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Medical Inflation in India: Causes of Medical Inflation and its Effects on Health Insurance

Team AckoDec 26, 2024

Multiple research reports confirm that medical inflation is rising in India. Notably, one of the effects of increasing medical treatment costs in India is the rise in health insurance premiums. This rise applies to all types of policies and policyholders, regardless of risk profile. This article will shed light on the causes of medical inflation and its effects on health insurance premiums. It will help you understand why you are paying more premiums each year. Read on to know more.

Medical

Contents

What is Medical Inflation?
Causes of Medical Inflation
Current Medical Inflation Rates in India
Impact of Medical Inflation on Health Insurance Premiums
Managing Rising Health Insurance Premiums Due to Medical Inflation
Understanding the Effects of Medical Inflation on Group Health Insurance
Key Takeaway
Frequently Asked Questions

What is Medical Inflation?

The term Medical Inflation describes a scenario in which healthcare services' average and per-unit costs increase over time. This includes the price of new treatments and procedures and their widespread availability and services. This is because the cost of medical care, supplies, and medications is rising faster than the price of other goods and services.

Causes of Medical Inflation

Rising costs of healthcare services, advanced medical technology, and expensive treatments drive medical inflation. Factors like increased demand for quality care and higher pharmaceutical prices also contribute significantly.

The following factors can be the contributing factors to the rising medical inflation in India.

Technological advancements: The fact that a lot of money is invested in finding new treatments for patients with life-threatening illnesses is a significant factor in the rise in medical costs in India. Modern medical treatments and therapies for diseases like cancer, transplants, etc., are likewise more expensive as they are developed. These days, most of the equipment used in top-notch hospitals is imported from other nations, which has led to an increase in medical costs.
High demand: One area where people are still willing to spend money is healthcare. Even foreign medical tourists frequently overspend on healthcare due to their stronger currencies, which has directly contributed to a sharp increase in medical costs in India.
COVID-19 pandemic: The pandemic marked a turning point for the healthcare sector, which laboured round-the-clock to cater to the needs of COVID patients. During this time, raw material imports were further hampered by the trade embargo at a time when they were most required. For example, the movement of goods and passengers was halted across state borders in India. In our nation, there was also a sharp increase in the need for frontline personnel, ventilators, oxygen cylinders, etc. There has been a significant rise in hospitalisation costs due to this demand.
Rising service costs: This indicates a change in how healthcare services are used overall. Here are the factors that contribute to an increase in service costs.

Developments in medicine include introducing new drugs and technology that can treat diseases that weren't previously treatable. Modern diagnostic equipment, which can more accurately detect ailments, can also cause medical inflation.
A change in consumer behaviour can influence the costs of medical treatment. This refers to a change in people's viewpoints, such as more health coverage or greater consumer health knowledge. The COVID-19 pandemic is a classic example of a change in consumer behaviour, as people are looking to invest in health insurance proactively compared to pre-pandemic times.

Increasing medical tourism: Travellers are increasingly coming to India for medical treatment for various severe conditions, including organ transplants and cancer. As a result, there is an increased demand for services related to severe diseases, which ultimately raises healthcare expenses.
Rising raw materials costs: Besides import taxes, freight costs, and warehouse fees, the cost of raw materials and emergency aid has increased significantly. The sum of these factors has raised medical inflation substantially.
Variations in cost per patient: The cost change indicates a change in the unit cost of medical treatment or operation. Factors like a rise in hospital supply prices, hospital staff and consulting fees, and other expenses (including rent, utilities, technology, etc.) lead to an increase in medical inflation.

Current Medical Inflation Rates in India

Over the past few years, medical inflation in India has outpaced general inflation rates, averaging between 10 and 12 per cent per year. In 2024, the average rise in health insurance premiums over the previous year was between 15 and 20 per cent. Testing, treatment, and immunisation costs have increased due to the COVID-19 pandemic, further increasing healthcare costs. Despite attempts by lawmakers and regulators to control medical inflation, both insurers and policyholders continue to face difficulties due to the rising trend.

Impact of Medical Inflation on Health Insurance Premiums

The impact of high medical expenses on insurers

Insurance firms are under more financial strain due to rising medical care and services expenses. These businesses are, therefore, forced to pay higher compensation, which they then pass on to customers in the form of higher premiums.

Premium increases with age

Within a certain age range, health insurance rates often don't change. However, switching from one age group to another results in a premium adjustment. The premium may increase significantly—up to 50%—if you move into an older age group.

Serious effects on elderly individuals and those with pre-existing conditions

Compared to younger people, elderly people and those with pre-existing conditions are more likely to need costly medical procedures. Insurance firms raise the premiums for their policies because of the higher compensation required for policyholders under this category.

Managing Rising Health Insurance Premiums Due to Medical Inflation

Even though it might be difficult to prevent medical inflation, you can address its effects on your policy's cost in a few ways:

1. Invest in health insurance as early as possible

Early health insurance purchases guarantee cheaper and more manageable premiums. These policies shield you from rising healthcare expenditures by covering hospital bills and related fees. Purchasing health insurance as soon as possible is beneficial for your financial situation and general well-being.

2. Select bonus health insurance with no claim benefit

Some insurance companies frequently give their policyholders no-claim bonus benefits for each year without a claim. The advantages could be a premium reduction or an expansion of the policy's coverage. These benefits rise with each year without a claim, providing you with an opportunity to extend the insurance coverage and cope with the rising cost of healthcare.

3. Select the appropriate policy

The effect of medical inflation on your premium might be lessened by selecting the appropriate medical insurance plan. Seek plans that provide reasonable premiums and appropriate health coverage for your medical requirements. Choose the policy that offers the most value for your money by comparing those given by various insurers.

4. Select higher deductibles

The amount you must spend before your insurance coverage begins is known as the deductible. The premium may be reduced by selecting a greater deductible. However, if and when you need to submit a claim, be sure you have the funds to cover the deductible.

5. Continue to lead a healthy lifestyle

Leading a healthy lifestyle can lessen the effect of medical inflation on your policy's premium and lower your chance of getting sick and needing medical care. Several insurance firms provide special discounts to clients who lead healthy lives, depending on the wellness products they choose.

Understanding the Effects of Medical Inflation on Group Health Insurance

All segments of the Indian population, including workers, have been negatively impacted by the health insurance business, which the country's soaring medical inflation has particularly hard hit. Due to rising insurance prices, employees are forced to pay for most of their medical bills out of pocket.

Because group insurance policies have become more expensive due to inflation, only a small portion of the Indian workforce is covered by their employer's health insurance. In such circumstances, most workers must forego regular health examinations. Many workers also put off seeing a doctor because they fear future medical bills.

It is also important to note that some firms offer their employees telemedicine support, further clarifying the impact of medical inflation. Employers must, however, take the initiative and offer their staff members corporate mediclaim coverage.

Workers are entitled to the best healthcare support as the backbone of the nation's economy. To protect their health, businesses should ideally offer them a sufficient group mediclaim policy.

Key Takeaway

Rising healthcare costs, advanced medical technologies, and increased demand for private healthcare services drive medical inflation in India. These escalating expenses impact health insurance, leading to higher premiums, reduced affordability, and limited coverage options for policyholders. Factors such as higher pharmaceutical prices, over-reliance on imported medical equipment, and a growing burden of lifestyle diseases further contribute to the issue.

This can mean out-of-pocket expenses for individuals despite being insured, while insurers face challenges in balancing premiums with claim costs. Addressing medical inflation requires innovative healthcare policies and stronger regulatory frameworks to make healthcare and insurance more accessible.

Also read: Family health insurance plans

Frequently Asked Questions

Here are some common questions about Medical Inflation in India.

What is the formula for calculating Medical Inflation?

Medical Inflation is derived by averaging annual price changes for each item in the basket by the share weights of each item in the consumer's base year expenditure.

What is the anticipated rise in medical inflation globally in 2025?

In 2025, global medical inflation is anticipated to rise by an average of 10%. While overall economic inflation is projected to decline, healthcare costs continue to climb, driven by advancements in medical technology, increased plan utilisation, and the growing prevalence of chronic health conditions. Regions like the Middle East and Africa are expected to see the highest increases at 15.5%, followed by the Asia-Pacific at 11.1%, while North America is projected to experience an 8.8% increase.

Can I negotiate the price of my health plan with the insurance company?

No, however, you can lower the cost of your health insurance policy in several ways. For example, you can buy a plan early in life, renew it in time, undergo annual preventive medical tests to detect a disease in its early stage, opt for a healthy lifestyle, and lower your claims.

Will my health insurance premium go up due to medical inflation?

In most situations, medical inflation will result in higher health insurance premiums. This is because the growing expenses of medical procedures and treatments force insurance companies to make larger payments. The result of this is higher premiums, as you can see.

How can I reduce my health and life insurance premiums?

You can reduce your life and health insurance premiums by purchasing a plan early in life, renewing it on schedule, reducing your claims, selecting the appropriate policy, leading a healthy lifestyle, etc.

Are there steps being taken to control medical inflation in India?

Policies to restrict prescription prices, enhance public healthcare infrastructure, and encourage generic medications are some measures taken to reduce medical inflation. To lessen reliance on pricey imports, the government also funds domestic manufacturing through programmes like ‘Make in India.’ To lessen the effects of medical inflation, efforts are also being made to expand telemedicine and form public-private partnerships to make healthcare more accessible and inexpensive.

Why is medical inflation in India growing faster than general inflation?

Because of some aspects of the healthcare sector, medical inflation frequently exceeds overall inflation. These include the cost of importing high-quality medications and equipment, the rise in demand for specialist treatments as India's population ages, and developments in medical technology. In contrast to other industries, the high cost of hospital infrastructure maintenance and the demand for innovative therapies significantly impact healthcare expenses, causing medical inflation to rise more quickly than general inflation.

Country	Medical Inflation rate
India	14%
China	12%
Indonesia	10%
Vietnam	10%
Philippines	9%

Reference

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content and before making any insurance-related decisions.