On 1st April, India’s health insurance landscape will change forever with the Irdai-mandated Arogya Sanjeevani Policy coming into effect. However, the standard health insurance policy has its set of limitations. Not only is the entry age restricted to 65, but the cover is also capped at Rs 5 lakh, way too low for senior citizens living in big cities.
Since this new plan will not serve the purpose of those above 65 years of age or those who need a larger cover, they must look at other options. Before exploring the available options, let us first understand the basic premise of health insurance. Unlike life insurance, the annual premium for a health cover keeps increasing with age. So while choosing an option, you need to calculate the expected premium 10 or 15 years from now in addition to studying policy features and current premium. Though it is difficult to predict what the exact premium would be going forward, someone who is 65 can get a rough idea about how much would need to be paid 10 years down the line by looking at the current premium charged by insurance companies for a 75-year-old.
Medical insurance premium balloons with age
1. Normal or dedicated plans
With more senior citizens realising the benefits of and opting for health insurance, some insurance companies have started offering dedicated plans (see table). So you need to first decide whether to opt for a normal health plan or one specifically meant for senior citizens. As of now, there is little advantage in opting for senior citizen specific plans. If you compare the premiums charged by the dedicated plans and regular plans by the same insurers, you will notice the specific plans charge higher premiums and come with more restrictions. Regular plans work out to be more cost effective for senior citizens because the pool is also supported by young people, who make very few claims.
There is little advantage in opting for dedicated plans
Go for senior specific plans only if you are not eligible for normal plans.
Premium for Rs 10 lakh cover. Source: www.policybazaar.com
However, one should note that the underwriting standards are higher for normal plans and therefore, chances of senior citizens being allowed to opt for these is lower. However, this should not be a deterrent. “Normal health insurance comes with better features and fewer restrictions. So, senior citizens should try for that first and settle for dedicated senior citizen’s plans only if insurance companies do not allow them to opt for a normal plan,” says Amit Chhabra, Health Business Head, Policy Bazaar.
Also read: What is Arogya Sanjeevani health insurance policy?
2. Co-payment or not
High premium costs are a deterrent for senior citizens seeking health insurance. Settling for plans with co-payment option is one way of keeping premiums low. Co-payment provides a win-win situation for the customer as well as the insurer. “Since customers start questioning costs charged by hospitals, co-payment brings in discipline,” says Sanjay Dutta, Chief, Underwriting and Claims, ICICI Lombard General Insurance. The Arogya Sanjeevani Policy comes with 5% co-pay for all age groups.
In an effort to reduce premiums, however, do not ignore your liquidity situation. “If you have enough liquid cash and can handle 20% of the expenses, opt for co-payment option and enjoy the reduced premium,” says Abhishek Mishra, CEO, Bonanza Insurance.
General plans without co-pay can be costly
Opt for co-pay if you can afford it as it will keep the premium down.
General retail plans without co-pay
3. Base or critical illness cover
Does it make sense to reduce the base cover and replace the same with a critical illness rider? After all it’s critical illnesses that make a bigger hole in your pocket than common illnesses. A Rs 5 lakh base cover + Rs 10 lakh critical illnesses cover works out to be cheaper than a comprehensive Rs 15 lakh base cover (see chart). However, there is a catch. Critical illnesses are defined and any illness outside that list will not get the additional cover.
Base + critical illness cover works out cheaper
The catch is any illness beyond defined critical illnesses will not be covered.
Another option is to go with an independent critical illness cover. Here the claim payment mechanism is different. The money is paid out in a lump sum on detection of a particular illness and is not based on actual treatment cost. “While health insurance will meet hospitalisation expenses, an independent critical illness cover will help to meet additional expenses triggered by the illness,” says Dutta.
4. Base cover or super top up
Another way to reduce premium is to skip the base health insurance cover and try to manage only with super top-up plans. Before explaining the strategy here, let us explain the difference between top-up and super top-up plans. In top-up, the hospital bill should be more than the deductible limit to get paid. In super top-up, on the other hand, the limit is considered on policy year basis. Assume that you have a top-up plan with deductible of Rs 5 lakh and your medical bill for the year is Rs 8 lakh, but the same is split between four hospitalisations— Rs 2 lakh each. Since each hospitalisation cost less than the Rs 5 lakh limit, you won’t get anything from top-up plans. However, the insurance company would have paid you if that plan was a super top-up, as the total expenses incurred was more than Rs 5 lakh in a policy year.
Super top-up plans work fine if you can keep the deductible low (say Rs 1 lakh) and then go for a super top-up plan with a high cover. In this situation, you will be first paying Rs 1 lakh per annum from your own pocket and the insurer will foot the bill only when it goes beyond this limit. The logic here is like that of co-payment. You are ready to bear a part of the medical bill to reduce the overall premium. However, the problem is most insurance companies won’t allow a high top-up with low deductible. For example, most companies will offer only up to Rs 5 lakh cover with a deductible of Rs 1 lakh. They will increase the deductible proportionately —you will need to take a Rs 5 lakh deductible to get a super top up cover of Rs 20-25 lakh.
The strategy of taking Rs 5 lakh base cover and Rs 10 lakh as super top-up (with Rs 5 lakh as deductible) works out cheaper (see chart). Legally, customers can take base cover and super top-ups from different insurance companies, thereby keeping costs low. However, experts ask you to take both policies from the same company. “Both policies from same company increases the operational convenience. You don’t have to handle documentation from two companies,” says Mishra.
Super top-ups work if deductible is low
Base plan + super top-up works out to be cheaper than only base plan.
Large base plan or base plan + super top-up
5. Insurance or corpus
With medical insurance costs rising, some people may think of replacing it with a medical corpus. However, that is not the right thing to do. “Depending only on a medical corpus will be risky because a serious ailment can wipe out the corpus in a year,” says Melvin Joseph, Founder, Finvin Financial Planners.
However, even if they have medical insurance, senior citizens should also maintain a reasonable medical corpus. This is because all medical costs are not covered by insurance. For instance, most policies don’t cover OPD treatments; you need to be hospitalised for at least 24 hours to make a claim. Secondly, while all hospitalisation expenses may be reimbursed for younger policyholders, senior citizens will have to deal with several exclusions or co-payment restrictions.
Depending on child’s cover
It works well if you are covered under a family floater paid for by your child. What about the health cover offered to your children by their employers? While health insurance policies of some companies cover employees, others give options to add parents at a price. Though these are good, depending on these alone may be risky. “One basic criterion to be used is certainty of its continuance. The corporate insurance will stop once your child leaves the company,” says Deepak Yohannan, CEO, My Insurance Club. Changing companies or starting new businesses are common among the young today, so senior citizens depending only on their child’s corporate cover may be left with nothing at the time of need.
Porting company policy
Consider porting your corporate cover at the time of retirement instead of buying a new plan. Since insurance companies know your claim history, this transfer will be easy if your health is good. However, the transfer may get rejected if you have health issues. “Since most companies insist on medical checkup for this transfer, the chances of them getting rejected is high,” says Joseph.
Why you need to take early cover
High medical insurance cost is the first thing that comes to everyone’s mind. More importantly, annual premium on health insurance keeps increasing with age. This increase is applicable for everyone, including people who have a running health insurance cover from a young age. However, one must buy a cover as early as possible. “The premium will be similar at a later age but getting a new cover will be difficult. So, purchase a reasonable cover before you get any health issues,” says Melvin Joseph, Founder, Finvin Financial Planners.
Will insurance companies play dirty when you start developing health issues? Earlier, insurance companies used to reject renewals or increase premiums to very high levels (forcing customers to withdraw) in case a customer made regular claims. This played havoc with long term policyholders. However, Irdai has stepped in to stop companies from terminating policies of senior citizens who make regular claims. “Health insurance policies can be renewed lifelong and companies can’t reject it or jack up premium for specifi c customers,” says Amit Chhabra, Health Business Head, Policy Bazaar.
