How Health Insurance Companies can easily trick customers?

Many financial advisors ask clients/friends/family to purchase health insurance plans at an early age.

The reason is that you are able to lock-in your health conditions. Any illness that happens after your initial purchase of plan does not affect your insurance premium. Therefore, purchasing health coverage at a younger age may help keep your premiums low at an old age.

However, this approach may not guarantee you lower premiums at an old age.  Let’s see how.

I have been reading many instances of sharp hikes in health insurance premium for senior citizens over the last many months.

I read about a similar instance in Money Life magazine. In this case, the premium for a senior citizen couple (73 and 79) went up from Rs 34,969 per annum to Rs 63,281 per annum for a cover of Rs 3 lacs.

Essentially, their existing plan was discontinued and they were given an option to migrate/port to a new plan. The new plan had no new useful features (only a very high premium). Clearly, senior citizens don’t need maternity coverage. Do go through this article in Money Life for more in this matter.

What should that senior citizen couple do?

At 73 and 79, it is virtually impossible to go to a different insurer.  So, they have to cough up almost double the premium. If they can’t afford, they will have to discontinue coverage. However, letting go of health cover will expose them to serious financial risk.

Well, the elderly couple can’t be blamed. They have been short-changed.

Does the blame lie with the insurance company who either messed underwriting earlier or is simply being evil? Or does the blame lie with the insurance regulator that turned a blind eye to this manoeuvre?

We can leave the blame game for later. However, there is a bigger issue that needs to be addressed.

If such misdemeanours from the insurance companies are not nipped in bud, I can see a clearly laid out strategy by the insurance company to trick senior citizens.

Here is how this strategy will work.

How can a Health Insurance Company trick you?

1. Year T: The Insurance Company launches a new Health Insurance Plan “A”.
2. The plan is quite cheap and the insurance company markets it aggressively for the next 10 years (till T + 10 years). The insurance plan has very stringent underwriting norms and only the very healthy are issued such a plan. Since only very healthy people were taken in, you can expect the number of claims to be very less. So far, so good. Can’t blame insurance company for this.
3. Year T+10: The company stops marketing plan A. Well, for the aggressive marketing part, plan B has replaced plan A. Only renewals are pursued for the Plan A.
4. Year T+30: Holders of Plan A are now old and you can expect the number of claims in Plan A to rise from here on.
5. Year T+30: Now, the insurance company deals a deadly blow.
6. The insurance company discontinues plan A and gives the holders of Plan A to migrate to a very expensive Plan C.
7. So, if you are 65 and were paying an annual premium of Rs 50,000, you get a letter than Plan A is being discontinued and you are being given a generous offer of migrating to Plan C that will cost you Rs 1.25 lacs per annum.
8. Not just that, since you are migrating, you will lose the no-claim bonus. For instance, in Plan A, your base cover was Rs 5 lacs and you accumulated no-claim bonus sum insured of another Rs 4 lacs. Essentially, you were getting Rs 9 lac cover at the price of Rs 5 lacs cover.
9. However, since you are migrating, the no-claim bonus goes away. If you want a cover of Rs 9 lacs under Plan C, then pay for Rs 9 lacs.
10. Be rest assured. Plan C will be made a very expensive plan. Maternity coverage will be added to the plan.
11. In my opinion, it is like putting a gun to your head and saying “My way or the Highway”. As a senior citizen, you will anyways find it difficult a purchase a new plan (especially when you have contracted a serious illness).
12. The only option you have is either to pay a higher premium or let the policy lapse (and lose health insurance coverage).
13. This is a win-win for the insurance company. If you let the policy lapse, they have collected premiums for all the good-health years. If you sign up for the higher premium, the insurer collects a higher premium for potentially lesser coverage.

By the way, even this offer of migrating to the new plan is subject to portability conditions. For all you know, your application may be denied under the new plan.

I copy an excerpt from IRDA Health Insurance Regulations, 2016.

Chapter III(11): Designing of Health Insurance Policies (Clause c)

The insurer shall not compel the insured to migrate to other health insurance products. In case of migration from a withdrawn product, the insurer shall offer the policyholder an alternative available product subject to portability conditions.

And portability is not your right. The insurer exercises the discretion.

Therefore, an insurance company can even pick and choose its customers. It can deny coverage to old customers who are not in the pink of health.

For more on issues with Health Insurance Portability, read these posts.

Read: All you need to know about Health Insurance Portability

Read: How Insurance Companies are making a mockery of Health Insurance Portability?

Won’t you feel cheated?

If such is the approach of the insurers, you will happily pay the premium for 25-30 years (and perhaps not even make a claim) and suddenly realize that you have been short-changed.

Purchase at a younger age and years of timely premium payments means little.

Consider this. New India Assurance is owned by the Government. Such companies follow very generous underwriting norms (especially group insurance plans) and you can expect some kindness from them. However, if this is what a Government company is doing, I just can’t imagine what private insurance companies can do.

Health Insurance Companies are already tricking customers by changing plan structures

I have a health insurance plan from a private insurer. This year, when I went for renewal, I found out my premium had gone by almost 40%. When enquired, I was told that the plan had been restructured (many fancy features were added) and this has led to an increase in premium. As per the company, I was also sent a communication many months back in this regard. Of course, I never received any letter or e-mail.

By the way, I am nowhere close to being a senior citizen. Therefore, the insurance companies are doing this to younger people too. Even though, in my case, they didn’t discontinue the plan. They merely changed the same plan and increased the premium.

I was too lazy to fight about it and try to port my policy to another insurer and hence renewed the plan.

Points to Note

1. Health insurance premium typically increases every year.
2. However, there are a few limitations on how frequently they can revise premium tables.
3. Withdrawing the existing product and forcing customers into a new one is an easier approach.

What can you do about it?

Absolutely nothing.

Only the regulator can. In this case, the regulator is IRDA.

In my opinion, if IRDA is the judge, you can get away with murder or even genocide of consumer interest. In this case, the insurance company is merely increasing the premium.

The redressal system laid down by IRDA does not work.

I can only hope IRDA can rise to the occasion and help many hapless senior citizens. IRDA’s record suggests otherwise but my hope springs eternal.

As for you, you still need to purchase health insurance at a young age and keep paying premiums.