We’re all used to insurance premiums rising year after year. Health insurance, including international cover, is particularly afflicted by this annual increase. And when a client doesn’t claim and yet is still faced with paying more the following year, awkward questions can arise.
If this happens, it helps to have a response up your sleeve – especially if international private medical insurance is not your core area of expertise.
In this piece I examine some of the key reasons why health insurance premiums rise each year and outline some of the strategies clients can use to manage their premium rises.
What is Medical Inflation?
Medical inflation takes into account both the existing costs of medical services in a country, and also how many of those services are used, or their utilisation. International health insurance premiums are affected by how medical inflation rises on country, regional and global basis.
Costs of medical services (or unit costs)
Looking at the cost side of things, it helps to think in terms of units. If one country has a relatively low unit cost of 10 and this increases to 11, the impact on medical inflation would be 10%. A country with a higher overall cost of healthcare might see their unit cost rise from 20 to 21, which would represent a less severe medical inflation rate of 5%.
Each country’s unit cost is determined by a number of factors including drug and equipment costs and the ability to drive costs efficiencies within a healthcare system. New medical facilities setting up with high pricing structures can also help to push up unit costs. And while healthcare innovation is to be welcomed, more advanced machinery or procedures can also push up unit costs.
Utilisation of medical services
Complicating the picture is utilisation, or the number of units of medical treatment used each year. Utilisation is affected by a number of factors:
- Average usage frequency – people in less developed countries seek medical treatment less frequently than in developed nations. Similarly, older populations will cause higher usage rates. If a country sees average doctor visits rise by one in a year, this will have a far larger effect on medical inflation in a country with low usage rates than those with higher frequencies. And, as wealth around the world increases so the average usage frequency will continues to rise.
- Number and cost of services – there is continual pressure on medical providers to increase revenues. To do this, providers can increase usage of the existing services, raise the cost of those services or introduce new services.
In addition to the above, people are becoming more aware of the services available to them – driven by increased wealth but also the promotional efforts of medical providers. Demand is also being driven by the shifting demographic and health trends including older and less healthy populations in certain countries around the world.
The impact of insurance claims
Claims are another factor that drive premium increases. Insurers experiencing excessive claims across-the-board will need to consider increasing premiums more than they would do otherwise. To help soften the impact, insurers have a number of strategies that help reduce the incidence of claims.
- Provider networks control the costs of medical treatment by agreeing the cost of standard treatments with insurers in advance.
- Pre-authorisation also allows insurers to ensure recommended treatment plans are not excessive.
- On occasion, members will also be directed away from the most expensive facilities by insurers – not because of the cost, but because a less expensive facility offers a better standard of care for a particular condition.
- Recent years has seen wellness become a big focus – after all, caring for a healthy population is less expensive than treating an unhealthy one. A number of insurers now provide digital tools and information to help their members make healthier lifestyle choices.
International health insurance premiums unfortunately do rise annually, usually to the tune of 5-10%. However, if clients understand the broad picture of why this occurs, they may well be more accepting of the situation.