Is your Medical Insurance enough to cover all your medical expenses?

I have outlined the key steps to Retirement Planning in my previous blog “ Are you retirement Ready?” Medical expenses are the biggest unknown expense in Retirement, for that matter at any age! Medical expenses are the known unknown in Retirement and unfortunately you do not have your employer taking care of it (unless you work for the government of India)!

This blog is not about how to choose the best medical insurance. There are many articles that discuss the key features to look for in a good medical insurance…coverage of pre-existing ailments, no caps on room charges, cashless settlement, coverage of pre & post hospitalization expenses etc. This article discusses the challenges you might face despite having medical insurance.

Your Medical Insurance does not cover all your medical expenses!

It is a given that you need to have a good medical insurance cover. The real challenge is that you would come to know how good it is only after you reach a hospital. What if you found out that your medical cover was inadequate or does not cover the treatment that you were looking for. For example, medical insurance generally does not take care of dental treatments – what if you needed a tooth implant! If you were to get a broad based coverage, your premium expenses could go through the roof! You may need a longer term rehabilitation program post surgery and your medical insurance may take care of only a part of it. Clearly, there are limitations in terms of expenses that can be met through insurance.

Never forget to renew your medical insurance on time!

Further, medical insurance policies need to be renewed every year. If you miss making this payment, you will have to take a new policy. The new policy will not only be expensive but is also unlikely to cover your existing ailments. There is generally a deferment period for covering existing ailments.

The point that I am trying to make is that medical insurance, however good it is, is unlikely to take care of all your medical expenses. You will have to budget to meet some of the expenses on your own.

The first step to deal with this problem is to budget for some medical expenses in your monthly household budgets.

The bigger problem is that medical insurance does not adjust for inflation. If a Rs 25 lac coverage seems adequate today, it may not be the adequate 20 years from now. Medical technology is progressing at a rapid pace and there are newer methods of treatment that keep on emerging. Knee replacements were unknown 5 years back but have now become a routine procedure. It is quite possible that when your medical insurance could be grossly inadequate when you need it the most.

Build an Emergency Fund to meet expenses not covered by your insurance!

The simple solution to this problem is self-insurance. All you need to do is to block some funds to meet with your medical expenses. You could invest this money in a debt mutual fund or a Bank FD and use it only for meeting any major medical emergency. This amount is over and above your medical cover and would be used only to meet those non-routine expenses that are not met through your medical cover. The money that you have invested will continue to grow and hence help you hedge against inflation or any significant medical procedure that is not within the ambit of your current medical insurance.

To conclude, you need to supplement your medical insurance by a) Budgeting for some medical expenses while you plan for your monthly expenses and b) Investing a meaningful amount in a debt instrument that provides for a hedge for increasing medical costs or any other treatment not covered by your medical policy.

Above all, there is no substitute for building a healthy lifestyle – Prevention is always better than cure!