11 Key Factors That Affect Your Health Insurance Premium Costs

An insurance premium factor is a variable that insurers consider when determining the cost of health insurance premiums. These factors include personal attributes such as age, health status, lifestyle choices, and broader considerations like geographic location and regulatory environment.

By assessing these factors, insurers estimate the risk associated with providing coverage to an individual or group, ultimately influencing your premium.

Several factors affect the cost of health insurance premiums. These include both individual characteristics and external influences. Let's explore some of the most significant factors:

1. Age of the Insured

One major factor in determining premiums in health insurance is your age. This is because as one ages, it means a higher chance of mortality, hospitalization, and medical expenses.

Thus, while a 50-year-old person might have to pay a premium of ₹6,208/year (for a sum insured of 3 lakhs), a 25-year-old person would have to pay a significantly lower premium of around ₹2,414/year.

In addition to this, some insurance companies put an age cap in place for individuals buying a new health insurance policy of 65-80 years, as the older one gets, the more difficult it is to determine their risk factors and health-related expenses.

2. Type of Plan Chosen

Your health insurance premium will change depending on the type of health plan you choose. For example, a family floater plan usually costs less than an individual policy, as the chances of one individual falling sick is higher. However, in a family floater plan, remember that the premium will be based on the age of the oldest member covered.

On the other hand, individual policies offer tailored coverage but generally come at a higher cumulative cost if insuring multiple people. Additionally, the level of coverage and added benefits like maternity or critical illness riders also impact premiums.

3. Sum Insured

The sum insured in health insurance that you opt for will also affect your health insurance premium. Since the sum insured is the maximum amount you can claim from your insurer for medical expenses, a lower SI can result in a lower premium, and vice versa for a higher SI.

However, if your total medical bills exceed your SI amount, you will have to pay the extra cost out of your own pocket. Therefore, you must choose your SI carefully as you don’t want to increase the amount you have in case of emergency.

4. Habits and Lifestyle

Bad habits like smoking, chewing tobacco or snuff will also impact your premium. These habits will increase the chance of lung infections, cancer and other critical illnesses, meaning that smokers will have a higher health insurance premium than non-smokers.

This increase for smokers can be almost double those for non-smokers. For example, if a 25-year-old non-smoker might have to pay ₹5,577/year for a sum of ₹1 crore, a smoker of the same age would pay around ₹9,270/year for the same amount.

5. Pre-existing Diseases

When a person suffers from pre-existing medical conditions which have had a long-term effect on a person’s health, such as diabetes, high blood pressure, or asthma, they will likely have more hospital expenses as well as higher medical bills. This means that they will have to pay a higher premium compared to healthy people of the same age group, as they are.

The amount your premium increases will depend on the pre-existing condition that you have, as well as its severity as noted by a doctor.

6. Co-payment

In health insurance, a co-payment is the percentage of the claim amount that you will have to pay. For example, if you have a 15% copay, your insurer will pay out 85% of the claim amount, while you handle the rest. So, it is like you and your insurer are splitting your medical bills.

Some health insurance policies have a mandatory co-payment clause, while others will let you choose your copayment amount. It is important to note that while a higher co-pay will lower your total premium, you will have to pay a larger amount during claims. But with a lower co-pay you will have a slightly higher premium, but you will pay less during claims.

7. Add-On covers

Additional covers (also called add-ons or riders) are additional coverages that you can opt for in addition to your existing health insurance policy to enhance its benefits for an additional premium.

When you opt to customise your health insurance with add-on covers like a Maternity cover, Critical Illness cover, or Personal Accident cover, you will have to pay an additional premium.

However, according to the IRDAI, the total premium for all add-ons availed under a single health insurance policy can’t exceed 30% of the original premium amount. So, if your premium was ₹5,000/year, and you decide to include 5 add-ons, the additional premium can’t be more than ₹1,500.

8. Family Medical History

If your direct family members (like parents or grandparents) have shown a history of illnesses like heart diseases, cancer, Alzheimer's, etc., that puts you at a higher risk of contracting these illnesses yourself. This will increase the rate of your premium.

This assessment helps insurers predict potential healthcare costs and determine your eligibility, premium rates, and coverage options. Being aware of your family's medical history can also guide you in selecting a policy that offers the best protection for your specific health risks.

9. Where You Live (Zones)

Every geographic location will be different in terms of risks, medical costs, and other environmental factors like pollution, climate, etc. In India, different cities are divided into zones, classified based on that city’s medical expenses. The higher the medical expenses in a city, the higher its zone, and the higher your premium will be.

10. Obesity

Insurance companies consider individuals that are overweight (where their weight is based on BMI) as  being more prone to illnesses such as diabetes or hypertension. And, since this might lead to a higher chance of them making health insurance claims in the future, they will be charged a higher premium.

Some health insurance plans may limit coverage for obesity-related treatments, including bariatric surgery, weight-loss programs, and medications.

11. Nature of Your Work

The amount of risk that you’re exposed to at work will also factor into the premium. Those with safer jobs like office work will have to pay less than those who work at a construction site or in a factory where the risk of being injured is higher.

Once you know about the various factors which can affect the amount of health insurance premium you pay, you will know what to expect when you buy or renew your insurance. And, after you have considered all these criteria, you can use a health insurance premium calculator to calculate your insurance premium amount online.

A health insurance premium calculator is an online tool that provides health insurance premiums for different plans. The calculator derives the policy premium using your age, family members to be insured, sum insured, policy tenure, and similar factors.

Most people rely on their insurance companies to give them details on their premium payments.

One would settle for one insurance policy just to avoid the research process. This is where the role of a mediclaim policy premium calculator comes into play. It is both time-saving and an effective tool.

With various options available, evaluating different plans based on your healthcare needs and financial situation is important. Here are a few tips that will help you in choosing the right plan:

Economic and market influences are crucial in shaping health insurance premiums, impacting costs beyond individual factors. Here are the key influences:

1. Healthcare Costs

The rising cost of healthcare services and prescription drugs is a primary driver of increased insurance premiums. As healthcare providers charge more for services, insurers must adjust their premiums to ensure they can cover the anticipated medical claims.

2. Insurance Market Competition

The level of competition among insurance providers in a given area can significantly influence premiums. In highly competitive markets, insurers may offer lower premiums to attract customers, leveraging cost efficiencies and streamlined services.

3. Regulatory Environment

Government regulations have a profound impact on health insurance premiums. Requirements such as covering specific essential health benefits, accepting applicants regardless of pre-existing conditions, and adhering to minimum loss ratios can lead to higher premiums.

4. Economic Conditions

Economic factors affect health insurance premiums, including inflation, unemployment, and overall economic stability. During periods of economic downturn, insurers may face higher claims costs as more individuals utilise healthcare services, increasing premiums.

5. Reinsurance and Risk Pooling

Insurers often use reinsurance to manage risk, particularly in volatile or high-cost markets. The cost and availability of reinsurance can affect premiums, especially in markets where catastrophic claims are more common. Additionally, the composition of the risk pool is important.