How To Reduce Your Health Premium Outgo

Health insurance premiums have seen a dramatic rise in the recent years due to a wide range of factors, including rising medical inflation and the rising number of claims. We explore a few ways in which you can reduce your premium costs

In the aftermath of the Covid-19 pandemic, a lot of people have realised the importance of health insurance. However, a primary concern for most people is the rise in premiums. Over the past few years, health insurance premiums have seen a noticeable upward trend, with different insurers increasing premiums at varying rates for their products.

In a report by LocalCircles released in May 2024, 52 per cent of Indians said that their health insurance premiums have increased by over 25 per cent in the last 12 months. The survey was based on 11,000 responses from personal health insurance policyholders located across 324 districts of India.

According to industry experts, the reasons behind this surge in premiums range from business concerns, ageing population, product enhancements, to even medical inflation. Says Parthanil Ghosh, director and chief business officer of HDFC ERGO General Insurance, “Health Insurance in India is still an after-thought proposition and a low-awareness product. Young and healthy people usually do not prioritise purchasing health insurance. As a result, a greater number of elderly and high-risk individuals remain in the insurance pool, thereby leading to higher premiums. Additionally, people don’t buy insurance early and seek coverage usually after the age of 40 (and premiums rise with age).”

On April 1, 2024, the Insurance and Regulatory Development Authority of India (Irdai) removed the ceiling of 65 years for individuals to buy a health insurance policy. The regulatory change suggested that there cannot be an age limit for first-time entry into insurance. For instance, if a 75-year-old wants to buy insurance for the first time, he should not be denied a cover. However, this may or may not increase the numbers of senior takers because of the high premiums charged from older people.

Let’s understand how premiums are fixed, and what are some of the ways that can help lower them.

Why Do Premiums Rise?

Age: The age factor has a large role to play. Insurance companies have age thresholds past which premiums increase. Take the case of Shubham Pandey, a 28-year-old resident of Delhi-NCR, who bought an individual health plan in 2021 at the age of 25 with a sum insured of Rs 10 lakh at an annual premium of Rs 8,000. At 26, he fell into the 26-30 age band and his premium shot up to Rs 12,000.

The younger cohort tends to, typically, report fewer claims due to the absence of any age-related health or lifestyle conditions. Says Priya Deshmukh, head of health product, operations and services, ICICI Lombard: “As there is minimal utilisation of the health cover, they tend to view health insurance as a discretionary spend or just a tax-saving tool without laying much emphasis on understanding the nuances of coverage. They also tend to port to more affordable and attractive products from time to time, and so, we don’t see very high retention rates in this segment.”

On the other hand, an older person is seen as someone who is at a higher risk of falling ill. Therefore, the insurers load their premiums. Adds Deshmukh: “The younger cohort often opts for risk-sharing measures like co-payment and/or deductibles to reduce premiums, since they expect lower healthcare utilisation, but still need coverage for unexpected events. Similarly, senior citizens will need coverage for chronic conditions, which typically leads to increased costs for insurers.”

The prevalence of chronic diseases among older policyholders significantly impacts health insurance premium pricing. Since older individuals are more likely to have chronic illnesses, this demographic tends to see significant premium hikes. Says Shilpa Arora, co-founder and chief operating officer, Insurance Samadhan, an insurance complaint redressal platform: “We get many senior citizens asking for help with their rising premiums. Some even complain of 30-40 per cent rise in premiums, which at times makes it unaffordable at advancing ages when more coverage is needed. Three factors affect senior citizens’ premiums the most: living in the metro, an annual rise of premiums due to the claim experience, and GST.”

Medical Condition: Another factor that can load your premium is your existing medical condition or the risk you have to falling ill. Age is, of course a factor here, but the other aspect insurers consider are habits, such as smoking that can put you at risk for, say, cancer. Similarly, people with a family history of medical ailments may have to pay more.

Says Siddharth Singhal, head-health insurance, Policybazaar.com, an insurance aggregator, “Insurers use an applicant’s family medical history to assess their risk of developing hereditary conditions, such as heart disease, diabetes, or certain types of cancers. If an individual has a close relative (a parent or sibling) with a serious health condition, the insurer may consider that person to be at higher risk of developing the same or a related condition.”

City Where You Live: Health insurance premiums can vary significantly depending on the city where you reside, largely due to the cost of healthcare services in different regions. For instance, individuals living in metropolitan areas like Mumbai and Delhi may need to pay higher premiums compared to those living in smaller cities or rural areas. This disparity is primarily because the cost of medical treatment, including hospitalisation and outpatient care, is much higher in the metro cities.

Insurers factor these costs into the premiums, leading to a situation where people in urban areas, particularly senior citizens who often live on fixed incomes, bear a heavier financial burden.

“The ones living in a metro city generally pay 10-15 per cent more premium than the ones living in Tier-II cities, as medical costs are higher in the metros,” says Arora.

Newer Treatments: As medical science progresses, new treatments are coming in. These may entail higher cost. Says R. Balasundaram, secretary general, Insurance Brokers Association of India (IBAI): “Expecting premiums to be low while having wide coverage is unrealistic and unfair to insurers, who need to ensure business sustainability. Rather, the focus should be on ensuring claims are settled promptly.”

Customisation: The insurance industry has seen several innovations in the last few years and now offers many customised policies. But that comes at a cost. “The customisation of health insurance policies can affect premium pricing. These tailored covers allow insurers to assess risk based on individual health profiles, lifestyle choices and specific coverage needs,” says Shah.

Deshmukh says that effective customer retention amid rising premiums involves a combination of providing value-added services, personalised communication, responsive customer service, and leveraging technology.

The Business Logic: Another reason why premiums rise is when the claims made are not in sync with the premiums received by the insurance company. When the total claims exceed the premiums received, insurers increase premiums to survive. With more people getting insured, there are higher number of claims, pushing up the claim ratio leading to adjustments in pricing. “Insurers are profit-driven organisations, aiming to balance their financial stability with the costs of providing coverage,” says Aayush Dubey, co-founder and head of research at Beshak.org, an insurtech company.

On an annual basis, each health insurance product undergoes a detailed review from the perspective of experience. Says Ajay Shah, head of distribution, Care Health Insurance, “Products are priced based on this experience and other criteria as defined by the regulator. Trends related to longevity and renewal rates of health insurance can vary significantly based on factors, such as the age of the policyholder, policy type, insurer, and individual’s health conditions.”

As demographic trends keep changing with time, they affect the overall risk pool and premium calculations, which require adapting pricing strategies to reflect the changes.

Possible Overcharging By Hospitals: Also, usually, for a patient with a health cover, hospitals tend to charge more. Though insurers can monitor network hospitals closely to ensure reasonable billing and to prevent undue charges, this mainly reduces the insurer’s outgo. Says Balasundaram, “Hospitals could still bill customers directly for items not covered under insurance, and consumables such as cotton, injectables, and tubes. Even in network hospitals, these items will be billed to the patient directly. Addressing the practices of hospitals is critical for achieving optimal pricing and treatment costs.”

If hospitals and insurers come together, there may be a way ahead, but that seems to be a long road. Recently, Bengaluru-based hospital chain Narayana Health launched its first insurance product, a family floater policy named ‘Aditi’. This is an attempt to bring healthcare and insurance into a singular entity. But, as of now, the plan has many gaps. It is available only in the Narayana Health hospital network; there is a deductible limit of Rs 2,000 on all admissible claims and non-surgical procedures; it allows admission only in the general ward; and the product is available only in select districts of Karnataka. It remains to be seen if it really works even in the areas it targets.

Medical Inflation: Medical inflation, which includes rising costs of treatments and hospital overcharging, significantly impacts premium rates.

Medical inflation in India is set to increase to 11 per cent in 2024 from 9.6 per cent in 2023 as healthcare costs start to exceed the pre-pandemic levels, according to an international survey by the brokerage firm Mercer and Marsh Benefits. The report projected medical inflation to be 11.7 per cent in 2024 compared to 12.4 per cent globally in 2023 due to the anticipated slowing of inflation.

How To Reduce Premium Cost

Try Porting: Shubham discontinued the policy, as he lost trust in the insurer when his premiums were raised just a year after he bought the policy. Instead, he bought a new individual health insurance policy from a different insurer. He got this policy with an annual premium of Rs 13,000 (Rs 26,000 for two years together) for a higher sum insured of Rs 15 lakh. “In the coming two
years, I was told my coverage band would increase, including cancer treatment,” he says.

Trim Coverage: Policyholders can choose to opt out of specified conditions or treatments, which they don’t require, as that can lead to a reduction in premium. “This also curtails the insurer’s risk pool, leading to better cost management and pricing structure… This tailored approach not only saves a policyholder from paying unnecessary coverage, but also curtails the insurer’s risk pool, leading to better cost management and pricing structure,” says Ghosh.

Agree To Out-of-Pocket Expenses: If you choose to pay a part of the claim out of your pocket, your premiums may come down. Usually, deductibles are used for this purpose. Deductibles are that initial part of the claim that you agree to pay on your own. So, if a policy with a sum insured of Rs 5 lakh has a deductible of Rs 1 lakh, and there is a claim of Rs 2.5 lakh, you will be expected to pay Rs 1 lakh from your own pocket, and the insurer will pay the balance Rs 1.5 lakh.

Outlook Money checked various aggregator sites and saw a huge difference in premiums with deductibles and without deductibles. For instance, the premium for an individual policy with a cover of Rs 25 lakh for a 40-year-old healthy male based in Delhi will be Rs 19,000 per year. On the other hand, if the same individual takes a top-up insurance with the same sum insured, but with a deductible of Rs 5 lakh, the premium will reduce to approximately Rs 6,000.

Says Ghosh: “Policyholders can opt for deductibles or co-pay, and restricted room rent options and reduce premiums.”

However, it’s essential to assess how much you can spend on your own. If you think, you can’t, you could take a combination of individual and top-up policies. Ensure that the deductible of the top-up policy is equal to the sum insured you choose for the individual policy.

Should You Buy Early?

A common dilemma is whether to buy health insurance at a younger age, say at 25, or to wait until later in life such as at the age of 40 or 45. Experts say that since younger people are at less risk of having an ailment, the premiums are lower.

Plus, there are other benefits. In this segment, insurers usually offer avenues to earn discounts and benefits such as for wellness by promoting a healthy lifestyle and so on.

One key benefit of securing health insurance early is guaranteed coverage. As we age, the risk of developing health conditions increases. If you wait until 40, and get a serious medical condition, it could make it difficult to get comprehensive coverage. Moreover, purchasing insurance at a young age, like 25, allows you to lock in favorable terms based on your current health status.

Waiting can result in higher premiums due to age and potential health issues. Insurance companies might even add “loading fees” to your premium, reflecting the increased risk associated with being older. “In some cases, you might have fewer plan options or face limitations on coverage due to your age and health status,” says Dubey.

Health insurance plans also have waiting periods before certain benefits apply, especially for pre-existing conditions. Buying a policy early allows you to meet these waiting periods sooner.

The renewal rates for the younger population in the age bracket of 25-36 years are more than 70 per cent as compared to 80 per cent for the population of 36-plus years, says Ghosh. “This is a surprising trend as ideally, the young population should continue with their health insurance policies, as longevity of policies attracts higher no-claim bonuses and thereby, higher sum insured and reduces any complication at the time of claims incidence,” he adds.

Says Deshmukh: “Younger customers may be able to increase their cumulative bonus annually, thus providing for enhanced coverage in later years. However, the older customers may not be able to meet the claim-free criteria most of the time, due to pre-existing health conditions which may delay cumulative bonus-related coverage enhancement.”

But is buying early always beneficial? As you age, and cross over to a higher-premium age band, your premiums will go higher.

Sunil Kumar Mishra, a 38-year-old resident of Surat, who bought a Rs 3 lakh family health insurance policy in 2020 at the age of 34 for a premium of Rs 14,844 per annum ended up paying Rs 22,118 in 2023.

Delhi-based Jaiprakash Pandey’s case was similar. He bought a family floater health insurance policy at the age of 44 in 2019 (age band: 40-45) with a coverage of Rs 4 lakh at a premium of Rs 16,500 per annum. His policy was renewed at age 46 in November 2021 for a premium of Rs 22,500 per annum.

When Shubham turned 28, the insurance agent knocked on his door again with a renewal request at an increased premium of Rs 4,000 per annum. Confused, Shubham informed that his policy renewal with an increased premium happened almost a year ago and was supposed to continue till 30, but was told that the age band categories had been revised.

But it’s possible that this hike may not be as much as the premium you would be charged if you are a first-time buyer at an older age. Says Singhal, “Though an individual who buys health insurance at a younger age typically locks in lower premiums, these premiums will increase as they age, but the increases tend to be more gradual because the insurer has already established a relationship with the insured and has been receiving premiums over a longer period.”

On the other hand, if an individual purchases health insurance for the first time at the age of 50, they will likely face higher premiums from the outset, because insurers view older applicants as higher risk due to the increased likelihood of age-related health issues, he adds.

“Older customers aged 50 or above may also have to pay higher premiums of up to 25 per cent depending on their declared and accepted health conditions,” says Deshmukh.

Plus, they may be denied coverage for certain pre-existing ailments or be asked for a waiting period before which they wouldn’t get a cover, subject to conditions.

Buying insurance earlier does mean you initially enjoy lower premiums. However, as you age and move to higher bands, your premiums will increase. The main advantage of buying insurance early is continuous coverage and accumulation of bonuses.

anuradha.mishra@outlookindia.com