One of the most important parameters taken into consideration while constructing a Financial Plan is the impact of inflation on one’s expenses and financial goals. If the inflation projections are not taken correctly, it might put the whole financial plan in jeopardy.
Though India’s Wholesale Price Index (WPI) Inflation has been under control since 2014 (refer to the chart below), Medical Inflation is a different story.
A study done by Mercer Marsh Benefits in 2018: Medical Trends Around The World, shows that the projected medical trend rate in India would be 10% in comparison to the 2018 forecasted inflation at 5%. This means that per-person cost increase in case of medical costs are likely to rise at double the inflation rate.
| Region | 2017 Medical Trends Rate Experienced1 | 2017 Estimated Inflation Rate2 | 2018 Projected Medical Trend Rate1 | 2018 Forecast Inflaton2 |
| Global (Average) | 9.5% | 3.4% | 9.1% | 3.5% |
| North America | N.A. | N.A. | N.A. | N.A. |
| Canada | 6.2% | 1.6% | 5.6% | 2.2% |
| Asia (Average) | 10.4% | 2.3% | 10.0% | 2.7% |
| China | 9.5% | 1.6% | 10.3% | 2.5% |
| Hong Kong | 9.0% | 1.5% | 8.4% | 2.2% |
| India | 10.0% | 3.6% | 10.0% | 3.5% |
If we take the same inflation rate for defining the full financial plan, then there are high chances that we are creating an unrealistic plan for ourselves. Inflation rates vary when it comes to medical costs and education. In case of any medical emergency, despite having a health insurance cover one might have to shell out a major proportion of savings to cover costs. We should understand that medical expenses are non-discretionary in nature i.e. they are not in our control and we cannot ignore them. If any of our family members are ill, we will have to give them treatment. Hence, there should always be an ample Health Insurance cover along with sufficient emergency reserves.
And, with people living longer, there would be longer retirement i.e. higher health care costs in retirement. Therefore, a proper thought has to be put in place when it comes to planning for health emergencies. Even if there is an adequate Health Insurance cover, one needs to check its relevance while reviewing the Financial Plan. For e.g. a family of 2 had taken a health insurance cover of 2 lakhs in 2010 and now they have 2 children. This 2 lakhs will not cover the kids, plus even this 2 lakhs cover is not adequate for the parents looking at the healthcare inflation from 2010 to 2018. Hence, along with all the financial goals, there is a need to review insurance cover as well. A policy which you had bought in your younger years might not be sufficient for you now.
You should also have critical illness cover along with your Health Insurance plan. Health Insurance plan only covers the hospitalisation expenses. There are some critical illnesses which put us under lots of financial stress as one may have to take a long break or leave the job for full recovery. Such critical illness covers pay the lump sum amount on diagnosis.
The diseases, for which maximum health insurance claims are taken, include:
Also, as per IRDAI (Insurance Regulatory and Development Authority) regulations, it is very important to disclose existing/past health related details while applying for new insurance policies. In case of non-disclosure, Insurers have the right to reject claim / renewal of policy in future. Hence it is strongly recommended that you should voluntarily disclose your health related details.
There is no substitute for good health, and as they say, Life is what happens while you are busy making other plans. It is really important to have a back-up plan especially when it comes to your Health Insurance.
