Rising Health Insurance Premiums: A Consequence of Soaring Medical Inflation

In recent years, the cost of healthcare has been rising at an unprecedented rate, largely driven by a phenomenon known as medical inflation. According to Star Health and Allied Insurance Managing Director and CEO, health insurance premiums are expected to surge by 10% to 15% due to this escalating inflation. This increase in premiums is expected to have a significant impact on policyholders, insurers, and the overall healthcare ecosystem. In this article, we explore the dynamics behind medical inflation, its causes, and how it influences health insurance premiums.

Understanding Medical Inflation

Medical inflation refers to the increase in the cost of healthcare services and goods, which outpaces the general rate of inflation in the economy. It encompasses rising prices for a variety of healthcare services such as:

Hospitalization costs
Doctor’s consultations and fees
Diagnostic services
Medical treatments and surgeries
Prescription drugs

India’s healthcare sector has seen sharp inflationary trends driven by both supply-side and demand-side factors. The costs of operating medical institutions, advanced medical technology, and pharmaceuticals are climbing steadily, making healthcare more expensive for consumers. As a result, health insurers are faced with rising claims, which directly affect insurance premiums.

Factors Contributing to High Medical Inflation

Several factors contribute to the increasing cost of healthcare, which in turn leads to rising health insurance premiums:

Advanced Medical Technologies
Modern healthcare relies heavily on cutting-edge technologies for diagnosis and treatment. MRI machines, robotic surgeries, advanced diagnostic equipment, and state-of-the-art medical tools drive up the cost of care. While these technologies result in better healthcare outcomes, they also increase the operational expenses for hospitals, which are ultimately passed on to patients.
High Pharmaceutical Costs
The pharmaceutical industry is an essential component of healthcare costs. Patented drugs, often used to treat critical illnesses such as cancer, cardiovascular diseases, and chronic ailments, come with hefty price tags. The cost of research and development, coupled with regulatory compliance, results in drug prices that contribute significantly to medical inflation.
Rising Hospitalization Expenses
Hospital infrastructure is becoming more expensive to maintain. From sophisticated medical equipment to staffing needs for highly specialized personnel, hospitals incur heavy operational costs. Hospitalization expenses, including room rent, surgical procedures, and post-operative care, continue to increase, which directly affects medical insurance claims and, by extension, premiums.
Increased Demand for Quality Healthcare
As India’s middle class expands, more individuals are opting for quality healthcare, driving up demand for private hospitals and top-tier medical facilities. The rise in lifestyle diseases such as diabetes, heart disease, and obesity has further escalated demand for specialized care, contributing to medical inflation.
Pandemic Impact
The COVID-19 pandemic revealed vulnerabilities in global and national healthcare systems, leading to a dramatic increase in healthcare spending. The rising cost of personal protective equipment (PPE), ventilators, ICU beds, and vaccines has had a lingering effect on medical inflation, despite the pandemic’s decline. Insurers had to handle a surge in COVID-related claims, which affected their balance sheets and is now reflected in premium hikes.

How Rising Medical Inflation Impacts Health Insurance Premiums

For insurers, rising medical inflation results in higher payouts for claims. With the increase in hospitalization costs, diagnostic tests, and treatments, insurers face greater financial strain to settle claims. To maintain their profitability and ensure sustainable business operations, insurers are compelled to increase premiums. Below are some key reasons why health insurance premiums are expected to rise by 10%-15%:

Higher Claim Settlements
Insurers are now dealing with significantly higher claims due to both routine healthcare needs and the aftereffects of the COVID-19 pandemic. The frequency of high-value claims, especially for chronic and lifestyle diseases, has increased. To account for these larger settlements, insurers adjust premium rates to balance their risk exposure.
Greater Coverage and Expanding Policies
Consumers are increasingly opting for more comprehensive health insurance plans that cover a wide range of illnesses and critical treatments. However, this increase in policy coverage leads to a higher payout potential for insurers, who pass the increased cost burden to policyholders through premium hikes.
Prevalence of Lifestyle Diseases
Sedentary lifestyles, unhealthy diets, and rising stress levels are leading to a surge in non-communicable diseases. Treatments for these diseases are typically long-term and costly, contributing to higher medical claims. Insurers must factor in the growing prevalence of these illnesses, resulting in the need to increase premiums to manage higher claim volumes.
Inclusion of Advanced Treatments
Insurers are also covering new-age treatments such as gene therapy, robotic surgeries, and advanced cancer treatments. While these treatments promise better healthcare outcomes, they come at a premium. Insurance companies must adjust their premium structures to accommodate the rising cost of covering such treatments.

Impact on Policyholders

As health insurance premiums rise, policyholders will bear the brunt of higher costs. For many, this may necessitate reevaluating their coverage options or making difficult choices between affordable plans with limited coverage and comprehensive plans with higher premiums. The following are some of the effects on policyholders:

Budget Adjustments: Consumers may need to allocate more of their household budget towards insurance premiums, especially in families with multiple dependents or senior citizens who require enhanced coverage.
Shifts in Coverage: Some policyholders may opt for lower coverage limits to keep their premiums affordable, which could expose them to greater financial risks in case of a medical emergency.
Increased Out-of-Pocket Expenditure: Rising premiums may lead some consumers to avoid purchasing add-ons or riders that cover essential medical needs, increasing their potential out-of-pocket expenses.
Demand for Preventive Healthcare: With higher premiums, more individuals may seek to adopt preventive healthcare measures, such as regular check-ups and wellness programs, to reduce their long-term health risks and potentially lower their insurance costs.

How to Mitigate the Impact

While the increase in health insurance premiums due to medical inflation seems inevitable, there are steps consumers can take to mitigate the financial burden:

Compare Plans Regularly: Review and compare health insurance policies annually to ensure you get the best value for your premium.
Opt for Family Floater Plans: Family floater plans offer coverage for multiple family members under a single policy, often at a lower premium than individual plans.
Focus on Preventive Health: Participating in wellness programs, maintaining a healthy lifestyle, and opting for routine check-ups can help reduce medical claims and lower future premium hikes.
Consider Top-Up Plans: If the base health insurance plan is becoming too costly, consider buying a top-up plan that covers expenses above a certain threshold, providing coverage at a more affordable premium.

Conclusion

The expected rise in health insurance premiums by 10%-15% is a direct consequence of soaring medical inflation, driven by factors such as rising hospitalization costs, advanced technologies, and increasing demand for quality healthcare. While this premium hike will have financial implications for policyholders, it underscores the importance of staying insured in an era of rising healthcare costs. Consumers can mitigate the impact by exploring different coverage options, engaging in preventive health measures, and regularly reviewing their policies. The future of healthcare may be expensive, but with the right insurance plan, individuals can protect themselves from financial distress.