One
in five retail consumers who subscribe for a health insurance policy ask this
question. There are two reasons for this – a) consumers are skeptical of insurance
companies that they might increase premiums to disproportional levels in the
future and b) consumers paying life insurance premia are used to paying a
constant premium each year.
This
post attempts to allay these fears and explain the circumstances and the
rationale by which health insurance companies increase premiums.
Lets
go back to our original reasons –
a)
Disproportionate increase in premium
– All insurance companies are required to file their premium rates with the
IRDA. This includes the level of loading that can be done on the premium if the
insured shall file a claim. Any premium increases have to be filed, discussed
and justified with the IRDA by health insurance companies. And as the IRDA is
pro-consumer, the body will not allow such disproportionate increases in
premium.
Having
said this, one exception to the above principle has been the curious case of
Reliance General Insurance’s Healthwise policy. The insurance company
aggressively marketed the Gold plan of their Healthwise policy at an attractive
Rs. 999 for a Rs. 1 lac cover (for a family of 2 where both individuals are below
35 years of age). Over time, claims surrounding this policy have placed a large
dent on the company and complaints viewed on the internet seems to suggest that
Reliance has rapidly increased premiums – as high as 300% to 500%.
b)
Life insurance premiums are constant
– This is not true. The premium collected by life insurance companies consists
of two parts – 1. Mortality charges and 2. Others (admin, fund management,
investment funds etc.). Mortality charges keep on increasing with age and the
Others tends to adjust this increase in mortality by reducing the funds
available in Others. So while to consumers it may seem that the cost of
insurance is being spread over the life of the policy, it is actually going up
over time.
For
a fact, health insurance premiums will increase over time. Here are some
reasons why health insurance premiums increase -
1. Increase in medical costs – Also called ‘medical inflation’, costs of
hospitalization services are going up by about 15% each year and this trends
doesn’t seem like loosening soon. Cost of surgeries, hospital beds, doctors,
medicines etc. have consistently risen. In addition to this, there is rampant
over-billing seen at medical centres when the institution is aware that the
payee is insured. In a number of instances, this over-billing is as high as
100% of the actual cost of the medical procedure. While consumers do nothing to
stop this at the time of medical care, they consequently end up paying a higher
premium as insurance companies have to revise medical insurance premia due to
higher losses.
In
case of lumpsum benefit policies like critical illness benefit plans or
personal accident policies, the changes in premium are not as frequent as in
case of hospitalization plans.
2. Premium Calculation methodology filed with the IRDA - Most
companies file premiums on a slab basis. The common slabs are 0 to 18 years, 18
to 35 years, 36 to 45 years and so on. The range reduces as the age of the
insured member gets older. There are pros and cons of the slab-based structure.
If the insured member is 19 years when he/she enrolls for a health insurance
policy, ceteris paribus, he/she can enjoy the same premium for the next 16
years. The disadvantage of this structure is that if you were 35 years old when
you enrolled for a plan, you might be unpleasantly surprised to get a renewal
notice where premiums have almost doubled because you have moved to a new
age-band. Consumers should be vary of the age-slab structure when enrolling for
any health insurance policy and its implication on premium increases.
Interestingly,
if you have a Max Bupa health insurance policy, then you might have a premium
increase each year as they have filed for separate premium for each age.
Because they have priced their product such that the premium for each age might
be different from the other.
3. Claim loading – Insurance companies often file products with a
claim loading logic that is applicable during renewals. This is always
available in the policy wordings of the policies. For example, ICICI Lombard
lists down the Claim Loading methodology on their website in case of claims. ICICI
Lombard doesn’t load the policy if the claim is lower than Rs. 25,000. However
if the claim amount exceeds Rs. 25,000 then loading percentage starts from 10%
upto a maximum of 75%. This means, if you were paying Rs. 5,000 for a hospitalization
plan with a sum insured of Rs. 5 lacs then, ceteris paribus, this premium can
increase to a maximum of Rs. 8,750 the next year even if the claim made by the
insured is as high as Rs. 5 lacs.
Over
the last 2 years, Reliance General Insurance, Apollo Munich and Star Health
have made revisions in premiums based on their claim experience and other
factors. I expect more insurance companies to follow suit. If consumers feel
that the premium increase is not justified then they now have the option of
using the health portability option to move to a different insurance company
with the advantage of carrying the benefits that they have accrued in their
previous policy. Read more about how to go about health insurance portability
on my earlier post.
If you like this post, then do share it
on Facebook and Linkedin.com J
No comments:
Post a Comment