Have you visited a hospital and come out having burnt a hole in your pocket? While health insurance is expected to cover the bulk of unexpected medical costs, the fact is most Indian households end up paying some amount of expenses out of pocket.
According to a 2021 Niti Aayog report, this out of pocket expenditure for an individual for healthcare is estimated to be around 63% in India. This figure has remained fairly stable despite improvement in insurance coverage over the years.
This means that whether someone has private health insurance or visits a government healthcare facility for treatment, they might have to spend a majority of the amount from their pocket for getting treated in the country. This highlights the importance of an emergency or contingency fund to meet these out of pocket expenses.
Insurance costs do not cover all medical expenses
Good health comes at a cost. The reality is that this cost is on a steep rise across the country. In 2021, India witnessed the highest medical inflation rate of 14% among Asian countries. As per the official data of the Ministry of Statistics and Programme Implementation, the cost of medical treatment in India went up by about 7.2% in April 2022.
There is no standard pricing when it comes to medicines, diagnostic tests, pathological examination and cost of other allied services. The Economic Survey of 2017-18 states that, there are wide differences in the average prices of medical diagnostic tests across cities. The data reflects that a lipid profile test can cost a minimum of ₹90 and a maximum of ₹7,110 in various states.
Similarly, the cost of a 2D echo test varies from ₹500 to ₹5200, and liver function test costs range between ₹100-2500. In fact, a household health expenditure survey indicates that about 10% of out of pocket expenses are spent on diagnostic tests.
Apart from the inflation and non-standard pricing, typically diagnostic tests and consumables are not covered under most health insurance policies. These non-payable consumable charges include those related to room (tissue, hand wash, toothpaste, housekeeping charges, etc); treatment (registration charges for admission, disinfectant, dietician, nutrition planning, etc); and procedure (X-ray film, cotton, bandages, disposable razors, surgical blades, etc) charges.
Also, health insurance covers only hospitalisation, outpatient services including doctor consultation charges and procedures which do not require hospitalisations are again not usually covered under normal health insurance plans.
Every health insurance company provides a list of exclusions under their health insurance plans that are in adherence to the guidelines given by the Information Regulatory and Development Authority of India (IRDAI). The insurer can reject your claims arising for hospitalisation related to the specific list of diseases that are not covered by health insurance.
Medical insurance plans would generally exclude certain illnesses from the first year of coverage and cover them after thewaiting period is over. Most insurance policies also do not allow pre-existing conditions.
Apart from these, there are a certain standard set of exclusions like the cost of contact lenses, spectacles, hearing aids, dental surgery/ treatment (unless requiring hospitalisation), congenital external defects, convalescence, venereal disease, general debility, use of intoxicating drugs/alcohol, self-inflicted injuries, AIDS, diagnosis expenses, infertility treatment, and naturopathy treatment which are usually not covered underhealth insurance plans in India.
While the above discussion underscores the importance of a comprehensive and well thought out health insurance plan- ideally customised to the individual’s requirement (which minimises some of these out of pocket expense items discussed above), it is also true that out of pocket medical expenses as a reality which everyone needs to be aware and be prepared for.
Having a contingency fund can provide a cushion against unexpected medical expenses besides giving us peace of mind. One could provision for such medical out of pocket expenses either separately or as part of the overall contingency fund which covers full financial requirements over next 1-2 years separately.
This amount could then be invested in through liquid debt (overnight, short duration debt funds) or cash instruments like bank savings accounts. Priority should be accorded to funds in this contingency being readily available instead of earning returns. Depending on the risk appetite, one can then allocate the rest of funds in equity or any other suitable asset class for growing their savings.
Disclaimer: Kindly consult your insurance advisor for more details and understanding.
Krishnan VR, Smallcase and a Fund Manager at Marcellus Capital Partners LLP