Inflation in Medical Costs

With medical costs rising and growing at over 10 per cent for four years in a row, the burden of healthcare has become increasingly heavy on the middle class.

If onion prices didn't make you cry, your medical bills will. Inflation in medical costs has been running in double digits - higher than overall inflation - for the past four years and is scorching the middle class and the poor alike, a survey has found.

According to a survey, this has also sent the cost of health insurance cover surging. Worse, the situation is not going to get better any time soon.

While the government has vowed to bring overall inflation under 8 per cent soon, medicare costs are expected to outstrip price inflation well through the medium term as well.

Finance ministry figures show that overall headline inflation in India has been at 12.7 per cent during April-December 2017 - the highest in the last decade. With medical costs rising at a rate beyond this and growing at over 10 per cent for four years in a row, the burden of healthcare has become increasingly heavy on the middle class. The 18 per gst on health care introduced in July 2017 made matters worse.

Hospitalisation cover and personal accident cover continue to be the most widely provided healthcare benefit in India. Other benefits such as life cover, critical illness rider and domiciliary cover are also provided by some companies. A senior doctor at the All India Institute of Medical Sciences (AIIMS) said the high charges of private hospitals, especially for those having a health insurance cover, has also contributed to the adverse claims ratio of insurance companies and the consequent increase in premiums.

The Comptroller and Auditor General of India (CAG) had pointed out in a recent report that private hospitals were charging higher rates from patients with mediclaim policies compared with those who did not have any health insurance cover for the same treatment.

India has seen a steady rise in the range of 18 to 30 per cent in healthcare premiums, even as life insurance premiums are easing, says Towers Watson. The rise in healthcare premium cost is attributed to the high claims-top premium ratio of more than 100 per cent, which the study has observed in more than half the companies it surveyed.

Reports states that the demand for healthcare in India is expected to increase at a staggering rate of 32 per cent a year, driven by rapidly-rising cost of medical treatment and a growing middle class.

It can be seen that all respondent companies with claim costs between 125 to 150 per cent faced premium increase to the extent of 40 to 60 per cent in 2017, as against only 25 per cent in 2016. One of the key drivers of healthcare costs is medical advancements and new technology.

Also, certain practices that tend to bring down costs of group health insurance premiums are not very popular in India. For instance, co-pay arrangements require employers to deduct a certain amount from the employee's salary towards sharing the premium cost. As this practice is not widespread in India, the cost of health insurance premiums is largely borne by the employer.

"Despite passing on a part of the claims cost to employers by raising premiums, health insurance companies are also finding it difficult to cross-subsidise healthcare with other profitable insurance products, such as fire and motor. This compels the insurance companies to align their premium in accordance with the market trend, leading to an increase in premium costs for employers," said Kulin Patel of Towers Watson India.

Almost 80 per cent of employers who provide cover to dependent parents report premium escalation in the range of 15-25 per cent, have no premium sharing provision in place or planned for the future.

In order to address the rising claims ratio, companies have started capping maximum yearly limit on total claims amount and applying sub-limits on certain claims.

The study has found that the average claim amount increases with employee age. The increase goes up sharply as one reaches retirement. This clearly indicates the need to start saving early in life to take care of age-related health needs at a later stage as postretirement medical benefits are provided only by public sector companies.

In addition to the traditional mediclaim policies, over 61 per cent companies that were studied now provide medical checkup facilities to employees and nearly 15 per cent provide wellness benefits, such as reimbursement of gym fees, as part of the focus on preventive healthcare benefits.