Health insurance premiums play a crucial role in maintaining your healthcare expenses and ensuring financial protection against the same. However, there is an increase in the premiums every year, which financially affects you and your family. According to a recent survey by LocalCircles, 52% of policyholders stated an increase in the premiums by over 25% in the last 12 months. As per 21% of the policy owners, their premiums increased by 50% or more. Several significant reasons behind this increase in premiums are inflation, a rise in medical costs, and an increase in risk factors such as age and claim history. Understanding these reasons can help you manage your healthcare expenses and choose plans with appropriate insurance coverage.
Medical Inflation and Its Impact
The high medical inflation in India plays a key role in the rate at which health insurance premiums are increasing. According to the Health Trend report by Mercer Marsh, India had medical inflation rate of 14%, the highest in Asia. This rising expense results from the increase in the costs of healthcare services, treatments, and medicines and the introduction of advanced technologies. As a result, insurers adjust the insurance premiums to manage the higher costs. Let’s take a detailed look at the impact of medical inflation on insurance premiums.
Increased Cost of Claims:
Insurers face higher claim payouts since the high medical inflation rate reflects rising healthcare costs. Due to this rising cost, the cost of certain minor treatments, which people might have ignored to claim in the past, has also increased. As a result, the frequency of claims for such treatments has also increased. Insurance companies balance out these increasing costs by adjusting premiums to maintain their financial stability and ensure healthcare coverage.
Higher Deductibles and Co-pays:
Insurance companies may increase deductibles and co-pays to keep up with the medical inflation. This might keep the premiums lower, but it can also increase your out-of-pocket expenses.
Impact on Policyholders:
The increase in premiums due to medical inflation can impact the affordability of health insurance plans for many individuals and families. It can lead to reduced coverage for expenses, underinsurance, and delayed medical care due to financial constraints. Eventually, it can result in severe medical implications and higher long-term costs.
Rise in Medical Costs
We have learned that high medical inflation rates reflect rising medical costs, which, in turn, causes insurers to charge higher premiums to consumers. Let’s look into the factors that contribute to this rise.
Hospitalisation Costs:
Hospitalisation expenses in India have been increasing. According to the Household Consumption Expenditure Survey of 2022-2023, the expense in rural India has reached 2.31% of monthly per capita consumption expenditure in 2022-23 from 2.15% in 2011-12. The survey shows a slight decline in urban India from 1.96% to 1.89% in the same time period.
In addition, the cost of treatment for common ailments that require hospitalisation has more than doubled in five years.
According to a study report on Health Economics Review, Indian families and government spend more on hospitalisation in private hospitals than in public hospitals. At the same time, per day hospitalisation costs in private hospitals are more than double those of public hospitals. This includes the costs of medical treatments, beds, diagnostic tests, doctors’ fees, medicines, and other services.
Pharmaceutical Prices:
The cost of medicine in India has substantially increased over the years, especially in newer and advanced drugs. According to a 2023 survey report on Statista, 27% of respondents claimed an increase in drug prices between 0 and 20 percent, while 12% reported that the prices hiked by over 50% in India.
This price hike also increases the insurance premiums. The rise in pharmaceutical prices may increase out-of-pocket expenses for OPD medicines which may not be covered by your insurer, consequently reduce access to medication, and delay in treatment by patients due to lack of affordability.
Advanced Technology:
Advances in medical technology have improved healthcare services to a great extent, but they also come with higher costs. The sophisticated diagnostic tools and treatments have increased the overall medical expense in India. Some of the advanced medical treatments are technologies like MRI, CT scans, and PET scans; minimally invasive surgical procedures like laparoscopy and robotic surgery; wearable health devices like glucose monitors and heart rate trackers; and highly effective treatments tailored to individual genetic profiles. While these technologies offer the benefits of accurate diagnoses, quick recovery, and less pain, they are expensive to implement and maintain. The costs involved with these advanced technologies are the cost of procedures and treatments, pharmaceutical prices, and training and expertise costs.
Increase in Risk Factors Such as Age and Claim History
Ageing Population:
The demographic trend in India is witnessing a rapidly ageing population. According to the India Ageing Report 2023, the number of people aged 60 and above is expected to increase from 10% of the population in 2022 to 20.8% by 2050. This ageing population may face far-reaching implications for healthcare. This population is prone to higher health risks from chronic conditions such as diabetes, hypertension, and heart disease. They also have multiple health issues that require several primary and specialised care services for the long term. Eventually, it results in higher healthcare costs for treatments, medication, and hospitalisation. Given the high risk pool and medical expenses, older people also incur higher claim costs. Insurers manage this claim cost by increasing premiums.
Claim History:
Claim history plays a significant role in premium calculations. Insurers anticipate higher costs in the future if you have a history of frequent or high-cost claims. To balance out this risk, insurers increase the premiums to align with the potential costs. Another factor is the insurance companies’ claim settlement ratio. In recent years, health insurers in India have a claim settlement ratio of 80-90%. The high claim ratio reflects increased payouts, which increase premiums to bear the costs.
Conclusion
The increase in health insurance premiums every year reflects the state of our healthcare system. It is crucial to understand that the roles of medical inflation, healthcare costs, demography, and claim history are interlinked. Understanding these factors can also help you choose a better plan and manage your finances accordingly. You can also minimise your hospital claims by timely primary care interventions. Consulting a doctor to get timely tests, screenings, vaccinations depending on your age, gender, lifestyle and family medical history detect health risks early on and reduce your chances of hospitalisation and high IPD claims.
