Staying Healthy is Your Ticket to Low Premiums: Facts, Figures and Foibles

Saturday, September 17, 2016, 6:00 AM | Leave Comment

According to a report published by WHO in 2012, global health expenditure stood at 6.5 trillion USD, with an average per person per year expenditure of 948 USD (around 64000 INR).

This is the flipside of longer lifespans and technological advancement: we are now living longer, but paying a high price for it.

In this regard, India is struggling to keep up with the world. In 2011, health costs comprised only 3.9% of the GDP, far less than that of other developing countries like Brazil and South Africa. Out of this, insurance covers only 5 to 10%. Employers pay for 9%, while out-of-pocket expenditure amounts to an astounding 82%.

Clearly, awareness of health insurance, and its ability to ease the life of the common man, is yet to penetrate the Indian population.

Proper insurance cover can significantly reduce this 82% figure within the next few years (down to 50% by some estimates).

The purpose of health insurance is basically this: the policy-holder pays a premium every year, and depending on the premium, he/she gets coverage. Unlike term plans, health insurance is of the “fee for service” type.

For life insurance or endowment plans, you get a pre-determined sum at the time of claim. But under health insurance policies, your claim will depend on your cost of treatment, and cannot exceed your coverage.

Coverage for health under Indian insurance providers can be of three types.

  1. Firstly, you have the Mediclaim option, which covers only costs of hospitalization. Claims for Mediclaim are usually made after the fact, meaning the cost of hospitalization is initially borne by the policy-holder, but upon filing a claim, he/she is reimbursed, accordingly.

    The advantage of this plan is that the premiums are quite low, and it provides coverage for the most expensive scenarios. The disadvantage is that it does not cover diagnoses, ambulance, post-hospitalization care, and a plethora of other health related costs.

  2. Secondly, you have the option of purchasing a life insurance policy with pre-specified health benefits. These usually include critical illness (cancer, heart disease, kidney failure and others, depending on your provider) and disability. This is not a “fee for service” plan, meaning a certain percentage of your total coverage will be paid out, should these circumstances arise, irrespective of the costs incurred.

    The advantage here is that it is a combined policy: with one premium, you get coverage for your life as well as critical illnesses. The disadvantage is that the list of illnesses is limited, so cover is not comprehensive.

  3. Thirdly, you can opt for a pure health cover that will pay for all illnesses contracted during policy period and, optionally, for accidents, disability, ambulance cost, and so on. As in Mediclaim, here too your claim will depend on the cost incurred and cannot exceed coverage.

    Health insurance policies available nowadays also offer the option of cashless treatment from the get-go, if you avail the services of one of their network hospitals.

The factor that initially deters most people from buying health insurance is the exorbitant cost involved.

Health insurance is much more expensive than term insurance, with larger premiums fetching less coverage. These premiums can also increase from year to year, through a process called “loading”.

In India, smokers are not penalized when buying health insurance (though for term insurance, premiums can be 10 to 15% higher).

In the US, however, smokers pay 15 to 20% more than non-smokers, other factors remaining the same. Although trends like this discourage a majority of the population, it is possible to keep the cost of premium within a convenient limit.

  1. Firstly, the policy holder must take pre-existing diseases into account while assessing his coverage. Before purchase, you are required to declare all pre-existing diseases, and complications arising from these diseases within the first 2 to 4 years will not be covered.

    Proposers often fear that their policy will become ineffective as costs arising from diabetes or thyroid will not be reimbursed, but that is not the case. After the pre-specified waiting period, your coverage will be comprehensive.

    But if you have a severe illness which requires immediate cover, it is better to go for a specialized plan, like a diabetes plan or cancer plan which gives coverage from day one.

    If you manage to follow a healthy diet and a regular exercise routine, the need for such plans will be minimized, leading to a significant reduction in your premium amount.

    In fact, specialized plans like Apollo’s Energy will reward you materially with premium discounts if your health improves significantly within policy term.

  2. Secondly, smoking can take an unprecedented toll on you insurance premium.

    Under ObamaCare, insurers cannot charge extra for pre-existing illnesses, but they can charge up to 50% more for smokers.

    On the flipside, the law has also made it easier to avoid this expense, by providing free cessation therapy to help you quit smoking.

    The rules determining who qualifies as a smoker differ from country to country, and from provider to provider. Some Indian insurers ask you to specify, if you have used any tobacco based product in the past year or so.

    In the US, those who have used tobacco four or more days a week for the past 6 months, qualify as smokers. But no matter where you are, it is essential to declare your smoking status before purchase to avoid rejection of claims.

  3. Thirdly, if you keep yourself in reasonably good health, you can reduce the impact of loading. Loading is the increase that insurance providers are allowed to make at the time of policy renewal, if they perceive an increase in the risk taken.

    The premium cannot be loaded in the first 3 years, and according to the Health Insurance Regulations of 2013 loading cannot be practiced based on previous claims.

    Age and health are the two variables that affect loading of premium; during policy renewal the insurer may ask for a medical test and if the results are favorable, change in premiums will be minimal.

Staying Healthy is Your Ticket to Low Premiums: Facts, Figures and Foibles

The terms and conditions of health insurance vary depending on the number of people covered. In India, individual health policies and family floaters are the most common choices—individual health policies operate under the single premium-single coverage model, where the terms are dictated by the policy-holder’s age and health.

Under the family floater option, a larger coverage is made available to up to 4 family members in the form of individual or cumulative claims. Coverage is dictated by the average health condition and the age of the oldest member. Under this model, you will need to keep an eye on not only your own health but also that of your family members to minimize your cost.

Only 9% of health costs in India are covered by employers, while in the US the number is as high as 37% (including state government and private businesses). As employers’ health insurance provides umbrella-coverage to a large pool of people, the terms and conditions are also more complex.

But contrary to popular misconceptions, individual health can have a significant impact on your health insurance premium even if you are part of a large group.

From 2006, American employers were permitted to charge up to 20% more if the employee did not meet preset wellness goals (BMI, cholesterol, blood pressure, weight, and so on).

Since 2014, employers can charge up to 30% more under ObamaCare. In fact, 3% of large US companies (with >200 employees) choose to deny health insurance unless employees complete a health risk assessment test.

Clearly, individual health is the primary factor determining your premium (i.e. amount deducted from your paycheck, plus subsidy provided by the employer) and consistent physical wellness will ensure you face no unpleasant deductions.

Basic steps like this will ensure you get bang for your premium buck:

  • Compare insurance quotes online and buy the best insurance policy possible. Do it at a young age. In India health insurance is sold to those below 30 under an assumption of good health.

  • Going for a high deductible plan will bring down your premium, and allow you to pay for your expenses as long as they are below a certain amount.

  • Plans that allow co-payment usually cost less, and under it a certain portion of the expenditure will be covered by the policy-holder.

  • Be conscious of your, as well as your family’s, health in order to qualify for available discounts when the opportunity arises.

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