With the Covid-19 pandemic, people have now realised the importance of having a health insurance policy. Its importance was always known, but the realisation has only come in now. With this pandemic we have all witnessed, the high cost of getting treatment in a hospital!
Despite knowing its importance, people have often not proactively bought one. Why so? One such concern is the increase in the premium of medical insurance. Unlike term life insurance, health insurance premiums do not remain constant. Let us understand what causes an increase in health insurance premiums.
Increasing Premiums - How does it Work?
First things first, we need to realise that health insurance premiums calculations are done on the basis of age brackets, not just age. Only when you move from a particular age bracket to the next one, would you require to pay a higher premium? These brackets may vary for different insurer companies.
Let’s say, you bought Plan A at the age of 23, from a company where the first age bracket is 20-35 years, you will have to pay the same premium for twelve more years. However, if you buy the same plan at the age of 34, the very next year you might have to pay a higher amount.
Also, when you make a claim in an existing year, in most cases, the premium will be increased at the time of renewal, this is called load premium. Though nowadays, most insurers do not load the premium at least for the initial five years, despite making a health insurance claim.
So, yes, health insurance premiums do rise, but may not increase every year unless there is a change in regulation or tax component, which is beyond the scope of the insurer. However, it is prudent to be aware of the factors that affect the premium of a health insurance plan.
Top 4 Factors that Affect the Premium of a Health Insurance Plan
Understanding the specifications of your health insurance plan is the first step to a wise investment.
Let us see the reasons that cause health insurance premiums to rise regularly.
- Your Age
As discussed above, a change in the age bracket can greatly affect the premium that you need to pay. As we grow in age, so does our susceptibility to illness and health issues. So, even if you have not made any medical insurance claims, you may have to pay a higher premium because your age is increasing.
Pro Tip: At a higher age, the rise in premium for every year is much higher than at a lower age. Thus, it might make more sense to keep your parents, senior citizens, in a separate health cover so that at least your premium does not increase significantly.
- Rising Medical Costs
The cost of living is increasing with every passing day and so is the cost of medical facilities. Medical inflation is always higher than the normal kind of inflation.
- Raise in Premium across Age-groups
A spike in the premium is not always because of an individual claim. A health insurance company may declare an increase in its premium rates for a particular age group, based on its own claim experience. In case you fall in this age group, you too will be subjected to the new tariff. An awareness of the quantum of the increase will help in avoiding surprises.
Pro Tip: Each insurer has their own incurred claim ratio, i.e. the total premium collected vis-a-vis the total claim paid out and it depends on their internal calculation of the same as well, which is in tandem with the medical inflation in India.
- Your Personal Circumstances
There are various other factors that can bring an increase in your premium.
For example, when you bought the mediclaim policy it was for you and your spouse. With an increase in the number of family members, you may want to increase the coverage. The increased coverage would also increase the premium.
Similarly, your marital status, your occupation, medical condition, BMI, your lifestyle habits, your location etc. are other details that come into play.
New Set of Rules in Health insurance in India from Oct 1, 2020
With regard to the relative deductions that health insurance companies adopt during the claim, the Insurance Regulatory and Development Authority of India (IRDAI) has issued some changes in the guidelines for health insurance plans.
The apex body has specified medical expenses that the insurance company can and cannot include in proportionate deductions. The insurance companies have also been advised to be clearer about the medical costs. New rules have also been stipulated that would apply on plans bought after 1st October 2020 and for plans that will renew from 1st April 2020.
Can I Reduce the Cost of My Health Insurance Premiums? And Should I?
A medical emergency will always come unannounced and will mostly take a dig at your savings. Investing in a health insurance plan with a cheap premium may look attractive, but it will end up being a much expensive deal in the long run. Rather than trying to cut down on the premium, try to focus on ways that help you reduce the cost without affecting the comprehensiveness of your plan. The following ways can help:
- Stay Healthy
The premium that you pay is directly related to your health and age. As the number of health problems increases, so will your premium. It is recommended to invest in a health plan while you are young and medicine-free. Also follow a healthy lifestyle, so that you can keep your premiums lower.
- Higher Deductibles
An amount that you need to pay before the cover begins is called the deductible. When you pay a higher deductible initially, you automatically reduce the premium amount. Certain companies offer Voluntary Deductibles, where you can choose to pay the medical expenses yourself and claim a percentage of the amount.
Pro Tip: Remember, choose a deductible only after weighing all the aspects.
- Make Use of Tops-ups and Add-ons
Add more value to your vanilla health plan by making smarter choices of top-ups and add-ons. They help in splitting the cover that you need and come in very handy when the core sum insured is wiped out.
- Look Out for Discounts
Choosing the option of upfront premium for more years can reduce the premium. Another option is to opt for family floater health insurance plans that help in reducing the cost.
- Compare Plans and Buy Health Insurance Online
Scanning the health insurance market becomes easy online. There are a plethora of health insurance plans that are available, compare the costs, the coverage, the reputation of the company, the claimed incurred ratio, availability of riders etc before you invest in one.
Paying your health insurance premium on time is one of the best ways of keeping the cost under control. Not being under health cover can be a risky proposition. Renewing a policy will only end up in you paying more. Stay alert about the premium dates and grace period. Also, being mindful about how health insurance works can also keep shocks and surprises at bay.