Healthcare Inflation & You - Are You Prepared?

The consumer price index, or on-ground retail inflation for common man, had stayed below 5% for two consecutive years 2017 and 2018. However, in the meantime healthcare inflation had been running close to double digits mark. Be it services, cost of medicines or procedures, almost everything had been skyrocketing even with the economy running a bit slow.

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Healthcare Inflation in Numbers

Of everything that goes into healthcare services, hospital and medicine costs are the major components. In the year 2018-19, the hospital services, which include nursing charges, experienced an inflation of 9.4%, while the medicines went up by 7.2%.

Even, if we take the lower rates of inflation in healthcare services in the previous years, the average inflation comes close to 5%. This means, that the treatment which cost about Rs. 100,000 in 2015 is going to cost more than Rs. 1.2 lakhs now, and about Rs. 1.6 lakhs in 2025.

Cost of Specific Treatments

Inflation rates in the short run may have been high, but in the long run, they may subside to a nominal level. From the looks of it and based on the expert opinions we can assume 5% p.a. to be the long-term rate.

Thus, we can estimate the future costs of many of the major treatments. Considering you are more likely to be diagnosed with heart ailments or cancer, out of all the illnesses which need costly treatment, let’s have a look at their future costs:

Heart Ailments & Treatments

CABG or coronary artery bypass surgery, one of the most common procedures for critical heart patients can cost anywhere between Rs. 2 – 6 lakhs now. At 5% inflation, this price will be Rs. 3.25 to 10 lakhs within next 10 years.

Cancer Treatments

Similarly, in the case of the most common cancer treatments, the cost of surgery ranges from Rs. 2 lakhs to 6.5 lakhs now. While each session of chemotherapy can add an average of Rs. 1 lakh to each cycle. This does not include the cost of medicines.

Thus, the cancer treatment cost which is around Rs. 8 to 10 lakhs now, will become Rs. 13 – 17 lakhs in the next 10 years.

Cancer is one of the costliest diseases of our times. No other disease has pushed as many families below the poverty line like this one. But, most of such families have not been using health insurance or did not have adequate cover.

How to Prepare for Cost Escalations?

If you already own a health insurance plan, you should check the features again to see if the sum insured has been growing. This will not apply to your employer’s health insurance cover, as the growth of that cover depends only on your income.

Now, defined contribution health plans offer increments to the sum insured for the claim-free years. Most Mediclaim policies offer no claim bonus which is paid through an increased benefit amount for the year.

So, for example, you bought a Mediclaim of Rs. 5 lakhs at the age of 30 and have not made any claim till the age of 35, you may have Rs. 7.5 lakhs available under the policy.

If no claim bonus (NCB) is not available in your health insurance plan perhaps it’s time to upgrade. In any case, you will need to do at least one of the following to ensure adequate health cover in future:

• Upgrade the sum insured of your existing policy
• Ensure NCB is available in the defined contribution health plans (Mediclaim)
• Get a defined benefit health insurance plan or critical health plan with increasing cover (sum assured)

Few Factors to Account For

Getting the right plan with the right benefit amount is just the first step. You should also try to understand the limitations and additional options available to you in the time of need. For instance, have a look at the following limits of the best health plans with increasing cover:

• NCB applied to base health cover amount until it doubles
  
• Sum assured of defined benefit health plan will grow by 10% p.a. simple rate until it becomes 1.5 times of the original sum assured.

This means, at one time you will need to add to your health cover. However, there is a trade-off. If you add more cover to your portfolio at a later date the premiums will be higher due to age. Thus, it makes sense to secure the best possible cover for yourself as early as possible.

Top-up Health Cover Plans

You can also explore the top-up cover option for defined contribution health plans. You can opt for a top-up cover if you feel that your existing health insurance will fall short of your needs in the policy year.

This is especially useful in case of extended hospitalization. However, this option only works with Mediclaim or defined contribution policies.

You cannot top-up a critical health plan as the benefit does not depend on the treatment costs. But the low initial cost will allow you to secure adequate coverage in the beginning, and you can opt for a growing cover.

Tax Benefits are Added Advantage

If you are worried about the premium cost of these plans, you should consider the tax savings it allows. Under section 80D of the Income Tax Act, you can avail up to Rs. 75,000 as an exemption for premiums paid for health insurance plans.

This deduction includes any money you spent outside insurance for the treatment, in the case of senior citizen patient.