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The best health insurance strategy

LiveMint logoLiveMint 06-08-2017 Deepti Bhaskaran

When you invest for the long term, it is important to make sure that the returns your portfolio gets are ahead of inflation so that you get a real return. Buying health insurance is not much different in this regard—it is important to inflation-proof your health insurance strategy because medical inflation continues to be in double digits. According to Nivesh Khandelwal, founder and chief executive officer of LetsMD, a fintech healthcare platform, medical inflation is around 15-17% and will continue to rise unless the state intervenes to build more affordable infrastructure. How expensive is healthcare today? A cardiovascular surgery can cost upwards of Rs3 lakh in corporate chain hospital in metros. And even dengue can set you back by Rs90,000. And these costs are bound to go up. At Mint, we advise individuals to have health insurance, even if they are covered by their employer. But can health insurance be the answer to all your medical needs? Is there a strategy that can give you maximum benefits at little cost? We find the answers here. 

You need insurance because you don’t want to pay hospital bills out of your pocket. A health insurance policy pays for hospitalization, which includes expenses such as room rent, surgical procedures, nursing expenses, doctors’ fees, cost of medicines and diagnostic tests. This policy is renewable for life, so you pay a premium every year, and the premium increases as you age. Even if you make a claim on your policy this year, the original insurance cover is available to you when you renew it next year. This means, if you keep renewing your policy, it will continue to cover your medical tabs till you live. “It’s very important to be insured against huge losses and hospitalization falls in that category. You may not make use of the policy at all in your lifetime, or realise that you paid more than you claimed, but the risk of being uninsured is far more catastrophic,” says Priya Sunder, director, PeakAlpha Investment Services Pvt. Ltd.

But can you depend on your health insurance policy to pick up every rupee of your healthcare cost? No. A few medical costs are excluded, such as: some out-patient procedures. Cosmetic surgeries and dental treatment are excluded unless they are required due to an accident and require hospitalization. Hospitalization for evaluation and diagnostic purposes is also covered. Even when you are hospitalized, the policy will not cover investigations or treatment that are not relevant to the ailment for which you were hospitalized. Also excluded are expenses on about 200 items such as: toiletries, cosmetics, specified medical items (like prescription glasses, contact lenses, hearing aids and crepe bandages) to administrative expenses (like admission kits, discharge procedure costs, and visitors pass expenses). “The non-payable items can add up to about 10% of the in-patient cost...health insurance saves you from blowing a hole in your pocket, but it doesn’t pay for everything,” said Kapil Mehta, co-founder, SecureNow Insurance Broker Pvt Ltd. According to Varun Gera, founder and chief executive officer, HealthAssure, a primary healthcare aggregator, if treatment is prolonged, the policy may not cover all expenses. “For example, in the case of cancer, even after the patient is discharged, he may need to be on medicines for extended time and there could be exclusions and co-payment for many expenses,” he said. 

For this you need to answer two important questions. Is health insurance all that I need? How much health insurance do I need? To answer the first, health insurance is the shock absorber, which you need, but you also need to provision for incidentals that the policy won’t pay. “Just like you create an emergency fund...and park it in liquid funds, we recommend you save an amount—that you can comfortably apportion—for medical emergencies,” says Sunder. Gera says that some countries offer tax-friendly health savings accounts, to encourage people to save for healthcare costs. “On an average, an individual ends up paying more than the benefit he gets from health insurance. Of course, those with more frequent or big-ticket instances of hospitalization end up benefitting a lot. It’s advisable that you look at a cover that you can easily afford and also save on the side,” he added. 

Sunder offers some affordable health solutions: “A cost-effective way of buying health insurance is through a combination of individual policy with a floater and a top-up plan.” A floater considers the entire family as one unit and so it is cheaper than individual options. A top-up cover comes with a deductible—the portion of claim amount that needs to be paid by you. You can of course use your base health insurance policy to pay the deductible amount and use the top-up for payments over that. Higher the deductible cheaper is the top-up cover. Read more about top-up plans here: bit.ly/2lSfwOh. You can also buy a critical illness plan that pays a lump sum to supplement your income when diagnosed with a critical ailment. And, you need to buy the insurance as early as possible. “We have observed that underwriting is getting stricter and the rate of rejections is increasing. People with hypertension, for instance, are being denied a cover,” added Sunder. 

The importance of health insurance can’t be stressed enough, but it’s equally important to create an emergency corpus that will only aid your health insurance policy.

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