Medical Inflation and Its Effect on Health Insurance Premiums

Medical inflation is a term that describes the steady increase in the cost of medical treatment and healthcare services. In India, medical inflation has been rising at an alarming rate, and it has a significant impact on the health insurance premiums that people have to pay. In this article, we will understand the connection between medical inflation and premiums of medical insurance plans.

What is Medical Inflation?

At its core, medical inflation is used to define the increase in the expenses related to health and healthcare services. These costs include the cost of medicines, diagnostic tests, doctor's fees, and hospitalisation charges. Type of treatment and procedure might also be considered under the definition of medical inflation. Medical inflation in India rose at an alarming rate of 14% in 2021, which was more than that of China. ^[1]

What are the reasons for medical inflation?

The following factors might be considered as the reasons behind medical inflation:

1. New technology

With advancements being made in technology that can make medical procedures quicker and reduce the risk factor, the impact is felt on the cost of accessibility of such technology. Treatments for cancer and heart diseases are some of the examples. The technology being invented is aimed at making the treatment more precise and effective. However, the cost of development of such technology from scratch, procuring the parts, and the duration of development raises the cost overtime. Also, as most of this technology is usually developed abroad, importing the machinery and training personnel to operate it also makes such technology inaccessible for many patients.

2. Medical tourism

India has gained a reputation of having better healthcare facilities at an affordable rate. This explains why people from other Asian countries, African countries, and even from United States of America come to India for treatment. Most patients who come to India from abroad require an organ transplant or knee or hip replacements. This demand impacts the cost of healthcare facilities.

3. Treatment cost per person

The rise in the cost of treating one person is used to define the rise in the cost of basic components of the treatment. This includes price of medical supplies, expenses related to the hospital staff, doctors, and required tests.

Causes of Medical Inflation

Medical inflation refers to the rising cost of healthcare services and products over time. The key causes of medical inflation include:

1. Increasing Demand for Healthcare: As the global population grows and ages, there is an increased demand for healthcare services, leading to higher costs.
2. Advancements in Medical Technology: While technological innovations improve treatment, they often come with high costs, raising the price of healthcare services.
3. Rising Labor Costs: The demand for skilled healthcare professionals results in higher wages, which contributes to the overall increase in healthcare expenses.
4. Pharmaceutical Costs: The cost of medicines and medical supplies often rises due to factors such as research and development expenses, regulatory processes, and patent protections.
5. Chronic Diseases: The increasing prevalence of chronic conditions like diabetes and heart disease requires long-term and expensive treatments, pushing up healthcare costs.
6. Insurance Premiums: Health insurance providers raise premiums to cover the growing expenses incurred by hospitals and healthcare services, contributing to the overall inflation in the sector.

Medical Inflation Rate in India

How medical inflation impacts health insurance?

The rising medical inflation in India has a significant impact on health insurance premiums. As the cost of medical treatment and healthcare services increase, so does the burden on insurance companies. Thus, insurance companies need to pay a higher compensation and eventually they pass on this cost to the customers in the form of higher premiums. This impact might be more severe for senior citizens and people with pre-existing medical conditions. These people are more likely to need medical treatment, which can get expensive compared to the treatment required by younger people. As insurance companies must compensate more for senior citizens, the premium of their policy also increases. Additionally, insurance companies have to deal with rising claims due to the increase in medical inflation. As more people need medical treatment, the number of claims increases, which puts pressure on the insurance companies to pay more for medical treatments. This can result in higher premiums for customers to cover the increased costs.

How to tackle the impact of medical inflation?

While it may be challenging to stop medical inflation, there are some ways that you can tackle its impact on the cost of your policy:

1. Choose the Right Policy

Choosing the right medical insurance policy can help reduce the impact of medical inflation on your premium. Look for policies that offer suitable health cover for your medical needs and affordable premium. Compare the policies offered by different insurers and choose one that provides the best value for money.

2. Opt for Higher Deductibles

The deductible is the amount you have to pay out-of-pocket before your insurance coverage kicks in. Choosing a higher deductible can help lower the premium. However, make sure that you can afford to pay the deductible if and when you need to file a claim.

3. Maintain a Healthy Lifestyle

Maintaining a healthy lifestyle can help reduce the impact of medical inflation on the premium of your policy. A healthy lifestyle can help reduce the risk of developing medical conditions and require treatment. Some insurance companies have certain concessions for customers who maintain a healthy lifestyle based on the wellness products opted.*

Managing Rising Health Insurance Premiums Due to Medical Inflation

Managing rising health insurance premiums due to medical inflation requires strategic planning. Here are some key strategies:

1. Review Your Policy Regularly: It's essential to regularly review your health insurance policy to ensure that the coverage is still adequate and the premiums are aligned with your financial situation. Some insurers offer options to adjust coverage levels to maintain affordability.
2. Opt for Higher Deductibles: Increasing your deductible can help lower the premium costs. While you’ll pay more upfront in case of a claim, this can be a way to save on premiums in the long term.
3. Compare Plans and Insurers: Different insurance companies offer varying rates and coverage options. It’s crucial to compare policies to find the one that suits both your needs and budget.
4. Consider Top-Up Plans: If the premium for your existing policy is rising, you may consider buying a top-up health insurance plan. These are usually more affordable and provide additional coverage for hospitalization costs.
5. Buy Health Insurance Early: The earlier you purchase a policy, the lower your premiums will generally be, as age is a significant factor in premium calculation. This will also help you lock in a lower premium before medical inflation escalates further.
6. Maintain a Healthy Lifestyle: Leading a healthy lifestyle can reduce the likelihood of chronic diseases, which can lower your health insurance claims and keep your premiums lower. Some insurers even offer discounts for policyholders with healthy habits.
7. Use Family Floater Plans: If you have multiple family members to cover, a family floater plan might be more cost-effective than individual policies for each member. It consolidates coverage under one premium, potentially saving costs.

By implementing these strategies, individuals can mitigate the effects of rising health insurance premiums caused by medical inflation and maintain adequate coverage.

Conclusion

While medical inflation in India is a significant concern for people looking to purchase medical insurance, the measures mentioned above might come in handy when you are browsing through different plans. Getting in touch with an insurance agent to explore the different types of health insurance plans might help you in selecting a suitable policy for you and your loved ones.

FAQs

What is the formula for calculating Medical Inflation?

Medical inflation is calculated by comparing the difference in medical costs between two periods, divided by the previous year's cost, and multiplying by 100 to get the percentage increase.

Can I negotiate the price of my health plan with the insurance company?

While you can't directly negotiate premiums, you can adjust your plan by changing coverage, deductibles, and adding riders to manage costs.

Will my health insurance premium go up due to medical inflation?

Yes, medical inflation leads to increased healthcare costs, which can cause insurers to raise premiums to cover rising medical expenses.

Why is medical inflation in India growing faster than general inflation?

Medical inflation in India is driven by high demand for advanced medical services, rising drug prices, and insufficient public healthcare, making private healthcare more expensive.

Why is healthcare cost rising in India?

The rise in healthcare costs is due to factors like increasing lifestyle diseases, medical advancements, higher treatment costs, and a growing population with greater healthcare access.

Why does my health insurance premium keep increasing?

Premiums rise due to factors like medical inflation, more claims, aging, and increased treatment costs. Insurers adjust premiums to keep up with the rising expenses of healthcare. * Standard T&C apply Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.