Sunday, June 21, 2009


Health insurance is supposed to be one of the first and foremost things that one needs to plan for while planning for his/her financial future. It aims to provide cover against any untoward medical expenditure that might come up in future. Health insurance is a very important and useful product,something that is usually recommended for one and all. But, these health covers also tend to have an unintended bad effect on the overall cost of medical care.
With the increase in penetration of health cover among vast majority of Indians, the hospitals have started to benefit greatly from this. The overall medical cost is on the rise . Let us examine in detail, as to how health insurance may be pushing the overall cost of medical care up ,especially in private hospitals/nursing homes.
1. People with medical insurance prefer deluxe rooms/hospitals - People having medical cover tend to go to hospitals which are expensive and are supposed to provide "deluxe amenities". The rationale behind this is the perceived value in things which are expensive. A hospital which charges high fees for its medical facilities is perceived as better than the ones which charge lesser. This consumer behaviour is the root cause why hospitals are getting bigger and more expensive with every passing day.While it is perfectly normal to expect the best , when it comes to medical care, the truth is that most of these so called "best hospitals" do not provide any tangible benefit which is different from other budget hospitals in the same area. The patients tend to opt for deluxe rooms which are expensive ,since they do not have to pay the bills themselves and its the insurance company which will pay up for them. Lot of patients may not really need the deluxe rooms or super deluxe facility , but end up using it. This rush for deluxe rooms/amenities puts pressure of hospitals to have more and more such rooms at the cost of general wards or budget rooms. And due to lack of enough budget rooms, many are forced to pay for deluxe rooms out of their own pocket (in absence of insurance cover) even if they can not afford it.
2. Every other expenditure is linked to the "room type"- The most important decision that one makes while getting himself or his patient admitted in a hospital is the room type that he chooses to stay in , because hospitals follow a very unique pricing model where they price all their services like nursing charges,doctor visits,operation theatre charges,operation charges etc on the room type that one stays in. this means a person staying in deluxe room will have to pay more for his operation as against a person from budget room or a general ward for the same operation. This pricing model is flawed and is aimed at milking the rich and people having health insurance cover. But, this affects people without insurance cover very adversely since they too have to pay as per this when they end up taking these rooms for lack of other rooms.
3. Overdose of medical tests etc - Hospitals are in essence, a for profit organisations ,and as such their primary motive these days has become earning more and more profit. In order to do so, there is a tendency among doctors and hospital staff to make the patient undergo as many tests as possible, some of which may be completely unnecessary. These test help them shore up the bills which are paid up either by the insurance firm or by the patient himself. The patient having insurance cover does not mind these tests as he equates more tests with better care . All these bills are paid by insurance firm which helps the hospital staff make decent money in the process. This practice initially started to milk the patients with health cover has now become a general practise which makes the whole process too costly for people without an insurance cover.
4. Insurance cover too will become costly - As a by product of this trend, the premium for health insurance cover too would increase in future. Since ,premium for health insurance is decided primarily on the basis of the perceived health risk of the insured, the cost of medical care in the area/city among other factors , any increase in the medical cost will subsequently increase the premium for such health covers as well. Thus the consumer will end up paying more to get the same cover in future.
Sometimes, even the best of actions have unintended results and this is one such case. The government and health officials need to get more involved in this sector by regulating it well so that the Indian medical care industry does not become as costly as its American counterpart has become.


  1. While talking about the cost of healthcare going up due to more tests... we need to analyze the fact that these labs who conduct test on the order of a physician also pays a cut. So a MRI which costs about 6000.. a cut of as much as 4000 goes to the prescribing doctor. So it the system. doctor gets cuts order more tests, lab charges more to pay off machine and insurance companies milk both ways, pay high price to doctor, charge high price for premium. I think that it is the doctor who needs to become sensible inorder to fix this.

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