- Health insurance covers major hospital costs but often excludes many medical expenses
- Only 39-48% of Indian households have health insurance, leaving most families uninsured
- Medical inflation of 12-14% annually erodes the real value of fixed insurance coverage
For many Indian households, to buy a health insurance feels like ticking a crucial financial box. Premium paid, policy documents stored, so that peace of mind is secured. According to industry experts, health insurance, while essential, may not be enough to fully protect families from the financial shock of a medical emergency. With the rise of medical inflation, exclusion of policy and significant out-of-pocket spending, a growing number of professionals are advising families to think beyond just insurance. Harsha Vardhana VM, Founder-CEO of Atom Prive Financial Services, believes the biggest misconception is that insurance equals complete financial protection. "Health insurance is necessary, but it rarely covers the full financial impact of a medical event. Only about 39-48% of Indian households have any form of health insurance coverage, according to national surveys meaning over half of families remain uninsured," he says.
Even among insured families, coverage gaps remain, out-of-pocket expenditure still accounts for nearly 40% of total healthcare spending in India. In simple terms, a large share of medical bills continues to come directly from household savings. This includes expenses that fall outside policy coverage, such as consumables, certain diagnostic tests, room rent caps and post-hospitalisation costs. Many policyholders only discover these gaps when they file a claim.
The Invisible threat medical inflation
Another major concern is the pace at which healthcare costs are rising. Harsha explains,"Medical inflation in India is estimated at 12-14% annually, far above general inflation. At that pace, a Rs 10 lakh cover today may not be adequate five years from now." This is where many families miscalculate. A policy that feels generous today may fall short tomorrow. Hospital costs, surgical procedures, and specialist consultations are increasing steadily, especially in private healthcare facilities. If inflation continues at this rate, the real value of your insurance cover gradually erodes. Without periodic upgrades, you may find yourself underinsured when you need coverage the most.
There is also a difference between financial protection and financial flexibility. Making an important distinction, Harsha says,"Insurance protects against catastrophic hospital bills. A medical contingency fund protects liquidity and financial stability. Families should ideally maintain at least 6-12 months of expenses in liquid reserves alongside adequate insurance. Together, they ensure that a health emergency does not become a long-term wealth disruption." Insurance pays the hospital directly, but it does not always cover every rupee spent. Nor does it address temporary loss of income, travel expenses for treatment or post-recovery care at home. A contingency fund ensures that families do not have to liquidate long-term investments, sell assets, or take high-interest loans during a medical crisis.
The Hidden Costs Inside Hospital Bills
Nochiketa Dixit, MD and Industry Specialist at EDME Insurance Brokers Ltd, echoes similar concerns from an industry standpoint. He says, "Industry experts warn caution that health policy coverage often falls short of full protection. Most plans covers major hospitalisations but commonly exclude outpatient (OPD) visits and consumables which can add 5-15% to bills. Out-of-pocket spending remains substantial, at around 39-44% of total health expenditure. IRDAI figures show claim rejections hovered at 11%."
These figures are significant. Even a small percentage excluded from coverage can translate into lakhs of rupees during major treatment. OPD visits, follow-up consultations, medicines bought outside hospital packages and non-medical consumables often create unexpected financial pressure. In addition, co-pay clauses and deductibles may require patients to share a portion of the bill. Claim rejections, though not the majority, add another layer of uncertainty.
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Building a Medical Backup Fund
Given these realities, experts recommend viewing insurance as the first line of defence rather than the only one. Nochiketa advises, "Experts urge viewing insurance as the first line of defense and keeping a separate contingency fund roughly 40-50% (or more for retirees/older couples) of the sum insured. For example, a Rs 10 lakh policy implies setting aside about Rs 5 lakh as a backup for deductibles, co-pays and other non-covered costs. For safety, begin building this fund early and contribute to it steadily from your savings."
This approach creates a financial buffer. If your policy is Rs 10 lakh, having an additional Rs 4-5 lakh in liquid savings can prevent financial stress during treatment. For retirees or older couples, the buffer may need to be even higher due to increased health risks and higher frequency of medical visits.
The broader challenge remains that a large segment of Indian households still lack any form of health insurance. For them, a medical emergency can wipe out years of savings. For those who are insured, complacency can be risky. Policies need regular review. Coverage amounts should be adjusted in line with inflation and lifestyle changes. And parallel savings must be built deliberately. Health emergencies are unpredictable. But financial preparedness does not have to be. Insurance provides protection against large, unexpected hospital bills.
As per experts, contingency fund provides resilience, flexibility and peace of mind. Together, they form a more complete shield against medical uncertainty. Since healthcare costs continue to rise, the message from financial and insurance experts is clear: do not rely on one layer of defence. Build a system that protects not just your health, but your long-term financial stability as well.
Disclaimer: This content, including advice, provides generic information only. It is in no way a substitute for a qualified medical opinion. Always consult a specialist or your doctor for more information. NDTV does not claim responsibility for this information.
