Healthcare financing: Health
insurance is the best way to
hedge your risk

The recent pandemic reiterated the importance of healthcare financing, while the public healthcare system was overwhelmed. The burgeoning hospital bills had many people looking at alternatives such as medical crowdfunding. The medical crowdfunding platforms in India, have helped lakhs of people to fend both the waves of coronavirus. The number of medical crowdfunding campaigns launched during covid times was unprecedented, most platforms registered at least a 10x increase compared to the pre-covid times.

The ‘healthcare’ gap:

While these platforms have become an alternate means to raise funds and continue to be a boon for many, there is a wide section of the population for whom crowdfunding medical care remains impractical or impossible. This is primarily due to the lack of documentation and not being within the formal fold of the financial system. 

As per data from World Bank’s Identification for Development initiative (2018), ~162 million Indians lack registration. This has to be addressed by bringing them within the formal fold of the financial ecosystem. There is yet another severe problem, which needs to be tackled meticulously and that is the health insurance gap. About 30% of the Indian population which roughly translates to 42 crores of the entire population does not have any health insurance, the actual gap could be far steeper.

Healthcare financing options

Healthcare financing is the crux of the health system, the increasing costs of healthcare, the requirement for a better and robust public healthcare system to address the needs of the underprivileged, lack of Government programs that offer universal health coverage are some of the challenges of the current healthcare financing system in India. There is a growing need for establishing a sustainable healthcare financing mechanism that is accessible to the entire population on an equitable basis.

At present, health care providers (hospitals, staff, doctors etc) are financed using the following routes:

• Health Insurance
• Government health-related schemes/programs
• Financing through loans
• Out-of-pocket expenses
• Medical crowdfunding

There are discussions among regulatory bodies underway to build health insurance products that are low-cost to bring this entire section of the population within the formal fold of health insurance, to achieve universal health coverage.

Health insurance to build sustainable healthcare financing

Health insurance is a critical part of healthcare financing which is the essence of health systems, which can facilitate the progress towards universal health coverage. Carefully curated health financing policies can address issues such as lack of access to services due to high cost, poor quality services despite payment of expenses etc., The recent pandemic iterated the need for a sustainable health system, there is consensus on the observation that if the healthcare system does not change in the next few years, a health disaster may become unavoidable and will make the healthcare system unsustainable. Health insurance cover which pans across the entire population is the need of the hour, to counter health risks that may arise in the future.

Health insurance is a very underestimated instrument, often for a salaried employee, this need is automatically taken care of by the employer. However, whether this cover is sufficient or not is something that is often not evaluated. For a self-employed individual, professional or business person, there is the need to go that extra mile and avail a plan which meets their requirement and matches the current ecosystem.

There are times when there is a time gap between the expiry of an existing policy and renewal/issuance of a new policy, during such times, these individuals remain without any healthcare cover. Overlapping health insurance programmes can help during catastrophic health expenditures that you may incur during such gaps.

What is health insurance and why do we need it?

Health insurance is your ultimate hedge against health risks, it covers medical expenses that may arise due to illnesses. The expenses can range from hospitalisation costs, medicine costs, doctor consultation fees, surgeries, treatments etc.,

The cost of medical treatments is one of the fast escalating costs, the growth rate is ~7.5% per annum, which is much higher than the inflation rate. Any illness could potentially create a huge financial dent in your savings, this could have a ripple effect on all your other financial milestones. An illness that requires huge fund outlays could potentially crush your dream of providing quality education to your child or forcing you to default on your home loan EMIs (Equated monthly instalments).

Health insurance is one of the few benefits extended to us, which could come to your rescue during dire needs, in those trying times, it ensures that your savings are not dipped into and you remain protected financially. It is always advised to avail health insurance policy during the younger years when you are healthy, initiating a health insurance plan as one gets older can be quite expensive with premiums quite high and there are also chances of the health cover being denied by the insurance company.

Availing of a health insurance plan is one of the smartest financial decisions, there are some nuances that you should consider while availing a health insurance policy:

• Check for inclusions and exclusions
• Ensure that the plan covers a vast variety of critical illnesses
• Fixed premium during the policy term despite a change in health condition
• Choose a health cover that meets your requirement and aligns with the existing healthcare expense pattern
• Choose the tenure which covers for a maximum term to enable coverage during old age
• The Hospital network should be vast and provide easy access for medical emergencies and medical treatment

Health insurance offers coverage only for critical illnesses and medical treatments, it does not cover lifestyle procedures such as cosmetic surgeries unless they are classified as reconstructive surgeries.

Different types of health care requirement

There are essentially two diametrically opposite parts to the healthcare requirements which require healthcare financing:

1. Non-elective medical procedures:

1. These are procedures that are considered medically necessary, they are at times performed with a sense of urgency. They can be a part of a long drawn medical condition and treatment plan. These procedures can be further divided into compulsory but not critical and critical illness.
2. Compulsory but not critical procedures include gall bladder stone, kidney stone removal, fibroid removal etc., while the procedure needs to be done, it is not life-threatening. They can be adequately planned and often, there is ample time to arrange for finances too.
3. Critical illnesses include surgeries like c-section, bypass etc., which are life-threatening are done in emergencies

It is important to note that both these categories (compulsory but not critical and critical) are often covered under health insurance policies, while most critical illness-related procedures will be covered, one needs to check for any exclusions within the compulsory but not critical category. If there is a requirement to avail a rider that offers maximum coverage, then one should consider availing these riders for optimal coverage.

2. Elective medical procedures:

2. These are procedures chosen by the patient to address problems that cause hindrance to maintain the lifestyle of the person, they are not procedures that treat life-threatening problems. These procedures may be advised by the doctor to ease the lifestyle hindrance or persistent problem faced by the patient.
   
   These procedures are typically short term in nature and are not part of a long drawn medical treatment, they are aimed to improve the quality of life or boost the self-esteem of the individuals. Some examples of elective surgeries include cosmetic surgery (non-reconstructive), hip replacement, Lasik and dental etc., The expense of such surgeries can be huge, typically health insurance plans do not cover these types of procedures.  These procedures have to be managed as an out-of-pocket expense.

Financing through loans:

Both elective and non-elective procedures can be funded by borrowing medical loans from banks or financial institutions. However, only elective procedures can avail of no-cost EMI short term loans, due to the existence of mortality risk, no-cost EMI loans are not available for non-elective medical procedures.

There are short term loans available at 0% EMI, they are short term and could be an option you can consider if you do not have the required funds to pay for the procedure/treatment. The ‘no-cost EMI loan’ has become a popular means to finance healthcare requirements.

The ticket size of medical loans can range between Rs. 20,000 to Rs. 5 Lakh and upwards, the tenure can range between 6 months – 3 years. These medical loans are disbursed directly to the hospital upon the generation of the hospitalisation/procedure bill. It differs from the personal loan, as the disbursement of the medical loan is direct to the hospital, whereas a personal loan is credited to the applicant’s bank account which can be expended as per the discretion of the individual. These loans are disbursed within 3 days – 1 week.

In these no-cost EMI, the hospital will bear the cost of interest on behalf of the patient in the form of an upfront subvention fee. There are other fees such as processing fees and one-time costs which accumulate to 2%-3% of the loan amount. For such no-cost EMI, the borrower is required to deposit 2 months’ EMI upfront and the balance can be paid as per schedule, the hospital pays the interest of 7%-9% as a subvention fee. The lending entity (bank / financial institution will ensure that the bank does not escalate the cost of the procedure/treatment, thereby ensuring the regular payment of the subvention fee.

Many banks and financial institutions offer personal loans for medical emergencies or medical loans for non-elective procedures. The maximum limit up to which one can avail medical loan can be up to Rs. 25 Lakh, the interest rate hovers around 12% per annum. The interest rate and the quantum of loan disbursed will depend upon your credit score, existing relationship with the bank, income and employment type. The documentation is quite simple for a medical loan, most of the procedures are done virtually and the disbursement is done immediately (based on the quantum of funds and your credit score). The loan amount can be used for any sort of medical expenses.

Medical Crowdfunding – your last resort

Medical crowdfunding was one of the few occasions which showed the best side of humanity, it has been the weapon that has saved many lives during the pandemic. The pandemic led to huge job losses, even individuals who were well-positioned financially, had to run pillar to post due to loss of job and with no health insurance cover.

• Medical crowdfunding has emerged as a low-cost healthcare financing option. These are platforms that are akin to non-profit organisations which provide a digital platform to raise funds to meet your healthcare requirements.
• Medical crowdfunding has in a way transformed the healthcare system in India, by providing equitable access to a decent healthcare system

However, it is imprudent for individuals to rely on medical crowdfunding as it is a form of donation. Among the many campaigns which are run on the virtual platforms, there is only a handful that manages to find success by raising the required funds.

Medical crowdfunding again remains accessible to those who can navigate through the digital world, campaigns in the metropolitan cities are much higher than the campaigns run by rural areas.

• The success of the campaign depends largely on the severity of the condition and the strong network of people with which you operate. There are options to share the campaign on social media platforms like Facebook, WhatsApp, Twitter etc., which widen the audience, thereby increasing the possibility of success of the campaign.
• The contributions made on these platforms qualify for deduction under section 80G as donations, this is the only benefit extended to the people donating. The quantum of people who will be motivated to donate in exchange for the tax benefit is limited. It is not every day that campaigns find Samaritans who intend to part with funds.
• Often only those campaigns with severe mortality risks such as organ transplant, cancer, accident trauma, long term ICU care etc., and campaigns that involve saving the lives of a young child, disabled or aged person find a better success rate.

Hence, this should be seen as the last resort for healthcare financing, the campaign has to be run meticulously by providing evidential proof of fund utilization for the aforesaid condition. There are numerous fraudulent campaigns run on these platforms, which despite the best effort of the campaign platform remaining undetected, it is important to exhibit the genuineness in the campaign story and subsequent communication /updates. Medical crowdfunding is a low-cost financing mechanism, wherein the platform charges a nominal fee of 5% of funds raised to keep the campaign up on their platform.

After understanding the various healthcare financing options, it is apparent that health insurance is the best way to hedge your health risk. Availing of an insurance plan is simple, effective and efficient. It does not depend on external factors such as social circle, credit score etc. nor does it burden you with any EMI during stressful times. With health insurance, you have the certainty that you can attend to the medical condition with adequate treatment/procedures. When you borrow a medical loan, there is always the chance of rejection due to your credit score or under medical crowdfunding, there is the chance of the campaign not gaining adequate success. An adequate health insurance cover for yourself and your family will provide you with unprecedented mental peace.

Frequently Asked Questions

1. What is healthcare financing?
   It is the mode of payment for the medical treatment availed by individuals for various ailments. This payment is made to hospitals, doctors, nurses, support staff etc.,

2. What are the existing options for healthcare financing in India?
   At present these are the healthcare financing options within the healthcare system in India:
   
   1. Health Insurance
   2. Government health-related schemes/programs
   3. Financing through loans
   4. Out-of-pocket expenses
   5. Medical crowdfunding
3. What are the types of medical procedures and which ones are covered under the health insurance plans?
   
   1. Elective medical procedures:
      These are procedures chosen by the patient to address problems that cause hindrance to maintain the lifestyle of the person, they are not procedures that treat life-threatening problems. The expense of such surgeries can be huge, typically health insurance plans do not cover these types of procedures.  These procedures have to be managed as an out-of-pocket expense.
   2. Non-elective medical procedures:
      These are procedures that are considered medically necessary, they are at times performed with a sense of urgency.
      
      1. Compulsory but not critical procedures include gall bladder stone, kidney stone removal, fibroid removal etc., while the procedure needs to be done, it is not life-threatening.
      2. Critical illnesses include surgeries like c-section, bypass etc., which are life-threatening are done in emergencies.

Both these categories (compulsory but not critical and critical) are often covered under health insurance policies, while most critical illness-related procedures will be covered, if provided as part of the basic plan, one needs to check for any exclusions within the compulsory but not critical category.

4. What are 0% EMI loans?
   There are short term loans available at 0% EMI, they are short term and could be an option you can consider if you do not have the required funds to pay for the procedure/treatment.

5. Are these zero-cost EMI loans actually zero cost?
   In these no-cost EMI, the hospital will bear the cost of interest on behalf of the patient in the form of an upfront subvention fee. There are other fees such as processing fees and one-time costs which accumulate to 2%-3% of the loan amount.

6. What is medical crowdfunding?
   Medical crowdfunding has emerged as a low-cost healthcare financing option. These are platforms that are akin to non-profit organisations which provide a digital platform to raise funds to meet your healthcare requirements.
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