Health insurance for 65-plus doesn't address key issue of affordability

The Insurance Regulatory and Development Authority of India (IRDAI) has lifted the age ceiling of 65 years on buying a health insurance policy. It has advised insurance companies to offer health insurance products to all age groups, including senior citizens, covering all types of existing medical conditions.

Earlier, in a 2016 notification, the IRDAI had set an entry age of ‘at least up to 65 years’ for insurance companies to provide health insurance cover. Though there was no bar to sell health insurance policies to those above 65, only a handful of insurers sold health policies to first-time buyers beyond that age.

Insurers have to provide lifelong renewability of health insurance and cannot deny the renewal even if the insured had made a claim in the preceding policy years, except for benefit-based policies.

Issues not addressed

Though the above directive to insurance companies to extend health insurance coverage to senior citizens of more than 65 years old may be useful, there are other issues yet to be addressed both by the regulator and by the insurance companies.

A recently published analysis on the functioning of two different financial regulators – SEBI and IRDAI – highlighted how IRDAI is lagging behind. It is perceived that while SEBI (Securities and Exchange Board of India) is doing a commendable job in protecting capital market participants, IRDAI’s role has not helped the insurance industry to penetrate the market to the desired extent, or help the insured.

The present directive from IRDAI is also a half-hearted attempt to address the grievances of senior citizens.

In fact, IRDAI conducted its periodic meeting of the industry, called Bima Manthan, on April 25-26. The meeting analysed the performance of the industry during the year.

“Insights gleaned from the performance analysis were shared, with a strong emphasis on augmenting insurance penetration nationwide to foster insurance inclusion and resilience. Measures to bolster policyholders’ trust and confidence was the focus of discussions,” IRDAI claimed after the meeting.

Where the problems lie

Insurance should be a win-win situation for the policy holder as well as the insurance companies.

A major requirement for insurability is a large number of exposure units or mass. For health insurance, there must be a large number of people. For this to happen, the insurance should be economically feasible for the insured, the size of the possible loss must be significant to the insured and the cost of insurance must be small compared to the potential loss.

Otherwise, the purchase of insurance will not be practical. A cost-benefit analysis is needed for the insurers to determine if the rates can be appropriate and affordable to the insured.

Usually, the chances of senior citizens falling sick is more and hence the claim from this category of insured has to be more. As insurance companies also run their business with a profit motive, they have to necessarily charge higher premiums while providing coverage.

When there is a higher premium, it becomes unaffordable for many. This reduces the number of the insured, which in turn will again compel the insurance companies to increase the premium. It is a vicious circle.

Group insurance for bank retirees

Public sector banks have been arranging group health insurance for their retired employees since 2015.

Though the terms and conditions, including the premium rates and coverage, are discussed and finalised by the Indian Banks Association (IBA) with the insurance companies, it is the retired employees who have to pay the premium.

When the scheme was introduced, the premium charged for a health insurance coverage of Rs 4 lakh was Rs 6,573 (plus tax) for the year 2015-16. But the particular insurance company faced a claim of more than 100 per cent every year, which forced it to increase the premium every year.

For the year 2023-24, a premium of Rs 60,860 (including tax) was charged for the same coverage of Rs 4 lakh, a tenfold increase in nine years.

Higher claim ratio

As the probability of senior citizens falling sick is more, naturally the claim ratio will also be more. When the claim ratio is more, insurance companies increase the premium. When the premium is more, many insured cannot afford the premium payment and they tend to opt out of the scheme. This in turn once again makes the scheme uneconomical.

However, banks take a separate health insurance policy for their working staff. Taking a single policy for the working staff and the retirees could have reduced the burden of premium for the retirees, without any material change for the insurance companies.

But this could have increased the premium that is incurred by the banks on their employees.

In FY23, the premium collection from health plans grew 22 per cent to Rs 89,492 crore, as compared to Rs 73,052 crore the year before. The number of lives covered under individual policies in FY23 grew 2.5 per cent to 52.9 million, lower than the FY21 levels.

The health segment reported an incurred claims ratio (claims paid as percentage of total premiums) of 87.3 per cent in FY23, the highest in general insurance. Extending the coverage to 65 plus citizens may increase this claim ratio.

What is the way out?

So, even if the insurance companies are forced to offer health insurance for 65-plus customers, many senior citizens may not be able to afford it.

Moreover, buying a new cover for a senior citizen requires a full medical check-up and all the pre-existing conditions are checked. Insurers can reject a cover if the underwriting process shows high risk based on current medical conditions.

There can be a suitable subsidy from the government to make the scheme viable. This can be extended as a welfare measure for senior citizens.

Alternatively, the insurance companies can be advised to treat health insurance for all the age groups under one segment to arrive at the premium rate, based on the claim ratio.

(The views expressed here are the author's, and do not constitute investment advice.)