Whalesbook
Despite the removal of GST on health insurance policies last September, many policyholders are witnessing premium hikes of 20-30%. This article explains how medical inflation, rising claim ratios, and age-related adjustments are driving these costs, and offers practical strategies for policyholders to manage their coverage expenses.
What Happened
Many health insurance policyholders in India have faced a confusing situation in recent months. While the government removed the Goods and Services Tax (GST) on health insurance premiums last September—an initiative intended to reduce costs—many individuals are still seeing their renewal premiums climb by 20% to 30% or more. The removal of the 18% GST was a significant tax break, but it appears to have been offset by broader structural factors in the healthcare and insurance industry that continue to push prices higher.
Why This Matters For Investors And Policyholders
For families, health insurance is a critical financial shield. When premiums rise faster than household income, it can force individuals to either reduce their coverage or, in worse cases, drop their insurance entirely. Understanding why these increases occur is essential for effective financial planning. It shifts the focus from merely complaining about a higher bill to understanding the underlying costs of medical care, which is the actual driver of these premium adjustments.
The Core Drivers of Premium Hikes
Several factors explain why premiums are rising despite the GST removal. First and foremost is medical inflation, which has been hovering between 12% and 15% annually in India. This means the cost of hospital rooms, surgeries, medicines, and diagnostic tests is rising much faster than the general cost of living. When a hospital increases its charges, the insurance company eventually pays out higher claims. To maintain their financial health and ability to pay future claims, insurers must adjust their product pricing.
Another significant factor is the age-band structure of most insurance policies. As a policyholder moves into an older age bracket—such as jumping from the 30-40 age group to the 40-50 age group—the probability of making a claim statistically increases. Consequently, premiums often rise to match the higher risk profile of the older cohort.
Finally, insurance companies look at the claims experience of an entire product category. If a specific insurance plan sees a higher-than-expected volume of claims across its entire customer base, the insurer may reprice the product. This means that even if an individual has not made any claims themselves, they may still see their renewal premium increase because the overall 'pool' of insured people is experiencing more frequent or expensive medical events.
How Policyholders May Manage Costs
While policyholders cannot stop medical inflation, there are ways to manage the financial impact. One common strategy is to opt for a voluntary deductible. By agreeing to pay a specific portion of any claim out-of-pocket, the policyholder reduces the insurer's liability, which can significantly lower the annual premium. It is important to carefully check whether the deductible is an annual total or applies per individual claim.
Another approach is to utilize a base policy combined with a super top-up plan. This strategy allows the policyholder to maintain a smaller base policy for routine expenses and a large top-up policy for significant emergencies. This structure is often more cost-effective than buying a single large-sum-insured policy, providing a flexible way to secure higher coverage without an exorbitant premium hike.
What Investors And Policyholders Should Track
Going forward, the key factor to watch is the regulatory landscape. The Insurance Regulatory and Development Authority of India (IRDAI) is actively monitoring these trends and has recently introduced measures, such as capping premium hikes for senior citizens, to ensure affordability. Policyholders should monitor IRDAI’s circulars, as the regulator continues to press for more transparency in how insurers price their products and manage claims. Additionally, instead of focusing solely on the lowest premium, individuals should prioritize the quality of coverage, such as the hospital network, claim settlement ratios, and any sub-limits on room rents, which can lead to unexpected out-of-pocket expenses during a medical emergency.