A case for deferred health insurance

Health InsuranceDon’t defer the necessity of planning for your healthcare to your old age. As a country that just added 115 million new voters between the previous and the just concluded Lok Sabha elections, we can rejoice in the comfort that India is a young country.

However, this isn’t a source of comfort to those who are at the threshold of middle age, when we examine the facts:

  • Healthcare costs have gone up faster than inflation
  • Private (out-of-pocket) healthcare spends form an inordinately large chunk of total healthcare expenses (what insurance pays and what the government subsidises or provides, covers a small amount)
  • As people get older, their spend on healthcare starts consuming a much larger share of wallet. This rises dramatically after retirement

So, by the time you retire, you may be hit by a triple whammy of:

  • Healthcare costs which may have spiralled to astronomical proportions
  • Lack of access to free/subsidised healthcare compounded by lack of insurance
  • Increased healthcare spend requirements because you aren’t as young any more

This of course will, in all likelihood, burn a large hole in your retirement corpus. You certainly need to plan for this. Typical responses to tackling this problem are:

1.Save for old age healthcare expenses in your earning years: This may look like planning too far ahead and difficult to achieve but something which must be done for the following reasons: Remember, you won’t be employed and lose the coverage you currently have under your employer’s health insurance plan.

Also, buying insurance will be either too expensive or impossible, since most insurers will either cover you with too many exclusions or charge a fantastic premium.

2.Invest in your own health to minimise problems in your old age: This is doable/ achievable but almost always deferred despite every good intention.

Further, maintaining good health is no guarantee of controlled medical expenses in old age, as it does not protect you against congenital/ hereditary conditions, accidents, etc.

On a macro-economic level, this is poised to be problem of gigantic proportions. Our country will be a lot older in another 15-35 years (see illustration) and our population pyramid will start to resemble those of more developed economies. This is also the period over which most of today’s existing workforce will retire.

An older population will result in a much higher spending (as illustrated). This will also be the period when most of today’s workforce will retire and not have employer provided health insurance.

Add to this, the fact that the bulk of healthcare expenses incurred in India is out-of-pocket, private spending.

Insurance actually pays for very little, and the final nail in the coffin, increase in healthcare spends coupled with healthcare inflation will erode people’s ability to afford healthcare or deplete their savings dramatically and you have a recipe for a slowly building disaster of national proportions.

The government, regulator as well as the healthcare and insurance industries need to address this problem today, while we have the time to tackle it with well thought out initiatives.

While many solutions abound in the realm of improving manpower and infrastructure for healthcare, financing this for a massive ageing population will be next to impossible for any government.

Providing free subsidised healthcare for a population of our size will amount to serious fiscal profligacy on the government’s part, something India can ill afford.

A part of this problem can be addressed by development of better products which enable private citizens to create their own safety nets for healthcare expenses in the future.

Given the abysmal levels of health insurance penetration in our country, we are in serious need of far reaching solutions which need to be built today, so that they can be delivered tomorrow.

Deferred protection products could be a significant contributor to solving this problem. It addresses typical problems like:

  • My employer already covers me, why do I need to buy additional health insurance?”: Well don’t buy health insurance for today. Buy health insurance for when you won’t be covered by your employer, that is, when you are retired.
  • Health insurance is so hard to come by once you retire; there are no products for people who are over 65. You have already purchased insurance for your retirement many years ago. You are well covered now and don’t need to go knocking on an insurer’s door to buy health insurance.
  • Even if products are available, the premiums are just too high. It doesn’t make sense to buy now.You already paid the premiums many years ago, the reasonable premium you paid then, has compounded and is paying the high premium today. It is almost like saving earlier, to pay for your high premium today.
  • What’s the point of buying insurance now? There are too many exclusions, few diseases are actually covered. You wouldn’t encounter this as the risk has been assessed many years ago and covered already. New exclusions shouldn’t be applicable with retrospective effect.

How deferred protection could potentially work is illustrated in the graphic below.

It will take some doing on the part of insurers to warm up to this. There are uncertainties to be addressed like:

  • Taking a risk on morbidity 20-25 years into the future. How will probabilities change because of economic/ environmental/ social conditions?
  • The ticket size of the sum insured, for instance – How much will a heart attack cost 15 years from now? What sum insured should I sell? Should I have a cap on the indemnity amount?
  • Should the product be structured as an indemnity or defined benefit (where the payout is fixed irrespective of the costs incurred by the insured)?
  • Should periodic health checks during the waiting period be mandated for the insured? Can this be used to adjust premium, cover amount or even reject the cover?
  • Impact of advances in medical science which may render certain covers useless.
  • Will it be possible to cover new ailments which did not exist at the time of the product purchase?

That said, insurers already offer multi-year risk covers on morbidity. They are in the business of defining, quantifying and covering risk profitably and will certainly find a way to price in such uncertainties. That’s what they do best!

In the meantime, in the absence of such products, the options for the consumer are very limited:

  • Set aside a certain corpus for paying high health insurance premiums in your old age or save sufficiently for old age healthcare spends.
  • Get yourself a regular medical checkup (at least once every year) and take requisite steps to stay healthy.

Curated from A case for deferred health insurance

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