Funding options for unplanned medical emergencies

A sudden medical emergency, say an open-heart surgery, could cost about Rs 8-10 lakh today. And if the patient is not covered under a health insurance policy the family would either have to liquidate investments or seek a loan.

World Heath Organisation (WHO) statistics suggest that about 62% of healthcare costs in India are borne out-of-pocket. This means that 62% medical costs are paid by the individual and not covered by health insurance or state welfare. Most often than not, to meet these out-of-pocket costs, people dip into their savings or resort to borrowing.

This reality has led to the rise of many new-age consumer lenders who specialise in making finance easily available for medical purposes.

How these loans work

Some platforms offer consumer loans across categories that include medical. Others are dedicated medical loan providers. These consumer loans can be availed within a day or two, without much documentation. Repayment can be made over four months to five years. The loan amount can be between Rs 10,000 and 30 lakh.

Most of these have a minimum monthly income requirement of Rs 20,000 and cater only to salaried employees. Some extend services to self-employed people, as well as pensioners.

The flip side of these alternative sources of borrowing is the high interest rate, which hovers in the 11-30% range; the actual rate depends on the type of medical procedure and credit worthiness of the borrower. Most of them charge a processing fee of 2-2.5% on the amount borrowed.

Another drawback is that many of these companies are present only in select cities.

Saving plans at hospitals

Another variant of healthcare financing is saving up for planned treatments at select hospitals. Here the company lets users elect a treatment and the hospital from where they would like to get that treatment from. Savings are made for a pre-determined number of months, as per the treatment cost specified by the hospital. The benefit here is that the patient gets a 10% discount on the treatment cost. The amount is paid to the hospital for the treatment. The catch here is that treatment can be availed only from select hospitals where the company has a tie-up with, and these tend to be limited in number.

Better alternatives to medical loans

Undoubtedly, the best protection against financial crisis from medical emergencies is a health insurance policy. A typical policy bought online gives cover of nearly 100 times the premium paid. Everyone must make it their priority to get an adequate medical cover for themselves and their dependents. Those over the age of 40 can get a critical illness policy in addition, as this gives a lumpsum benefit on diagnosis of any of the major critical illness, without requirement of hospitalisation.

That said, healthcare policies come with limits and sub-limits for different illnesses and on the different heads of costs on the bill. As a result, some of the costs will have to be borne by the individual. For instance, if the cover for kidney stones removal is capped at 10% of the sum insured, your hospital bill for the treatment will not be paid in full even with a Rs 5 lakh policy. Similarly, there are sub-limits on room rent.

Personal medical fund

For this, it is advisable for everyone to a personal medical fund to which they contribute regularly. The purpose of this fund to provide for out-of-pocket medical expenses. In the absence of such a fund, you may dig into investments earmarked for other goals, which is to be avoided. Your contributions for the personal medical corpus can be split between a short-term debt fund and a balanced fund.

Lastly, if you have to borrow, instead of taking a personal loan you could consider a loan against securities as the interest rate is lower.

The author is the founder of HappynessFactory.in