[2025 Outlook] Why Is Medical Inflation Going Through the Roof?

Hong Kong’s medical inflation rate is set to be 9.8% in 2025.

The global health market is expecting another high global inflation rate in 2025. We at Alea are taking a closer look at the trend to help you prepare for its direct impact on increased medical insurance costs. Read on to understand what's going on behind the surging costs.

What are the medical inflation rates worldwide and locally?

Internationally:

Medical inflation is an international phenomenon that affects continents differently. According to the "2025 Global Medical Trends Survey Report" by WTW, The global trend is expected to reach 10.4% in 2025, maintaining the same level as the 2024.

The average increase surged from 11.9% to 12.1% in Asia Pacific, 10.4% to 12.1% in the Middle East and Africa, and 8.1% to 8.7% in North America. Among the regions that experienced a decline in their projected figures: Latin America decreased from 10.4% to 10.1%, while Europe dropped from 10.1% to 9.4%.

In Hong Kong:

WTW predicts medical inflation to be 9.8% in 2025, slightly lower than 10.3% in 2024. The Mercer report shows a similar trend in Hong Kong, with a forecasted medical trend rate of 9%. While the increase rate is lower than the Asia Pacific average, it is important to note that private healthcare costs are particularly high in the city.

This is one of the reasons why it is important to choose your health insurance plan carefully, no matter whether you are buying insurance as an individual consumer, or for your group medical insurance coverage as an employer.

What drives the medical inflation trend?

In a nutshell, the increase in health insurance premiums can be explained by a number of external factors:

Medical practices and development

• Overuse and overprescription of care due to poor health habits of insured members
• Underuse or lack of preventive services
• Increase in costs of prescription medicines
• Introduction of new medical technologies

Demographic factors

• In Asia-Pacific, cancer, cardiovascular and musculoskeletal are the most common health conditions that incur huge financial costs for treatments
• The aging population
• The increasing incidence of mental health conditions

The 2023 Segal Health Plan Cost Trend Survey Report also highlights internal factors in the insurance industry:

• Changes in plan design
• Regional market competition
• Administrative fees
• Contract renegotiations, improvement of insurance plans, cost management, etc.

Why is medical inflation so high in 2025?

Global medical trends in 2025 is projected to reach 10.4% in WTW's medical trend and 10.8% in Mercer's forecast. Let's take a look at the key driving factors.

Cancer, musculoskeletal and cardiovascular disorders

The WTW report explains that cancers, cardiovascular diseases, and musculoskeletal conditions are the top three conditions by cost and incidence. These three conditions are expected to account for the most substantial medical costs in the next five years.

In Hong Kong where life expectancy is rated the highest in the world according to the United Nations Vital Statistics Summary, the aging population and the increasing number of cancer cases have been driving medical inflation locally.

While cancer accounts for the highest medical costs, musculoskeletal conditions have the highest incidence of claims. The remote working model and sedentary lifestyle during COVID-19 have afflicted many musculoskeletal conditions, such as arthritis, osteoporosis, osteoarthritis, back pain and fibromyalgia.

Mental health crisis

Mental and behavioral health problems are becoming more concerning than ever, worsened by the COVID-19 crisis.

A recent AON and TELUS Health research indicates that 82% of workers in Asia are at a moderate to high risk of experiencing mental health issues, underscoring the enduring effects of the pandemic on the region's mental health landscape.

Mental health care was traditionally excluded by insurers until lately, more and more health insurance providers are willing to cover mental health coverage — which inevitably increases health insurance costs. Mercer discovers that only 30% of insurers provide education, resources and tools on mental health topics.

To learn more about the mental health trends, you can read Alea 2025 Insurance and Mental Health report.

Overconsumption of healthcare services

An excess of care leads to higher pricing. High medical inflation rates are also explained by the overconsumption of healthcare and the emergence of new technologies. This overconsumption comes as much from healthcare professionals as from the patients themselves. Poor lifestyle habits bring about higher healthcare prices and drive inflation.

Likewise, the use of new and more efficient technologies ineluctably leads to an increase in prices. In fact, 75% of insurers this year are most concerned about the heightening of costs due to healthcare providers recommending too many services.

What is the impact on insurance premiums?

Medical inflation rates directly impact private health insurance premiums. In fact, premiums tend to increase each year even if your insurance contract remains unchanged and provides the same benefits. While premium increases are partly due to insurers’ management performance of their products, inflation rates are often beyond the control of insurers.

With the uncertain economic outlook, companies and individuals may need to review their medical benefits and consider making substantial changes at renewals. You may want to plan in advance for changes in medical service pricing and prioritize benefits under your plan.

The same when you are shopping around for life insurance options, do take into consideration future inflation and how it may affect the costs of living.

How Alea helps you save time & money on insurance

Impact of the pandemic on medical inflation

During the pandemic, many non-urgent surgeries and elective care were delayed, bringing a decline in healthcare utilization and medical cost to many countries in 2020 and 2021. However, as deferred healthcare utilization resumes, medical costs are expected to return to pre-pandemic levels. This accounts partly for the inflation in Hong Kong, as WTW notes that the gradual relaxation of social gathering restrictions and incoming travelers quarantine rules may imply a larger demand of hospitalization and medical services.

WTW also reports that some insurers have removed certain pandemic exclusions and refined program wording limitations. Mercer found that more than 1 in 5 Asian insurers adjust premiums based on COVID-19 vaccination status.

On the other hand, telehealth has become a trend during COVID-19, which provides more efficient access to healthcare services, while serving as an effective cost management tool. More than half of the insurers surveyed now cover telehealth across their plans.

Global medical trends and health insurance premiums are expected to further increase for the next three years, as agreed by 78% of insurers worldwide.

Brace yourself for the upcoming challenges and be sure to check out our guide on how to reduce your health insurance cost here to plan your next steps.