Case Study

  


How much health insurance is adequate?

As medical costs continue to rise and unexpected illnesses or accidents can strike at any moment, having adequate health insurance has become a crucial aspect of protecting ourselves and our families. Yet, determining the right level of coverage can often feel complicated, leaving many unsure about what constitutes sufficient health insurance.

Moreover, in wealth management and financial planning, a crucial aspect that often finds itself overlooked is Risk Management. While individuals diligently plan for their investments, savings, and retirement, the significance of mitigating risk with respect to health is sometimes underestimated. Additionally the impact of medical inflation needs to be taken into account while planning for risk.

While researching for this article, we noticed that data for medical inflation in India is extremely difficult to procure in the public domain. Most countries have a health care index, however India does not have one. Also, there is no clear historical data of India’s medical inflation.

We have collated data and have constructed a table for you to understand the projected cost of certain health conditions which are expected to increase significantly in the coming years. To demonstrate the potential impact of medical inflation on healthcare expenses, we utilized current health costs and incorporated different inflation rates. Let us consider 3 cases to analyze how medical expenses may escalate over time  - 

  • Base case inflation - 7%,
  • Slightly higher than base inflation rate - 10%,
  • Medical inflation rate - 14% (source: article)

 

All medical costs taken below are anecdotal.

 

 

Years

10 years

20 years

30 years

Health Condition

Today's cost

7%

10%

14%

7%

10%

14%

7%

10%

14%

Cancer

₹45,00,000

₹88,52,181.10

₹1,16,71,841.0

₹1,66,82,495.9

₹1,74,13,580.

₹3,02,73,749.7

₹6,18,45,704.4

₹3,42,55,147.6

₹7,85,22,310.2

₹22,92,75,713

Heart

₹15,00,000

₹29,50,727.03

₹38,90,613.69

₹55,60,831.97

₹58,04,526.6

₹1,00,91,249.9

₹2,06,15,234.8

₹1,14,18,382.5

₹2,61,74,103.4

₹7,64,25,237.8

Chronic Respiratory Disease

₹4,50,000

₹8,85,218.11

₹11,67,184.10

₹16,68,249.59

₹17,41,358

₹30,27,374.97

₹61,84,570.44

₹34,25,514.76

₹78,52,231.02

₹2,29,27,571.3

 

 

In the above table, we can see the healthcare expenses at different inflation rates for various time periods.

 

Let's take a health condition (cancer) to see what the expense at different time periods will be for an inflation rate of 14%. We have taken the current cost of treatment as 45 lakhs. In 10 years, the estimated cost for cancer treatment would increase to 1.6 crores. Looking further ahead, the cost is expected to increase significantly to approximately 6 crores in 20 years and a substantial 22 crores in 30 years.

 

Please Note that the numbers presented here are based on anecdotal data sourced from the internet. Although not precise, they do offer a glimpse of how Medical Inflation can erode the value of insurance coverage over time. This increase in medical inflation in India can be attributed to the following factors:

  • Technological advancements: The rapid advancements in medical technology and treatments lead to higher costs, as cutting-edge equipment and procedures often come at a premium.
  •  High demand for healthcare services from all round the world: One area where people are still willing to spend money is healthcare. Even foreign medical tourists frequently overspend on healthcare due to their stronger currencies, which has directly contributed to a sharp increase in medical costs in India.
  •  Rising service costs: Operating expenses for healthcare providers, including staff salaries, facility maintenance, and administrative costs, contribute to the overall inflation in healthcare expenses.
  • Increase in the cost of raw materials: The rising costs of raw materials, such as medical equipment, pharmaceutical ingredients, and supplies. The sum of these factors has raised medical inflation substantially.

 

Despite high medical inflation, it is crucial to ensure that our health insurance is keeping up with the rising cost of healthcare services. As people are living longer, there is a greater need for comprehensive health insurance to manage potential medical expenses during their later years and it is strenuous to find any supporting data that we can refer to in order to know what coverage is actually sufficient for us.

 

In light of the article presented, we may be adequately covered for today, but the question is if we are adequately covered for tomorrow?

 

 

 


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