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As you get older, the amount you will have to spend on health care will consume a much larger share of your finances. This could see a dramatic rise in your post-retirement years when there is no access to employer provided health care.
In India, private (out-of-pocket) health care spends form a large chunk of total health care spends. In other words, what insurance pays and what the government subsidises or provides covers only a small amount. So, by the time you retire, you may be hit by the triple whammy of health care costs that may have spiralled to astronomical proportions, a lack of access to free/subsidised health care compounded by a lack of insurance and increased health care spend requirements because of age. This is likely to burn a large hole in your retirement corpus and is something you need to plan for.
Hence, it is important to save for old age health care expenses in your earning years. This may look like planning too far ahead and difficult to achieve, but it is essential. Because after you retire you won't be eligible for any employer health insurance plan. Buying insurance will be either too expensive or impossible, since most insurers will either cover you but there will be too many exclusions. Or you will be charged a very high premium.
You must also invest in your own health to minimise health problems in old age. Maintaining good health, however, is no guarantee of controlled medical expenses in old age, as it does not protect you against congenital/ hereditary conditions, accidents, and so on.
On a macro level, this is likely to be a problem of gigantic proportions. Our country will be a lot older in another 15-35 years and our population pyramid will start to resemble those of more developed economies. This is also the period over which most of today's existing workforce will retire.
An older population will result in a much higher spend. This will also be the period when most of today's workforce will retire and not have employer provided health insurance.
A part of this problem can be addressed by development of better products which enable private citizens to create their own safety nets for health care spends in the future. Given the abysmal levels of health insurance penetration in our country, we are in serious need of far reaching solutions, which need to be built today so that they can be delivered tomorrow.
How deferred protection can work
The typical earning years or paying years in most people's lives is between the years of 25 and 60 years. This is when they can afford to pay and will be eligible for being insured.
The coverage years are between the ages of 60 and 80 years when insurance is scare and inaccessible and premium payments are difficult to afford.
Hence, there is a case for a product that allows for premiums to be accumulated in the paying years. These can then be used to pay for higher risk premiums associated with old age.
Advantages of deferred protection:
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Even if you are covered by your employer, you need additional health insurance. If not for today, buy it for when you won't be covered by your employer, that is, when you retire.
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Health insurance is so hard to come by once you retire. There are no products for people who are over 65 year of age. But if you purchase insurance for your retirement now, then you will be covered and don't need to go looking for new insurance products.
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Currently, even if products are available for those above 60 years of age, the premiums are just too high. It may not make sense to buy. But if your have already paid premiums many years ago, the reasonable premium you paid then has compounded/ grown and is paying the high premium today. It is almost like saving earlier to pay your high premium today.
- Buying insurance at an older age is pointless because of the exclusions. Very few diseases will be actually covered. Instead, if you had purchased insurance in advance new exclusions will not apply.
But there are issues that insurers have to address before they offer deferred insurance as a product. Such as:
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Taking a risk on morbidity 20-25 years into the future. Will probabilities change because of environmental/ social conditions?
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The ticket size of the sum insured. For instance, how much will a heart attack cost 15 years hence? What sum insured should I sell? Should I have a cap on the indemnity amount?
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Should the product be structured as an indemnity or defined benefit (where the pay-out is capped irrespective of the costs incurred by the insured)?
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Should periodic health checks during the waiting period be mandated for the insured? Can this be used to adjust premium, cover amount or even reject the cover?
- Impact of advances in medical science which may render certain covers useless or the advent of new ailments which did not exist at the time of product purchase.
That said, insurers already offer multi-year risk covers on morbidity (e.g. critical illness riders on life insurance policies). They are in the business of defining, quantifying and covering risk profitably and will certainly find a way to price in such uncertainties. That's what they do best. So, a product that offers deferred insurance may be possible.
In the meantime, in the absence of such products, the options for the consumer are very limited:
- Set aside a certain corpus for paying high health insurance premiums in your old age or save sufficiently for old age health care spends.
Do this by either setting up a regular investment plan such as recurring deposit or a systematic investment plan in mutual funds. In fact, make it as important a goal as saving for your children's education or buying a home.
- Get yourself a regular medical check-up (at least once every year) and take requisite steps to stay healthy.
The author is co-founder and COO, Bigdecisions.in
