The last few months have been numbing. Especially for us in the health insurance sector, things have been very disorienting. On one hand, COVID-19 brought us all face-to-face with the harsh fact that the future is unpredictable, and the risk of hospitalization and exorbitant medical costs is very real. It has become extremely important to prepare to face such risks- especially on the financial front, by making smart investments into health insurance.
In this direction, I’ve been encouraging young individuals to get adequate health insurance coverage before they catch an illness or grow old. They would need to upgrade their policy covers quickly, or they might miss the window.
On the other hand, I’ve also been speaking to some senior citizens and their families, discussing the recent rise in health insurance premiums, especially impacting the older generation – wondering if it even made sense for them to invest in Rs 50000 to Rs 1 lakh per year policies for meagre covers of 3-5 lakhs. In essence, they would be paying almost 20-25 percent of the cover amount as a premium every year.
Taken together, these situations brought me to a very interesting question that many financial advisors as well as health insurance buyers are debating right now.
Does it make sense to invest early, and pay premiums life-long - if you’ll need to give up the cover in your old age, when you need it the most - because premiums become unaffordable?
Why is it that health insurance isn’t working for senior citizens – especially after they have patiently invested in their plans for decades? And, if things remain this way - How will senior citizens finance their healthcare in absence of affordable and accessible public healthcare infrastructure? What can be done?
A solution from the ground-up.
There is no doubt that this problem is a complex one. That’s exactly why the solution is also scattered across various silos of the industry - that will need to come together and create an ecosystem that works to benefit the elderly.
It will require collaboration at multiple levels between the healthcare and insurance sectors to develop a viable solution that will truly address their needs. Here’s what each part of the industry can do to ensure the renewal premiums do not come as a surprise to customers.
First, the healthcare industry:
One of the main factors contributing to the sudden rise of health insurance premiums last year, was the sudden increase in healthcare costs – in the COVID-19 aftermath. People across economic strata have seen unprecedented billing during the pandemic - for both COVID-19-related and unrelated treatments. While at the outset, it might seem like such high pricing only affects those paying from their own pockets, it isn’t exactly the case.
In fact, the insured population will see lasting impacts of such unruly healthcare bills, in the form of higher life-long premiums. This is a direct result of insurers making up for higher expenses during this year, as well as estimating much higher healthcare costs in the COVID-19 aftermath. In order to mitigate this trend, there is a burning need for the healthcare sector to have strict regulations on billing and standardising costs effectively
With better regulation, and strict capping on how hospitals charge for standard procedures, the burden on the insurance sector will gradually reduce - and that will translate into lower premium hikes, from the next year on.
Second, Insurance companies.
Recently, I spoke to an insurance customer, a senior citizen who was baffled by an outlandish 5X increase in insurance premiums in a period of 2 years. The first hike came as a result of expanded scope of cover (driven by a recent regulation by IRDAI) and inflation. The second hike happened when the product they had was withdrawn, and they had no option but to move to a different, costlier plan, or lose the cover entirely.
Having retired from service, and with limited earning potential - this hike took a serious toll on the customer’s financial security. What made it worse was the uncertainty that came with this price hike. There was an instant loss of trust in the insurance company, as well as the ecosystem at large - and a sense of being deceived by the very system that they had invested in for several years now.
Winning this trust back needs a shift in the paradigm of how the insurance industry operates. If companies want to hold on to the customer and his business - they will need to provide them with some visibility into how their premiums might change in the future - maybe over the span of a decade, if not in the short term. This might provide them with some assurance and they can plan their finances accordingly.
In addition to this, insurance companies must actively invest into educating the younger generations about the need to invest into insurance. As their pool of customers becomes younger, the burden on their older customers will likely decrease. Maintaining a healthy ratio of customers less likely to make a claim to those more likely - is a sure shot way to ensure that the cost burden is distributed evenly - and doesn’t impact seniors unreasonably.
Lastly, there has to be some accommodation in cases where products are discontinued by the insurance company. Moving the customer to a similar premium grid, or working with other insurers on an option to port seamlessly - might help the customer stay assured that their healthcare interests are taken care of.
Finally, the government.
One of the best ways to reduce the burden on the customers and the insurance industry would be to improve public health infrastructure and make high-quality medical care available and affordable to every family.
Today, government-based health insurance is available for low-income and poor families. And the economically well-off strata wouldn’t need health insurance. That leaves out the middle class, which often faces the brunt of any such major industry changes. This is the category whose needs have to be addressed.
The change could begin with reducing the taxation on insurance products that are today a primary need for the middle-class. Today, there is an 18 percent GST on health insurance (compare that to 12 percent on business-class air travel) - meaning a senior citizen paying an yearly premium of Rs 50,000 has to pay an additional Rs 9000 as GST. This is absurd, and needs to be revised with some degree of urgency.
It is definitely a tall ask. These processes take time. But, every major change begins with a simple thought, an idea to solve a problem. And, we need that change to begin today.It is the only way to help senior citizens get the quality of healthcare and confidence they deserve. Build trust again - from the ground up.