Medical inflation is a key driver of health insurance costs and premium increases. Health insurance companies are continuously looking for ways to better manage medical inflation to keep premiums competitive for customers and to mitigate lapses.
Despite adopting many initiatives on claims management, fraud management, provider networking and case management, most insurers are still struggling with medical inflation. With new players entering the market that have competitive pricing and product offerings, this becomes more important.
In this paper, Milliman’s Rachin Aggarwal and Joanne Buckle discuss common definitions of medical inflation, factors driving medical inflation in the short and long term and current medical inflation trends in India. They also cover the Insurance Regulatory and Development Authority of India (IRDAI) regulations on rate filing and restrictions on premium rate increases in the context of how companies are currently adjusting their premium rates for medical inflation. In addition, they provide insight into current practices and levels of premium increases in Indian and international health insurance markets and the way forward.
Medical inflation generally refers to the annual increase in the cost of medical treatment per insured life. It encompasses both changes in the average cost of treatment for the same basket of services and changes in the frequency of seeking treatment for a steady-state portfolio. It is impacted by anything that will change the cost per insured life for the same services, ranging from technological medical advances to shifts in costs and from social and national healthcare systems to private insurance payers. A change in the mix of services will impact the relative weights that each service contributes to the ‘basket’ of goods (similarly to a calculation of RPI). Using risk adjustment as a true measure of inflation, the effects of a change in the mix of lives in a portfolio would be stripped out, although most cited measures do not remove this element and instead quote inflation inclusive of mix changes.
Continuing from our first blog, which focussed on the potential impact of Brexit on PMI market size, in this blog we examine factors that will impact the average cost of treatments through the supply of medical professionals, cost of drugs, changes in general inflation and the economic health of the UK.
The figure below summarises how the topics we cover impact medical inflation.
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