Parents’ Health Insurance Heavy On Your Pockets? Should You Continue Or Drop It?

Health insurance premiums have risen continuously after the Covid-19 pandemic, mainly due to reasons like changes in treatment protocols, an increased frequency of hospitalisations, critical illnesses, new advancements in medical technology and treatments, and more claims. 

These factors are present now and will exist in the future too, leading to hikes in premium rates from time to time, since insurance companies determine premium pricing and repricing based on how sustainable and favourable they are to the company’s growth. Of course, these structural changes are regulated by the IRDAI. 

Now, when it comes to your parents’ health insurance, the change in premiums might be steeper, mainly because of their age. With growing age, come growing health conditions and illnesses. This leads to more hospitalisations and ultimately, claims. To tackle this increase in claims, insurance companies may charge a 30-60% hike on your parents’ health insurance premiums when it’s up for renewal! 😳

And, thanks to these crazy hikes, you may face a dilemma of whether you should continue the plan or simply drop it because paying such a high amount might not seem worth it, especially if no claims have been made in years. 

So, what should you do? Let’s have a look. 

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A Cost-benefit analysis involves comparing the premiums you need to pay to the “effective” cover amount. To do this, calculate the ratio between the cover amount (the benefit) and the premium (the cost). 

Now, let’s assume that your parents are over 60 years old and you expect them to make one full claim in the next 4-6 years. So, if the benefit is 4-6 times the cost, it’s worth continuing the cover. If you think the chances of raising a claim for your parents are higher or lower, you can adjust the parameters of your decision accordingly. 

However, there are a few other things you need to consider. 👇

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When you are evaluating the cover amount of your parents’ health insurance, you should also look out for key financial limits that restrict coverage. These limits can help you calculate the “effective” cover amount. They are -

1️⃣ Room Rent Limit
The room rent limit is basically the maximum limit up to which your health insurance will cover the per-day hospital room charges. Room rent limits are of two types - 

1. Financial Limits
   The insurance company may determine a fixed limit - which is usually a percentage of your sum insured. Usually, a room rent limit of 1% is applied on health insurance policies with a sum insured of less than Rs. 5 Lakhs.
2. Category Limits
   The insurance company may specify the hospital room categories covered under the policy. You can opt for a room that falls within the category the plan allows. If you choose a room with rent higher than what you’re eligible for, there will be deductions.   For instance, the insurer mentions the room category limit as ‘private room’. If you opt for a luxury room, the insurance company will charge you the difference in the room charge and will proportionally deduct associated medical costs. 

Let’s take another example to understand proportionate deductions better.

Say Rehman has a health insurance plan with a sum insured of Rs 3 Lakhs and is eligible for a room with rent of Rs. 3000. He undergoes hospitalisation for a day and, he chooses a room with a rent of Rs. 6000. So, in this case, he will have to pay the difference in the room charges, i.e., Rs. 3000 (6000 - 3000) as well as 50% (3000/6000 X 100) of all associated medical expenses from his pocket. 

When it comes to your parents’ health insurance, first check if it has any room rent limits. If it does, you will have to factor in the proportionate deductions and proportionately reduce your cover amount to calculate the “effective” cover - if your parents plan on choosing a room that’s beyond the limit specified in their plan.

So, if we take Rehman’s example again, the effective cover amount in his case will be Rs 1.5 Lakhs (3 Lakhs ÷ 2).

2️⃣ Treatment-Related Limits
Next, check if your parents’ health insurance has any treatment-related limits. Insurance companies may impose such limits to keep claims in check and if certain treatments have a limit, you cannot claim more than that amount even if your medical expenses fall within your sum insured. 

Health insurance plans usually come with limits on treatments for heart disease, breakage of bones, etc. This picture will give you a general idea of the quantum of such limits - 

If your parents’ health insurance has any such limits, factor those in to calculate the “effective” cover amount. 

For instance, Alka owns a health insurance plan with a sum insured of Rs 5 Lakhs. It comes with a limit of Rs 2.75 Lakhs on major surgeries. So, her effective cover amount is Rs 2.75 Lakhs and not Rs 5 Lakhs. 

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Here’s a quick summary of the steps you need to follow to arrive at the right decision - 

1. Calculate the “effective” cover amount that your parents hold.
2. Compare this with the payable premium.
3. See if this ratio makes sense, based on a guesstimate of the number of hospitalisations you expect over years.

While this is not a scientific calculation in the strictest sense, it will direct you towards the decision that’s apt for your parents. 

And, an important word of caution - do not make an impulsive decision to drop the health insurance plan. Old age is a tricky business - illnesses and accidents can happen at any time. Old people are prone to falls and are highly vulnerable to health conditions. 

Only in cases where the premium to cover amount ratio is really bad, like say, the premium is ½ or ⅓ of the effective cover amount and your parents have ample savings to take care of medical needs -  should you consider quitting the plan. In all other cases, it’s wise to continue it.

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We hope this article helped you gain enough insights on the course of action you should take if your parents’ health insurance has become too expensive because of premium hikes. To make this decision easier to navigate through, you can always talk to professional advisors at Beshak! 

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