[2024 Outlook] Why Is Medical Inflation Going Through the Roof?

Hong Kong’s medical inflation rate is set to be 8.4% in 2024.

The global health market is expecting another high global inflation rate in 2024. 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 "2023 Global Medical Trends Survey Report" by WTW, the global trend was projected to go up to 10.0% in 2023, even higher than 8.8% in 2022 and 8.2% in 2021.

The average increase surged from 6.9% to 10.2% in Asia Pacific, 8.0% to 8.6% in Europe, 10.5% to 11.5% in the Middle East and Africa, and 18.2% to 18.9% in Latin America. This leaves North America as the only region that saw a dip in its projected number, which decreases from 9.4% to 6.5%.

In a different global insurer survey report published by MercerMarsh Benefits, global health trend is predicted to be at 12.6% in 2023. The average will be 11.5% in Asia, 13.8% in Europe and 13.8% in the Middle East and Africa.

In Hong Kong:

WTW predicts medical inflation to be 8.4% in 2024, slightly lower than 8.8% in 2023. The Mercer report shows a similar trend in Hong Kong, with a forecasted medical trend rate of 7.5%. 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 2024?

Global medical trends in 2023 hit the highest projected increase in nearly 15 years, at a rate of 10% in WTW's medical trend and 12.6% 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.

Mind HK conducted a survey in March 2022 to understand the overall wellbeing level of Hong Kong citizens. Almost 56% of the respondents were found to have "poor" overall mental wellbeing under the World Health Organization 5 (WHO – 5) Well-Being Index. As worrying is that 49.4% of the respondents showed symptoms of mild to severe depression, and 41.3% showed symptoms of mild to severe anxiety.

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 16% of insurers do not provide any mental health services coverage – an improvement from 26% in 2022. In WTW's 2023 report, "Mental and behavioral health" currently ranks fourth by cost and incidence globally. And is expected to be the "fastest growing condition by incidence of claims over the next 18 months".

To learn more about the mental health trends, you can read the 2023 Asia Mental Health Index by AON and Telus Health and our exclusive thought piece examining mental health protection in the local insurance market.

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.