Hospital bills can bankrupt you

Health is wealth holds true across age groups. But what happens when old age and ailments catch up faster than you expected, taking a toll on your lifestyle and savings? While you can’t prevent falling ill or avoid the necessary trips to the doctor, planning ahead can definitely help meet those escalating medical expenses.

Two years ago, my mother was admitted in one of the best hospitals in south Mumbai for an emergency hip replacement surgery. Once the medical side of the problem seemed addressed, we turned to the financial one.

 We expected the surgery to cost Rs.3-4 lakh and thought we were doing fine given that my parents had health insurance covers of Rs.3 lakh each. A couple of weeks and some complications later, we were presented with a final bill ofRs.9 lakh. Mind you, this did not happen because the hospital suddenly increased its the cost of room rent or surgery. It happened because the surgery caused an infection that needed additional treatment.

The entire treatment and process had my mother in bed for several days, which, in turn, lead to the formation of blood clots that had a separate treatment, and none of which came cheap. And finally, Rs.6 lakh of the Rs.9 lakh came out of our family’s savings.

I started to wonder, why my father, a meticulous and financially conservative man, had not planned for such an eventuality. Thinking it through, I realized the following:

1) When I was still in a regular, corporate job, my parents used to be covered as part of my family health insurance plan, which could be clubbed with their own plans. But once I started out on my own, this was no longer the case, and they had only their health insurance covers to rely on.

2) When my father retired, in 1990, a Rs.3 lakh in health insurance seemed like a good enough amount. In the years since, my parents were healthy enough not to discover that healthcare treatment costs had witnessed high double-digit inflation over the past two decades. Thus, they had no idea what treatment costs had risen to. 

3) And, at the age of 80, increasing health insurance cover is extremely expensive.

We, at BigDecisions, then took a closer look at our users to see if my family was an exception or whether having lesser health insurance than required is a more widespread problem. Even anecdotal evidence suggests people, especially those that have some coverage from their employer, rarely have as much as they actually need.

We looked at about 5,000 users and narrowed down our consideration set to about 3,000 valid users. We then split them into age groups to see if behaviour differed. The table below illustrates our findings.

 1) The second column of the table lists the average health insurance our users in that age group currently have.

2) The third column shows the amount of insurance they should have as per our calculations and healthcare treatment cost data taken from Paramount Healthcare Management Pvt. Ltd (a third-party administrator). We pegged the amount as one where the 95th percentile of all ailment treatment costs in a given year would be covered.

3) While we saw that users under all age groups were underinsured, the need for health insurance goes up with the age of the oldest earning member of the household until about 50 years after which—while the need goes up for the oldest member—a reducing number of dependants reduces the overall amount of health insurance required for the family.

The problem of underinsurance

As you can see for yourselves, underinsurance is indeed a chronic problem across age groups in the country. People have less than half of what they actually need to have, irrespective of their age.

Current health insurance amounts hover around the Rs.2-4 lakh mark—which is often the amount employers also provide their employees. Not only is this inadequate across age groups, it is also a ‘benefit’ that depends on one’s continued employment. Even this amount will cease to exist when the employee either leaves the organization or retires. Those who do not have their own health insurance and who only have 50% of the required cover today, might soon find themselves underinsured by 100%.

Often, we only realize that we are underinsured when a health problem crops up and the actual costs hit home. And as it turns out, getting or increasing your health insurance when you don’t need it is the best time to do it, as most health plans have waiting periods before which certain treatment costs cannot be claimed. This means that buying a health plan around the time a problem occurs does not help at all.

Someone once told me that health insurance is not just a means of protection, but is also (and more) a wealth preservation tool. Explaining it further, he said that when you are underinsured, not only do you have to pay for the treatment yourself, you also divert the money that would have otherwise been used towards investments for your future goals. So, instead of that money forming the building blocks for your future, it ends up being the cost of you being ill-informed at best or being careless at worst.

This article first appeared in Mint on April 13, 2015 - http://goo.gl/UXbhGV