Why Does Health Insurance Premium Increases Every Year? How Age, Inflation, and Claims Impact Costs

At a Glance

1. Introduction
2. The Impact of Age on Health Insurance Premiums
3. Medical Inflation: The Silent Cost Driver
4. Higher Claims Leading to Higher Premiums
5. Regulatory & Policy Changes
6. Lifestyle Choices & Risk Factors
7. Technological Advancements in Healthcare
8. How to Manage Rising Health Insurance Premiums?
9. Final Thoughts

Introduction

One of the shared worries of policyholders is: does health insurance premium increases every year? The reply is yes, but for good reasons. Several factors such as aging, medical inflation, rising claims, and lifestyle contribute to this consistent increase. Knowing why health insurance premium increases happen every year can assist you in managing these expenses effectively.

Health insurance is an essential cover that shields one from unexpected medical bills. Every year, however, policyholders see their health insurance premiums rise without necessarily knowing the cause. Insurers base premiums on various dynamic variables, including age, health status, claims history, and the general state of the economy. This article will delve into these variables in depth and present solutions to counteract rising insurance premiums.

1. The Impact of Age on Health Insurance Premiums

How Age Affects Premiums?

Health insurance is meant to provide for the payments for medical expenses, and with advancing age, one's risk of acquiring health issues increases. Insurance companies price in the fact that increased risk by steadily increasing the rates.

• Young Policyholders (20s-30s): Low premiums due to low health risks.
• Middle-Aged People (40s-50s): Moderate increases in premium due to growing risk.
• Senior Citizens (60+): Highest premiums given the very high chance of serious illnesses.

However, insurance firms rely upon the actuarial science to relate to the associated risk of insurance against varying ages. Most older people suffer from chronic illnesses such as diabetes, heart disease, and arthritis and will need to spend a fortune on medical care, which will result in copious claims on their part. Hence, insurance firms end up raising premiums to all policyholders concerning age.

2. Medical Inflation: The Silent Cost Driver

Medical inflation stands out among the primary reasons for increases in health insurance premium rates. According to Business Today, as of late 2024, the medical inflation rate in India was reported at 14%. Reports indicate that many policyholders have experienced premium hikes of at least 25%, with some senior citizens facing increases of 50% or more. Hospital costs, medicines, diagnostic tests, and specialized treatments rise in prices year on year. Some of the key features of medical inflation include:

• Raising Costs of Medical Equipment: Newer technologies in health care come with a heavier price tag.
   
• Fees of Doctors-Consultation: A greater demand with qualified expertise allows specialists to charge more.
   
• Costly Treatments: Increased cost from newer techniques and medications.
   
• Hospitalization Costs: Costs for room rent, surgery, and post-care all add up.

It's been reported that the approximate medical inflation rate in India is about 14% every year, which is greater than that of general inflation. This means that the medical expenses incurred today are expected to escalate even more in the years to come, which, in turn, would mean higher premiums required for insurance to cover these costs.

3. Higher Claims Lead to Higher Premiums

Insurance is a classic risk-pooling model, in which case the entire premium amount for a given year is determined according to the claims ratios. High claims during any year could only mean that insurers have to effect increases in premium rates to compensate for any resultant losses.

• High Claims Ratio: In case several persons claim insurance, the companies increase the premium for all.
   
• Chronic Illness Cover: The higher payout amounts are due to the rising incidences of diabetes, heart disease, and cancer.
   
• Pandemic Effect: COVID-19 drove rates up in claims expected to weigh heavily on total premiums.

In the past few years, the number of claims per policyholder has been on the rise on account of increasing awareness and better availability of health services. As more claims are being made under insurance policies, insurers accordingly adjust prices.

4. Regulatory & Policy Changes

Governments and agencies constantly come up with new guidelines to make the insurance comprehensive and beneficial to the policyholder. Nevertheless, these changes can also result in an increase in health insurance premiums.

• Compulsory covers for emerging illnesses: Additional coverage would apply for diseases like COVID-19, mental health, or critical illness. 
   
• Made increased sum assured: The insurers increase the sum assured for inflation, and this leads to an increase in the premium. 
   
• More Standardized Policies: Policies under the new norms set up by the government might witness some price changes.

5. Lifestyle Choices & Risk Factors

Individual health and the lifestyle decisions made in it empower the individual to earn insurance premiums. Risk estimation is done by insurers based on several factors, including the following: 

• Smoking and alcohol consumption: one who consumes both is at a higher risk and pays higher premiums. 
   
• Obesity & poor diet: payments are increased since they are chronic conditions such as hypertension and diabetes. 
   
• Pre-existing health conditions: any health problems beforehand will charge more. 
   
• Occupation and stress levels: jobs with stressful conditions increase health risks and thus increase the cost of insurance. 
   

However, improved health can mitigate the effects of increased premiums. A person will have to take incentives from the insurance companies to enjoy them, such as discounts for a good BMI or participation in wellness programs.

6. Technological Advancements in Healthcare

While improvements in medical therapy contribute to better outcomes, there are expenses incurred therein. Hospital costs have increased, contributing to the health insurance premium rise due to the introduction of cutting-edge treatments like robotic surgeries, precision medicine, and genetic therapies.

How to Manage Rising Health Insurance Premiums

With the rising healthcare cost, premiums for health insurance are sure to go up. But there are a few methods you can implement to keep the costs in check without cutting back on coverage. Here's how you can control your premiums:

1. Buy Health Insurance Early

Buying at a younger age is one of the finest ways to keep health premium costs down. Insurance companies set premiums on risk aspects such as age and medical history. Young people are considered healthier people with less risk and lower premium costs. Besides, an early purchase allows you to build perks like NCB and even complete waiting periods for pre-existing conditions well in advance.

2. Opt for a Super Top-Up Plan

Rather than raising your base policy sum insured, think of purchasing a super top-up plan. Super top-up plans give you extra coverage at a fraction of the cost of raising the sum insured of your base policy. A super top-up plan takes over after the deductible amount (which can be paid by your base policy) is depleted, saving you heavily on premiums while providing complete coverage.

3. Maintain a Healthy Lifestyle

Well, health is determined by the lifestyle choices we make, and so when an individual pays premium prices for health insurance, it determines how healthy or unhealthy a person has been taking care of himself or herself. But then, not smoking, eating healthily, exercising regularly, or having controlled stress can save one from lifestyle-related disease or lifestyle diseases. 

Most insurers give such discounts or cash rewards in lower renewal prices to renew health insurance premiums; for instance, for the fact that one has led a healthy lifestyle. Keeping a healthy record may save the insured from future premium increases concerning any medical condition.

4. Compare Policies Before Renewal

Health insurance plans differ widely concerning coverages, benefits, and premium charges. Compare various plans in the market before renewing your current policy. Some insurance companies may provide superior benefits at a lesser premium or extra facilities such as wellness benefits, OPD coverage, or a superior claim settlement ratio. It is advisable to compare and change to a more economical policy for the best utilization of your expenses.

5. Increase Deductibles

Your health insurance premiums may become cheaper if you go for a higher deductible. A deductible is a sum agreed upon by you to be paid out of pocket before the benefit amount under the insurance policy comes into play. With a higher deductible, the insurance company will offer lower premiums, as you are increasing your portion of the financial responsibility. You must still be sure to keep the deductible at a level you can manage should any medical emergencies arise.

6. Take Advantage of No-Claim Bonus (NCB)

All health insurance providers provide a No-Claim Bonus (NCB) for policyholders not making any claims in the policy year. Such a benefit comes in the way of a discount on the renewal premium or an enhancement of the sum insured at no extra cost. By staying healthy and making no unnecessary claims, you can retain the maximum NCB and save premiums in the future while keeping coverage strong.

Final Thoughts

The hike in health insurance premiums is caused by various factors like aging, medical inflation, increase in healthcare expenses, and policyholder claims. Although these elements lead to year-by-year premium hikes, it is with the knowledge of these elements that you can proactively handle your insurance expenses efficiently.

By paying insurance premiums at an early stage, living a healthy lifestyle, going in for super top-up plans, and availing themselves of no-claim bonuses, you can manage your premiums while having complete coverage.

If you are searching for low-cost and personalized health insurance plans, visit OneAssure for professional advice and the most suitable policy suggestions based on your requirements. Get your future secured with the ideal health insurance plan today.