulances, etcetera) averaging at an inflation rate of 9.4% in 2018-19. In this year, the cost of medicines inflated by 7.2%. Looking at these staggering figures tells you that you must arm yourself with information to ensure you can make intelligent decisions for the future. The inflation rate is only likely to increase in the coming months as the pandemic taxes our healthcare infrastructure.

As of July 2021, the COVID-19 pandemic is still a problem that has put excessive pressure on our healthcare infrastructure. As such, healthcare services are facing inflation of costs at an unprecedented rate. This inflation is happening due to: -

  • Increase in hospital overheads (utilities, tech, salaries, etc.) as they struggle to accommodate hundreds of extra patients than they can reasonably have.
  • Medical personnel being incredibly short-staffed - especially in emergencies and long-term care.
  • Certain medicines and medical apparatus (like ventilators) being low in supply and high in demand. This situation is also applicable to new medications that are expensive to make or use extensively (vaccines, etc.).
  • Consumer behaviour also plays a role. People are more than ever aware of their health. More people will take their problems to the medical professionals rather than ignoring them. Doing so increases the demand for medical services and medical inflation in turn.

When you look at the list of the many factors that cause healthcare prices to go up, it becomes evident that you need to be careful if the sum you insured can cover your financial needs.

IRDAI Regulations and Why they Matter

The Insurance Regulatory and Development Authority of India (IRDAI) has laid down rules on how an insurance company can alter its insurance premiums. One of these rules is that insurance premiums are unalterable for three years after registering a policy with the IRDAI for long-term policies. Additionally, the process of changing the premium cost even after three years is long and tedious to the point that it can take over six months to have the required paperwork submitted and approved.

The implications of these rules are: -

  • Even if insurance companies wanted to change premiums annually to adjust for inflation, it could very well take them a year to get the paperwork through the system.
  • As the insurance companies have a three-year block, any premium change would abrupt and a sharp rise.

Neither of these scenarios is desirable to the insurance company or the policyholder. These regulations make it so that insurance companies in India cannot manage medical inflation, which leaves many of their policies lacking and their customers unsatisfied.

A lot of insurance plans may cover diagnostics or small claims easily. But is your insurance plan prepared to take on a costly surgery like coronary artery bypass surgery or cancer treatment? What if you need health cover for a medical emergency? Having a health insurance plan which adjusts for medical insurance and can cover costly treatments is extremely important.

How you can prepare for escalating prices - the basics

First, do you have a health insurance plan? If yes, revisit the regulations, benefits, and information you have on it. Ensure that the plan in question allows for the sum insured to grow in value. This should apply to many competitive health insurance policies but does not apply to all of them. For example, if your employer's health insurance is given to you, likely, that time is not a factor for an increase in the sum insured. Generally, the insured sum an employer's insurance will cover is dependent on your income. If the sum insured is not growing as desired, it might benefit you to increase the sum insured yourself by going for a different plan.

Another route to consider is a health insurance plan with a 'no claim bonus.' What does this mean? The answer is simple. Often health insurance plans have a clause that if after a certain number of years of being on the plan and not claiming any insurance amount, you are eligible for some discounts on the premium. This will allow you to reduce your expenses towards the payment of the premium, thereby further helping you keep your health insurance policy.

The way forward

Medical inflation is a growing concern, especially as most big insurance policies do not often cover the small things. The consumer price index is useful in determining how much treatment can cost you, but long-term and non-flexible insurance plans will not cover the inflated costs. Often, not even covering the small things like oxygen masks, diagnostic tests, etcetera tend to rack up in cost. So, when you choose a policy, you must ensure that,

  • There are provisions for the insured sum to rise with time
  • Cover emergency medical costs.
  • Make provisions for serious surgeries but also include minor treatment requirements like diagnostics.

Inflation is particularly visible in the private sector, where prices rise even more. This happens because often, the treatments available in the private hospitals are not available elsewhere, which allows them to set prices according to their own needs. Hence, you must always factor in inflation before deciding on the sum insured under your healthcare policy.

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IRDAI Registration No: 155 | CIN: U66000KA2016PLC148551