The size of insurance cover is pretty straightforward in most insurances — car, home, term or general. In term covers, for instance, the cover should be equal to 20x your annual income or upwards, and revisited based on liabilities.

But for medical cover, the question on the size of the cover is not easy to answer. The prevailing wisdom is now gravitating towards how much one can afford. We have listed supply-side and demand-side factors influencing covers and costs, to explain how you should approach medical insurance..

Need for higher cover

Healthcare costs inflate at twice the rate of normal inflation in India. This can lead to a situation where savings/investments growth or even the nominal base cover of ₹2-5 lakh can be insufficient to meet medical expenses in the future or even currently, for many. The high inflation is owing to structural and technological reasons.

Increase in private, group or Universal coverage (Ayushman Bharat scheme) is widening the population base that is able to afford medical services. But on the other hand, allocation for Department of Health and Family Welfare, which should expand the physical infrastructure required to deliver medical services, has been stagnant at 0.33-0.35 per cent of GDP.  This implies that the burden of expanding medical services including hospitals and healthcare staff, to meet the rising payer base, has been indirectly delegated to private institutions. This should translate to a faster rise in prices as private capex may lag demand, especially in capital-intensive sectors as hospitals.

While technology generally lowers medical costs in the long run, in the short term, adoption can be inflationary. Robotic procedures for coronary procedures, hip replacements, kidney transplants or cancer surgeries can increase the run rate of treatments, but the price will be prohibitive until mass adoption emerges. Similarly, pharmaceutical treatments for cancer, immune therapy, muscular dystrophy, or others are available but can be out of coverage range for even a ₹10-20 lakh cover.

Rising lifespans, coupled with a higher disease burden, should round up the demand-side pull for higher medical covers.

Push for higher covers

Abundance of supply-side factors supporting higher medical covers further underlines the need for them.

Firstly, healthcare premiums are not proportional to the size of the cover. If a ₹5-lakh cover costs ₹6,000 to ₹8,000 per annum for a 30-year-old in a metro city, a ₹1-crore cover may cost ₹16,000-18,000. The growing competition within insurance industry — with 10-15 players vying for market share — has allowed for such offerings, which should be embraced by policyholders.

Earlier features, such as No claim Bonus and limited time restoration of covers, are out and covers that increase 50-100 per cent per year, irrespective of claims made, are now being introduced. One can also get a cover restoration several times and even for related ailments. These base features enhance existing covers, but without increasing the cost.

Top-ups and super-top-ups are also a good option to increase the size of covers, with only a fractional increase in cost. With a deductible limit set at the base policy, a ₹1-crore top-up can be purchased for ₹4,000. These options can efficiently increase the cover size and can act as a back-up in extraordinary circumstances.

Look for affordability

Given the need for higher covers and abundant supply of the same, one can focus on the amount one is willing to spend on healthcare insurance — and not the ideal size of the cover. If one can protect against medical costs of up to ₹1 crore, and for the whole family — on allocating 2-5 per cent of annual income — one may ideally go for the same.

With international treatment options being introduced in domestic policies and rapid progress in medical/pharmaceutical technologies, solutions are within reach even for most stubborn ailments. With an allocation-based approach one should leverage available medical covers in an efficient manner.