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Medical Inflation in India: Causes of medical inflation and its effects on health insurance

Team AckoNov 7, 2022

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

Medical Inflation In India

Contents

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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 and its effects on health insurance

The following 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 as a result of 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.

  1. Developments in the field of medicine include introducing new drugs and technology that can treat diseases that weren't previously treatable. Medical inflation can also be brought on by modern diagnostic equipment, which can more accurately detect ailments.

  2. 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 changes in consumer behaviour where people are looking to invest in health insurance proactively compared to pre-pandemic time.

  • 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 disease, which ultimately raises healthcare expenses. 

  • Rising costs of raw materials: In addition to 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 change in cost per patient indicates a change in the unit cost of medical treatment or operation. Factors like a rise in hospital supply prices, staff at the hospital and consulting fees, and other expenses (including rent, utilities, technology, etc.) lead to an increase in Medical Inflation.

Current medical inflation rates in India

Despite high medical inflation, the demand for medical insurance in India remained high in 2022, with an overall growth of 25%, according to a report from a top financial service in India. With a medical inflation rate of 14%, India had the highest rate among Asian countries in 2021. The following table shows the Medical Inflation rates of other countries.

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

Frequently asked questions

Here are some common questions about Medical Inflation in India.

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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 2023?

For 2023, a 10% rise is anticipated globally. According to the 2023 Global Medical Trends Survey, 78% of all insurers worldwide are preparing for cost increases that are greater or noticeably higher over the next three years.

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

The straightforward answer is no. However, you can bring down the cost of your health insurance policy in several ways. For example, buying a plan early in life, renewing in time, undergoing annual preventive medical tests to detect a disease in its early stage, opting for a healthy lifestyle and lowering your claims, etc.

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.

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