What is medical inflation?

1. What is medical inflation?

2. Causes of medical inflation

3. How do insurance providers keep premiums sustainable?

The patient experience is also transforming across this landscape, resulting in a growing desire for a personalised experience, preventative care and new technologies that help streamline healthcare operations.

In this blog, we take a closer look at medical inflation, including what causes it and how insurance providers are working to tackling the problem.

What is medical inflation?

Medical inflation is a term used to describe the rate at which healthcare costs have risen due to new trends and developments.  This has remained high for several years, as an increased need for medical care has resulted in more pressure on healthcare systems across the world.

The global average medical trend rates are set to be 10% in 2025 according to Aon, with rates the highest in the Middle East and Africa (15.5), followed by Asia-Pacific (11.1) and Latin America and the Caribbean (10.7).[1]

Causes of medical inflation

There are a variety of reasons why medical inflation has been so high in recent years, as new innovations and challenges continue to impact the way healthcare services operate across the world. Below are some of the key drivers behind this trend.

Technological advancements

The introduction of new technologies is changing the way we use healthcare services, and can impact global medical inflation rates.

While digital solutions can provide many benefits in the healthcare sector, such as providing faster diagnostics, a more streamlined patient experience and improving treatments, they can cause services to become more costly.

This is because the development of digital solutions can be lengthy and expensive, and once implemented, medical facilities may also face high costs in maintaining their equipment.

High research & development costs

Research and development within the healthcare sector has resulted in an increase in global medical inflation rates.

This can involve the cost of developing and introducing new drugs and treatments, including navigating complex regulations, production and distribution. Though this helps to meet the demand for healthcare services and can improve and expand treatment options, the process of research and development can be lengthy and expensive.

Ageing populations

Ageing populations have also contributed to the rising costs of healthcare. According to the World Health Organisation, the percentage of the world’s population over the age of 60 is predicted to have nearly doubled from 12% in 2015 to 22% in 2050.[2]

With a higher proportion of people living longer, the pressures on healthcare services have grown. This is because older people are more likely to need continuous medical care, such as for the management of chronic diseases, or to access medical treatment.

The prevalence of chronic diseases

An important factor to consider is that lifestyle-related factors are creating higher demand for healthcare and putting pressure on services.

Conditions such as diabetes, obesity and heart disease are on the rise, requiring long-term management and driving up healthcare expenses. This is because this group are at higher risk of developing serious health conditions, such as cancer or lung problems.

Healthcare administration

The costs associated with healthcare administration are another reason why medical inflation has increased.

Due to a higher demand for services, more healthcare professionals have been recruited and trained. Though this helps ease pressures faced by providers, it has required greater expenditure, and added to rising healthcare costs.

Additionally, the price of running and maintaining medical facilities has also affected medical inflation. For example, complex systems and regulatory compliance can result in higher administrative costs for healthcare providers.

How do insurance providers keep premiums sustainable?

Insurance companies are implementing many measures to help control rising costs for their members. Here are just some of the ways they are working to do this.

Negotiating with medical providers

In some areas of the world, healthcare isn’t regulated in terms of prices, which can put a strain on premiums. One step insurance companies take to keep these sustainable is by negotiating medical/treatment costs with healthcare providers.

Many have contracts with providers that help keep costs down for members, as well as direct billing partnerships that support them in finding the right medical care at an appropriate and fair price.

Encouraging preventative care

Encouraging preventative care has also become an important method of countering rising costs in health insurance.

Many insurance providers include in their plans cover for things like vaccinations and routine health assessments, which can catch health conditions early and improve health outcomes, whilst minimising the costs of treatment.

Other steps they could take incorporate actively encouraging healthy behaviours amongst their members, such as exercising regularly or eating a healthy balanced diet.

Leveraging technology

Insurance providers can leverage technology, such as data analytics and automated claims management, to support them in keeping premiums sustainable.

They are increasingly using technology to detect cases of fraud too, allowing them to identify things like inflated claims or false information.  

Cover options

Another way insurance providers are working to keep premiums sustainable is by offering an excess option with their international health insurance plans.

This refers to the amount a member pays pay out-of-pocket before their insurance will cover costs, and can mean they pay a lower premium amount.

Insurance companies may also provide the option to exclude certain countries from cover, such as the USA and the Caribbean if such cover is not required. This is because healthcare costs can be very expensive in these countries, which puts the cost up for members who don’t travel to these areas.

Telehealth services

The popularity of telehealth services has increased significantly in recent times, with Statista finding that usage has more than doubled from 57 million users in 2019 to a forecasted 120 million users in 2025.[3]

Telehealth services offer convenience to members, allowing them to have a consultation with a qualified physician from a location of their choice, anywhere around the world. You can find out more about telehealth services by clicking here.

It also helps to reduce the need for expensive in-person appointments, which assists in controlling costs. For example, more than 70% of our telehealth cases are resolved via telephone and don’t require a follow-up appointment.