Why Is Medical Inflation Going Through the Roof?
19 August 2021
Hong Kong’s medical inflation rate is set to be 6.7% in 2021.
If you can’t put a price on your health, the increasing costs of healthcare are causing quite a stir around the world. We at Alea are taking a closer look at why medical inflation is going through the roof especially so because of its direct impact on increased medical insurance costs. If you are exasperated by your insurance premium increase, here are some explanations to better understand what's going on.
What are the medical inflation rates worldwide and locally?
Medical inflation is an international phenomenon that affects continents differently. According to the "2021 Global Medical Trends Survey Report" by Willis Towers Watson, the global trend is projected to drop to 5.9% in 2020 before springing back to 8.1% in 2021.
The average increase will go up from 6.2% to 8.5% in Asia Pacific, 4.2% to 5.8% in Europe, and in 8.7% to 10.0% in the Middle East and Africa. The predicted increase is even more significant in North America and Latin America, where inflation rates will grow from 2.8% to 7.1% and 9.0% to 13.6% respectively.
In Hong Kong:
Willis Towers Johnson's report also predicted medical inflation to rise from 6.2% in 2020 to 6.7% in 2021, lower than 8.2% in 2019. 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. Moreover, medical benefits are an advantage highly valued by employees, and therefore an important element to take into account for employers who want to attract and retain talents and staff.
Why is medical inflation so high?
The Willis Towers Watson report explains that cancers, cardiovascular diseases, and musculoskeletal conditions are the top three conditions by cost and incidence (80%, 56%, 41% respectively). While these three conditions are set to have the most impact in the next five years, mental and behavioral health problems will become increasingly significant in the future. To learn more about this trend, you can read the 2019 report “The mounting crisis of mental health” by Willis Towers Watson.
High medical inflation rates are also explained by overconsumption of healthcare as well as new technologies. This overconsumption comes as much from healthcare professionals as from the patients themselves. Unfortunately, each act of care has a cost, and the excess of care contributes to higher pricing.
Likewise, the use of new and more efficient technologies ineluctably leads to an increase in prices. In fact, 70% of insurers say that new technologies are partly responsible for medical inflation rates in the 2020 Global Medical Trends Survey Report.
Poor lifestyle habits also lead to higher healthcare prices and drive inflation.
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.
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’ good or poor management of their products, inflation rates are often beyond the control of insurers.
In its "2021 Global Medical Trends Survey Report", Willis Towers Watson has found that co-insurance is the number one cost management method — just behind the limiting or capping of certain benefits. Insurers across all regions have been working with networks of providers as the main cost management method.
There is a global trend to exclude the coverage of preexisting conditions for companies with less than 50 employees and the most common exclusions worldwide remain treatments associated with alcohol and drug use, and HIV/AIDS.
According to Willis Towers Watson, "low utilization of medical services during the pandemic and the recession forecasted by the government are the two main drivers of the slowdown in medical trend for 2020 and 2021." There is no doubt that with the uncertain economic outlook, companies will review their medical benefits and consider making substantial changes.
Impact of the pandemic on medical inflation
Over the year 2020, COVID-19 has delayed many non-urgent surgeries and elective care, bringing a decline in health care utilization and medical cost to many countries. However, as deferred health care utilization resumes, the ongoing costs are expected to increase substantially in the coming year(s).
In the US alone, medical cost trend has gone up from 6% in 2020 to 7% in 2021, and is expected to slightly shrink to 6.5% in 2022, as consultancy PwC’s Medical cost trend: Behind the Numbers 2022 report estimates.
Willis Towers Watson also reports that some insurers have removed certain pandemic exclusions and refined program wording limitations, with the exception of the Europe market which has tighter policies on pandemic claims. Contrarily in Asia Pacific, only 8% of insurers are expected to exclude pandemic, a sharp drop from the pre-pandemic 27%.
On the other hand, telehealth has become a trend during COVID-19, which provides more efficient access to health care services, while serving as an effective cost management tool. Half of the insurers surveyed now cover telehealth across all plans.
As far as renewal is concerned, about two-thirds of insurers are open to offering other renewal options to address the pandemic’s impact on claims experience in 2020, for example, experience rating, two-year guarantees, premium rebates and premium holidays.
An advisor will be in touch to answer all your questions!
This article was independently written by Alea and is not sponsored. It is informative only and not intended to be a substitute for professional advice and should never be relied upon for specific advice.