How reduced waiting periods for pre-existing conditions could drive up health insurance costs

The Indian Regulatory and Development Authority of India (IRDAI) recently announced that the waiting period for pre-existing diseases in health insurance must be reduced to three years instead of four. This reduction of the waiting period is applicable from April 2024. It applies to both new and existing policyholders. Companies like ACKO Insurance provide health plans without any waiting periods.

For some policyholders, insurance companies might increase the premium. This can happen only if the insurer perceives them as risky to insure. Let¡¯s understand this in detail.

Understanding Waiting Periods for Pre-Existing Diseases

A pre-existing condition or disease (PED) is a medical ailment that a person has before enrolling in a health insurance plan. If the pre-existing condition causes your recent illness after purchasing the medical insurance, the insurer need not offer coverage benefits.

For example, if you have diabetes and buy health insurance, you must specify pre-existing conditions. Now, after purchasing health insurance, if you have a heart attack due to underlying diabetes, you cannot file an insurance claim to cover the medical costs of treating a heart attack. Insurers require you to wait for three years (depending on the insurance provider and policy details) before pre-existing conditions are covered.

In other words, even with health insurance, you cannot claim coverage until you ride out the waiting period for the specified health condition. You can get complete coverage for pre-existing illnesses only after staying insured throughout the waiting period. You can still claim for accidents and other medical needs based on the coverage as the waiting period only applies for specific PEDs.

Now, IRDAI mandate is to enforce insurers to restrict the waiting period to a maximum of three years. Therefore, policyholders have to ride out a shorter waiting period. Existing policyholders who have renewed their policy continuously for three years can get immediate coverage for PEDs. New buyers must wait for a maximum of three years for PED coverage.

Why Reduced Waiting Period Could Impact Health Insurance Costs?

Insurance is a risk management tool. Insurers calculate your premium based on the potential risks of offering health coverage. When the waiting period for PEDs is reduced, the risk pool becomes broader, including individuals with a higher likelihood of claiming for pre-existing conditions. As a result, insurers have to deal with:

• Increased claims ratio when they have to settle more claims involving PEDs
• Higher underwriting costs to invest more in underwriting for deeper analysis of health risks of policy buyers with PEDs
• Potential for covering individuals with higher risk profiles, increasing the operational risk for the insurers

Due to the increased risks and costs, insurance providers are more likely to raise policy costs by 10% to 20% to tackle rising medical inflation rates. The new IRDAI mandate will force them to review the policy details and upgrade the rates to reflect the increased risks and costs.

Impact on Insurance Premiums

Insurance providers are more likely to adjust premiums to maintain profitability. The exact impact on premiums will vary across insurers based on their risk management strategies, reinsurance arrangements, and existing portfolios. For policyholders, the insurance costs may change in the following ways:

• Premium hikes: To manage overall risks, some insurers may opt to increase premiums for all policyholders. This could also affect existing policyholders who have already ridden out the waiting period.
• Differential pricing: Depending on age, health status, and pre-existing conditions, insurance providers may offer differential pricing for new and existing policyholders. This will allow them to capture new policyholders without upsetting existing policyholders who have outrun the waiting period.
• Product redesign: To optimise risk management, insurers may modify their product offerings with higher deductibles or co-payments for PEDs.

Takeaway

Reducing the waiting period is a positive step towards enhancing health insurance accessibility. People with PEDs will come forward to buy family health insurance as they only have to wait for 3 years for PED coverage. Understanding the impact on insurance premiums will allow you to explore different options to find the most suitable coverage.

The best insurance plan for you and your family is the one that caters to your unique needs. Explore ACKO health insurance plans to find the right coverage that fits your budget.