Twists in hospital insurance

Service providers flood us with marketing material, and the real information or transactional messages are easily missed.

Zone-based premium

One such communication was an email from the insurer with whom I have my hospitalisation policy, and it conveyed an unhappy announcement. It said hospitalisation premiums henceforth will be charged according to the zone in which the insured lives and pegged to an individual’s age and not age-slabs as is the case now.

The first change means the premium will be higher in certain cities grouped as Zone 1 and layered for Zone 2, 3, etc. Each insurer has its own definition of zones, and usually, major metropolitan cities with higher healthcare costs will carry higher premiums than others. That is the shape of things to come, and insurers are, as expected, presenting this market segmentation as something beneficial to us!

One insurer said such a rating reduces the premium paid by 10-20% and people living in lower-cost areas will benefit. I can envision nobody’s rates going down, but that higher cost zone rates will definitely jump.

What if you live in Zone 2 and get treated in Zone 1? Either you have an add-on cover for that contingency, or the co-pay will be higher. If the opposite happens, you don’t get any benefit, though treatment costs less in Zone 2 or 3 than in Zone 1, for which you have paid a premium.

Age-wise premiums mean that if one paid a certain premium from age 50 to 55, there will be an enhancement each year. This flies in the face of one of the most basic tenets of insurance, namely group-loss experience and the spreading of risk. According to this, the loss experience of the 50-55 age group is supposed to be set off by the premium calculated on the basis of historical hospitalisation and claims data experience for that demographic.

However, individual hospitalisation expenses for each of us may take place in a specific year, let’s say, and that represents a spike in one year out of five. Some may have more than one hospitalisation, and others none and at different ages for different insureds. Taken over the five-year period, these spikes are smoothed out, and that is how insurance spreads risk. This advantage is lost to the insured with age-wise premium rating.

It brings to mind shrinkflation, the marketing art of shrinking a product offering and selling it at the same price. Both moves echo that strategy. You pay the same (or more) for essentially a truncated offering, a smaller geographical zone or price stability for a shorter period.

The changes are happening on the top of hospitalisation cover premiumshaving seen substantial hikes (easily50-100%) over the last year or so. These are some of the nuances of rising costs detailed in the earlier instalment of CoverNote. Insurers are mitigating these with some offers and sops.

(The writer is a business journalist specialising in insurance & corporate history)