Viewpoint | Having only health insurance in old age for health-related expenses. Is it enough?

When you are young, medical expenses are not much and rare. So it is not much of a concern. But once you cross the 50s, these expenses become regular. Just ask those who are past this age and you will realize how common it is for them to spend regularly on healthcare.

People are now living much longer than previous generations. As a result, each passing year, people need to spend more and more on maintaining their health. If someone is 50 and the life expectancy is 80, then he has to spend on healthcare for 30 more years. Imagine.

For most old people, there is a definite need for proper health insurance. Without it, even one or two hospitalisation events can severely deplete their retirement savings and can be disastrous. Being old, unhealthy and without money is a scary scenario to even think of.

But just having health insurance is not enough. As people age, its not just about hospitalisation expenses.

Remember, hospitalisation is a low (not zero) probability event. Instead, more probable is the onset of regular, on-going healthcare expenses that old people need to spend money on. The cost of medicines, diagnostics and regular consultations for lifestyle and chronic diseases (like diabetes, thyroid, etc.) in itself can be a lot. And the problem is that health insurances do not cover these out-of-hospital expenses (your regular health upkeep spends).

Take for example a scenario: You have a health cover of Rs 5 lakh - which pays in case of hospitalisation. But over the years and by the age of 50, you develop a lifestyle-related medical condition which requires about Rs 2-3 lakh every year for proper maintenance. This treatment is on-going, will last a lifetime and doesn’t require hospitalisation, so health insurance won’t pay for it. As a result, it becomes a regular expense from your own pocket.

This is a very simple example of why health insurance alone isn’t enough for old age. And it is for such scenarios, that having a Health Contingency Fund is advised. It’s like having a second level of buffer in your health portfolio. And the best part is that it can also be used in case the hospitalisation bill exceeds your health insurance cover.

That’s not all. Think about it. Can you ever be sure that the insurance companies in future would not introduce any new terms and conditions that impact you adversely? No. Insurance companies are for-profit organisations which will do whatever works best for them. So to increase their profits or to reduce the claim amounts, they might insert new clauses about exclusions, previous claims, increase in premiums, treatment cost caps on various diseases, etc. You just never know when they might change something (in the policy) for the worse.

This is another reason to consider saving some money separately for unexpected healthcare expenses, which aren’t paid for by health insurance.

If you are young, you might feel that it’s too early and not required. But if you have dependent or soon-to-be dependent old parents, then you should consider having this fund in place as early as possible. And for those who themselves are getting old, they should without a doubt do something about this.

To build a Healthcare Contingency Corpus, start saving a certain sum* of money every month. Depending on how old you (or your parents) are, you need to decide a not-too-risky mix of equity funds and debt funds (like liquid or ultra-short duration funds).

* An amount that helps you save up at least a few lakhs in two-three years time. If your surplus allows for more, then it is even better.

Many would be tempted to ‘consider’ their retirement corpus as their health contingency fund too. That’s a possibility. But remember that your retirement corpus is there to help you maintain a chosen standard of living in retired life. If the corpus is much larger than what your retirement needs are, then you can do it. Or if you had already considered medical expenses as part of regular expenses in retirement planning, even then it is fine. Else, it’s best to have separate health savings - to act as a kind of second-level buffer so that you do not need to adjust your lifestyle due to medical expenses.

All said and done, the idea of a medical contingency fund is a fairly simple one. It’s to help you out when health insurance can’t pay your medical bills and do not want to dig into your long-term savings and exhaust it just to foot the medical bills.

So remember that health insurance alone is not sufficient for old age. You need to have a separate healthcare contingency corpus too.