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How you can keep rising health insurance premiums in check

ET explains the reasons for increase in premiums and suggests ways to tackle the surging healthcare inflation.

, ET Bureau|
Last Updated: Aug 29, 2012, 10.33 AM IST
ET explains the reasons for increase in premiums and suggests ways to tackle the surging healthcare inflation.
ET explains the reasons for increase in premiums and suggests ways to tackle the surging healthcare inflation.
More often than not, discussions around price rise in India are confined to food and fuel inflation. Other forms of price rise that can make a dent in your wallet rarely find their way into routine conversations.

Take, for instance, healthcare inflation. It seldom gets talked about, despite the fact that it can push up your healthcare expenses and annual health premium, besides reducing the real value of your health cover. To add to it, there are other factors like age and claims made, which can compound the premium rise. Yet, very little effort is made towards understanding such triggers.

While you cannot always contain the spurt in premiums, being aware of the causes will help you be prepared to tackle its effects. Listed below are some of the key reasons behind mounting premiums and your possible strategy to deal with the same.

Healthcare inflation

Estimated to be growing at a rate of 12-18% per annum, medical - or healthcare - inflation is one of the chief factors for the increase in health insurance premiums. As the cost of medicines and treatment at hospitals soars every year, so does your premium. In addition, it also eats into the real value of your sum insured. Now, you can do little at your end to keep a lid on the premiums, but you need to work towards diluting its impact on sum insured. You can do so by reviewing the cover for your family every year and enhancing it periodically to ensure that it is adequate. A family of four - comprising husband, wife and two kids - where the eldest member's age is around 35 years, can start with a cover of around Rs 6 lakh. As the senior-most individual's age inches towards 40, the total cover can be gradually increased to Rs 10 lakh, especially if the family is residing in a metro city.

Claim experience

Another key - and often controversial - cause of premium hikes is the claim-based loading clause. As the name suggests, the feature links your renewal premium to claims made in the previous year. Depending on the parameters listed in your policy contract, your premium on renewal goes up by a pre-fixed percentage in the event of a claim. Now, you cannot change your insurer's policy in this regard, but you can switch to another insurance company that does not raise premiums based on earlier claims or charges lower premiums. However, ensure that the difference is justifiable. "Changing insurers only for pricing may not be a good idea unless the difference is significant. It is always better to stick to insurers who have fair and transparent pricing structures and do not change prices on renewal just because there was a claim under the expiring policy," says Mukesh Kumar, head, strategic planning, HR and marketing, at HDFC ERGO.

Premium hikes across age groups

Now, spikes in premium are not restricted to an individual's claim history alone. For instance, say an insurance company decides to increase the rates across a particular age-group on the basis of its claim experience and you happen to fall in this category. In this case, irrespective of whether you have made claims in the past or not, you would be subjected to the new rates applicable to your age-group. While this is a factor that is beyond an individual's control, understanding the quantum of rise will help avoid surprises at the time of renewal.

Insured's advancing age

Unlike life insurance policies, where premiums stay constant throughout the policyholder's life, health policies offer no such comfort. Here, your health premiums are closely associated with your age. "Usually, health premiums are dependent on the age of the person, sum insured and medical history. If the insured moves to the higher age band, the premium on renewal may go up," says Divya Gandhi, head, general insurance and principal officer, Emkay Insurance Brokers. Again, there is little that you can do to avert such hikes. So if you are yet to sign up for an independent health cover, you must look at buying one as soon as possible. As an individual grows older, he/she tends to become more vulnerable to sickness, which could result in adverse health history. This, in turn, could result in higher premiums and restricted benefits under the cover. Therefore, it is best to buy a health policy at a young age," says Segar Sampathkumar, DGM, New India Assurance.

Change in personal circumstances

Apart from your age, there could be other factors that could come into play while determining your premium. "For instance, change in the number or profile of family members covered. Similarly, if your product charges differential premiums based on the place of residence and you happen to relocate, the applicable premium would vary accordingly. Any restructuring of benefits offered, too, could prompt a change in premium," says Arvind Laddha, CEO, Vantage Insurance Brokers.
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