Health Insurance in India and Medical Inflation

 

Health Insurance will experience tremendous growth in Indian market in coming decade. Middle class is growing thanks to growth rate of 8% to 10%. Increase in disposable income for middle class will insure that Health insurance will grow and increase its penetration in Indian market. Current penetration of Health insurance in India is very low somewhere in lower single digit. Further average age of Indian population is very low and India is a young country and going ahead average age is going to increase in India , hence increased medical cost and demand for Health Insurance. Medical Inflation plays a very important role in making Health Insurance a costly and complex affair.

Due to Medical Inflation premiums are increased every year making it hard for insurance companies to sell its products in market. Further, inflation as high as in late teens make it difficult to absorb the rise in claim cost. Brighter side is Health cost in India is among the lowest in the world and penetration level of Health Insurance is also one of the lowest in the world. On the other hand the quality of health service is also far far away from the desired levels. (May be the reason for low health cost and quality is low penetration of health insurance.)

Actuaries in Health Insurance have a major role to play in Indian scenario. To change and modify the way data is collected (both claims and policy). Data which is available right now to actuaries working in Indian health insurance companies is very less and that too of low quality. Lot of work has to be done to ensure that proper data is recorded which will enable actuaries to work on advance techniques like Portfolio Monitoring and Pricing in Health insurance.

Medical Inflation

Medical Inflation could be defined as rise in Medical Care Costs year on year. This includes Doctor Fees, Pharmacy and other Hospital services.
Medical inflation on average is around 17 % year on year much higher than general wholesale index.
Premiums of Health insurance has to increase by about same rate to tackle Medical Inflation , which has been one of the challenges for insurance companies.
Health is a long term plan with annual renewals and re-pricing. If product is getting costlier by 25 % each year ( due to Medical Inflation and Age Factor ) it is very difficult for consumer to keep renewing their policies. A stable premium like Life insurance is the need with no price increases. Designing such a policy includes accurate estimation of future Medical inflation which is not possible by any stretch of imagination.
You cannot charge high to younger generation to subsidize the higher cost for older people, this might trigger anti-selection and you will be left with portfolio containing only older people.
Health Insurance Companies have to figure out a solution that can cater to the needs of consumer and also protect their capital and interest.
In US companies do raise their premiums by large amount every year and now the fact the health premium increases every year is well understood and accepted by people. Such understanding has to be developed in Indian scenario.
The rise in Real estate prices and crunch of expert and skilled manpower has made it impossible to control Medical Inflation in coming few years also.
Insurance is also one of the factors causing Medical Inflation. When Hospitals know that there is a financer ready to pay the bills they increase the cost without much resistance and hence causes Medical Inflation. Also insured customer also wants to go into a care which is the best and costly as he is insured which causes increase in demand of high end hospitals and hence medical inflation.