Medical emergencies do not come with a warning, but do take us by surprise each time. Thus, the saying “it is better to be safe than sorry” is relevant than ever in today’s times. With the sudden outbreak of COVID-19 pandemic, a vast majority was physically and financially unprepared, and consequently bore the brunt of their vulnerability to this major health crisis. Now, though the effects of the pandemic have diminished, there still exists the aftermath of this global catastrophe in the form of medical inflation in India, as well as across the world.
With inflation reaching its highest points and the swift increase in healthcare costs, the consumers’ capability to afford medical expenses is starting to undermine. While this is just the tip of the iceberg, learn why it is a good idea to create a medical emergency fund in addition to a health insurance policy.
While no industry is spared from this inflationary phase, the healthcare industry, in particular, is facing significantly intense pressure. A recent survey published by leading financial services company, Motilal Oswal, highlighted that India’s rate of medical inflation remains the highest in Asia, at 14 percent in FY22, followed by China and Indonesia at 12 and 10 percent respectively. The report also pointed out that the hospital room charges have gone up by 3 to 4 percent in the past two years. What is even more worrying is the fact that the cost of major surgeries has increased by 12 to 15 percent and routine surgeries are up by 8 to 10 percent.
On the downside, because healthcare companies negotiate reimbursements and fix prices much in advance, inflation continues to power consumers’ out-of-pocket expenses and health insurance premiums for months and years to come. Unfortunately, the implications of financial and healthcare volatility are likely to be witnessed by consumers at a time when the market is already challenged by other concerns, including high food, transportation, and household costs. This raises a crucial question – will consumers be able to bear routine and preventive medical expenses?
The 2022 report unveiled by Motilal Oswal found that consumers have already started showing signs of concerns pertaining to the rising medical costs and thus there has been a sharp surge in demand for retail health insurance plans, thereby recording an overall growth of 25 percent. Although only 3.5 percent of the population remains covered under retail health insurance plans, the pandemic propelled the need for a higher premium among consumers, recording yearly growth of 13 percent. As a consequence of this demand, coupled with increased inclusions, better claim experiences, and higher medical costs post-pandemic, medical insurers, too, have hiked their product pricing by 2 percent.
So, how can consumers avoid an affordability crisis instead of putting off low-cost medical needs due to concerns about inflation? The solution lies in creating an emergency fund to cover the costs associated with unexpected and often expensive medical events. It works as a safety net in an hour of crisis – whether it is a major illness, severe accident, sudden job loss, or major car fixes.
However, building the medical fund should be a gradual process. You must take into account your salary, age, dependent family members, existing liabilities, and interest offered on investments like a high-yield savings account, debt mutual funds, or short-term RDs. These instruments are highly liquid and easily accessible. And if you are wondering how much you should set aside as your emergency fund, the amount to create your medical corpus should be 50 percent over and above your existing medical insurance coverage. Say, your coverage is worth Rs. 20 lakhs, it is ideal to allocate additional Rs. 10 lakhs as health fund. If you or any of your dependent family members have a medical history, you may save 5 to 10 percent extra.
Now that you know what a medical emergency fund is and why it is essential, it is time to take the next step: build one for yourself gradually!