As health insurance premiums continue to surge, many policyholders in India are facing the difficult choice of discontinuing or downgrading their coverage. The escalating costs of premiums, exacerbated by increasing medical inflation, have led to a growing trend of people either forgoing renewals or taking loans to maintain their insurance.
According to recent reports, health insurance premiums saw an alarming rise of 14% in 2023-24, with 52% of policyholders experiencing premium hikes of up to 25%. This increase has left many individuals unable to afford their insurance, forcing some to miss out on renewals.
Over the past year, approximately 10% of policyholders skipped renewing their health plans. For many, this has become a financial burden, as they struggle with premiums that have increased by 30% or more. Only half of those facing such hikes managed to pay the full premium.
Why are The Premiums Rising?
The rising premiums are attributed to a worsening claims ratio, as insurers struggle with the increasing number of claims relative to the premiums they collect. Insurers argue that the hikes are necessary to cover the mounting costs associated with healthcare, which has been inflating by up to 14% annually.
Policyholders Turning to Loans To Pay Health Insurance Premiums
In response to these financial pressures, some policyholders have turned to loans to cover their premiums. Companies like Finsall, BimaPay, and InsurFin are offering loans to policyholders, with an average loan size of Rs 40,000 and interest rates ranging from 12% to 16%. According to BimaPay, 70% of their customers come from smaller cities, where easy access to loan options is making it possible for people to enhance their insurance coverage. These startups are adding thousands of new customers each month, underscoring the growing reliance on loans to meet healthcare coverage costs.
Is Paying Insurance Premiums From Loans A Wise Choice?
CA Sachin Gupta, Portfolio Management Expert said, “With Mediclaim premiums becoming costlier, it’s advisable to take a loan to pay them rather than facing the upfront financial pressure. The benefits of having a Mediclaim policy far outweigh the loan interest. It ensures financial security, covers medical expenses, and protects your family from unexpected costs, offering peace of mind in times of emergency.”
High Claim Rejection Rates: Public Sector Insurers Have Higher Settlement Ratio
The situation is compounded by high claim rejection rates. In the fiscal year ending March 2024, insurers rejected 11% of all health claims, amounting to roughly Rs 26,000 crore—a 19.10% increase from the previous year. Public sector insurers, however, had a higher claim settlement ratio of 103.38%, meaning they paid out more than they collected in premiums. In contrast, private insurers had a lower settlement ratio of 88.71%, and standalone health insurers reported an even worse figure of 64.71%. This disparity in claim settlement ratios suggests that policyholders may face varied experiences based on their choice of insurer.
Cancer and Cardiac Diseases Leading The Hospitalization Claims
Claims data indicates that certain health conditions, such as cancer and cardiac diseases, are leading to a rise in hospitalization claims. The growing prevalence of lifestyle-related diseases, coupled with the higher costs of treatment, has further strained the health insurance system, pushing premiums to unaffordable levels for many.
Lifestyle-Related Diseases Among the Youth
Another worrying trend is the increasing number of health insurance claims filed by people aged 25-35. This age group is making the highest number of claims, with women accounting for 60% of all claims. The rise in claims from this demographic indicates a significant increase in lifestyle-related diseases such as diabetes and heart disease, which are becoming more common among the younger population. The rise in lifestyle diseases among the youth, especially in industries with a younger workforce, is leading companies to adopt comprehensive health care plans tailored to age-specific benefits.
Financial Burden of Rising Premiums
This trend highlights the increasing difficulty of maintaining health insurance as premiums continue to rise. For many, the financial burden is simply too great to bear without assistance. To address this issue, industry stakeholders are calling for tax cuts on insurance premiums and increased government allocations for healthcare. These measures aim to reduce the financial strain on policyholders and make health insurance more accessible and affordable.
Positive Signals From The Government to Reduce Premium Burden
However, The Indian Government has given a positive signal to reduce or remove GST(18%) charges on insurance premiums after some of the opposition and ruling government members of parliament raised the issue of unaffordable premium costs and urged the government to remove taxes on insurance premiums. If this demand gets approval then insurance premiums may get cheaper by 18% giving huge respite to the customers.
Sources: The Times of India, The Economic Times, Business Standard, IRDA
Really good suggestions. Thank you TOM team and CA Sachin Gupta