In the recently released 2023 Global Medical Trends Survey Report published by Willis Towers Watson (WTW), WTW found that medical costs rose 8.2% in 2021 and 8.8% in 2022, and projected to remain at 10% globally and 10.2% for Asia Pacific for 2023.
What drives medical inflation?
Some common causes of medical inflation include:
- Increased benefit utilization from:
- Policyholder behaviour – as policyholders learn more about what insurance plan pays for, and the convenience from using insurance, they will tend to use more of the benefits over time. This is particularly true when they are either not insured before, or have a new kind of benefit (eg. as charged vs inner limits)
- Provider behaviour – as providers learn more about what insurance pays for, there is sometimes a tendency to over-prescribe (eg. Drugs/tests which are not medically necessary), or to admit patients for procedures which can be done on a day surgery basis
- Increased cost from:
- General inflation – increased inflation globally increases the cost to produce medical supplies, including drugs and medical equipment. For example, increased energy cost in Europe/USA will increase the cost to power factories leading to increased manufacturing cost. With Cambodia importing much of their drugs and medical supplies, this will inevitably lead to an increase in the raw prices that providers face, and hence the overall cost to provide the same level of services will increase.
- Salary inflation – over time, there is a reasonable expectation for providers to have salaries which adjust at least in line with general inflation. Hence, for the same service, the professional fees they charge would tend to go up over time
- Rent inflation – a large part of cost faced by providers come in the form of rental which will increase over time. To keep their business sustainable, providers will have to pass on any increase in cost to the patients.
- New technology – research into better machines and medicine is costly, and bio-technological companies have to recover their investments over the patent period (for medicine). For example, a lot of investment is spent on cancer drug research, leading to drugs with better clinical outcome. However, these are typically quite costly to support the ongoing investment required.
These factors typically work together to increase the cost of healthcare over time.
Plans with inner limits are better able to control medical inflation, as the inner limits ensure that even if the bill from the provider increase over time, the insurance company is able to reject the portion of the bill above the inner limits, and hence keep costs reasonably stable over time.
Plans without inner limits tend to be more customer friendly, with lower claims declined due to being over limit, and being supportive towards customers when they require expensive treatment which is medically necessary. However, this does result in the full impact of any medical advances or inflation to be passed fully to the insurance company, resulting in a high, sustained level of inflation over time
Experience from Cambodia
From SafetyNet’s Business Health Protect (BHP) portfolio, we have observed the following inflation trends in Cambodia from 2018-2022:
- Inpatient admissions have the highest inflationary trend, seen in the form of increased cost per admission by around 10% a year
- We see very low/minimal inflation on the outpatient benefits
- We see significant inflation on the optional benefits, especially dental benefit. This is likely a result of more customers understanding their benefits and being encouraged to use
For 2023, with the macroeconomic environment continuing to be highly inflationary, we continue to expect high medical inflation in our portfolio, consistent with what WTW observes globally.
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