Medical costs will rise, so ready old-age money

The high-decibel advertising by life insurance companies has already created a market of fairly conscious individuals who have started planning for their retirement, even though they are in the middle of their working lives.

Also, the newly set up Pension Fund Regulatory Authority of India (PFRDA) — which hopefully will soon become a statutory body — has done lot of work towards designing an excellent pension product (the New Pension Scheme), which is already being used by the government and select PSU employees.

However, even among all this newly found (and welcome) consciousness on planning for retirement, we normally miss out on planning for medical expenses after retirement.

I am sure each one of us will know somebody whose parent was hospitalised and was put on life support system for days together. Apart from the emotional stress caused by the hospitalisation of a loved one, the overwhelming financial burden of such an illness (bills of Rs 15-20 lakh are not unheard of) has put several middle-class families under financial strain for a decade or so.

When to dig a well
All of us know that as we age, the need for medical attention and hospitalisation increases. Advancement of medical technology has also ensured that we will live longer than our forefathers. Unfortunately, this longer life comes at a high cost. Medical expenditure has been galloping at a rate much higher than the average inflation rate, due to shortage of quality medical infrastructure and use of sophisticated technology. Therefore, planning for medical expenses after retirement is vital as it will be impossible (or too expensive) to get a policy after you retire.
So don’t dig a well only when you get thirsty. Individuals in their 30s or 40s today need to start planning now for the medical expenditure after they retire. In fact, the best planning can be done by individuals who are still healthy and without any pre-existing diseases.

Before setting out, you should know the three kinds of risks you need to cover: 

Your regular mediclaim policy must not abandon you when you need it the most. So look at the maximum age up to which your current mediclaim policy is renewable. As per data available with the Apnapaisa Research Bureau, only three companies offer policies that are renewable for life — Apollo Munich, United India and Oriental Insurance. Additionally, Star Health Insurance, National Insurance and Reliance General Insurance offer plans renewable till 80 years of age

As inflation rises, your existing Mediclaim policies will become inadequate to handle the medical expenditure that arises after retirement. A mediclaim plan for Rs 5 lakh may look adequate at present, but could become grossly inadequate after 15-20 years as medical costs have historically outstripped inflation by several multiples. To cover for this risk, you should go in for high deductible medical expenses reimbursement expenditure policies. These will offer fairly high coverage of up to Rs 15 lakh after deducting the first Rs 3-5 lakh of hospitalisation expenditure (which will get covered by your regular mediclaim policies).

Here too, you should take polices which offer the longest chance to renew. It is better to even pay a slightly higher annual premium today to get this renewability, because as per Irda guidelines, insurance companies cannot deny renewal unless it is on the grounds of fraud, misrepresentation or moral hazard.

A nest for the rest
You also need a cover for medical expenses that are not covered by either of these policies. For example the expenses incurred for:

Diagnostic tests, which are increasingly becoming very expensive, and which regular policies normally cover only if they lead to hospitalisation in 30 days

Treatment of chronic
diseases such as lifelong medicines for organ transplants (not covered beyond 60-90 days after hospitalisation)

Expensive implements (eg CPAP machines for obstructive sleep apnea)

A good way to plan for these expenses is through a separate nest egg for medical expenditure for yourself and your spouse (your children should be planning this for themselves) through the regular route such as investment in a diversified equity fund or an index fund. The target amount for this can be based on your current medical cover, adjusted for inflation.

The writer is CEO, Apna Paisa, a search comparison engine for loans, insurance and investments. He can be reached at hrdna@apnapaisa.com