The cost of living crisis has made us increasingly aware of the impact inflation has on our finances, but how much do you know about medical inflation? We examine how medical inflation works and how it can affect private health insurance costs.
What causes medical inflation?
The causes of medical inflation are complex, but a few common factors have the most significant impact. Here are some of the main factors behind medical inflation:
1. New technology and treatments
Private healthcare providers pride themselves on investing in new treatments, drugs and technology to improve patient outcomes. Private health services usually offer treatments and new medicines that may not be available through the NHS. This is one of the main advantages of private health care, but it also comes with increased costs.
For example, nanoknife treatment for prostate cancer may offer an alternative to removing the prostate, so it is much less invasive than traditional treatments, has fewer side effects, and has better outcomes. It is currently only available privately because it involves expensive high-end technologies.
2. Increased demand
The NHS is still the first port of call for treatment for most people in the UK. However, the balance is beginning to shift, as more people seek private treatment due to long waiting times for NHS care.
The Private Health Information Network (PHIN) reported a 7% increase in private hospital admissions during the first quarter of 2023 compared to the previous year. While many patients paid out-of-pocket for treatment, the vast majority were funded by health insurance, and insurance-funded claims reached near-record levels.
These figures reflect the change in the number of patients paying privately for hospital treatment and do not include claims for outpatient treatment such as physiotherapy or counselling. As overall health spending by insurers increases due to higher claims, this also affects medical inflation.
3. People are living longer
We are all living longer, which is great news for us as individuals, but it can also increase our risk of ill health. The population of 34 countries is predicted to be classified as ‘super old’ by 2030, meaning that at least 20% of each country’s population will be over 65 years of age.
The prevalence of health conditions such as hearing loss, cataracts, diabetes, dementia and musculoskeletal problems increases as we age. Most cancer diagnoses in the UK are in people over 50, with a third affecting people over 75.
Although many aging-related chronic conditions are not covered by health insurance, an aging population means more claims and rising medical inflation.
4. Increased health problems related to lifestyle
As we live longer, lifestyle-related health problems are also on the rise, many of which are preventable with the right support.
Here are two lifestyle factors that cause health problems that fuel increased medical inflation.
Obesity
In 2021/22, 63.8% of adults in England were classified as overweight or obese, up from 63.3% the previous year. The figures were highest among adults over 45 years of age. Obesity is often the result of a poor diet and a sedentary lifestyle, where people do not have enough physical activity during the day and eat foods high in sugar and fat and low in fruits and vegetables.
Being overweight can cause or worsen chronic diseases such as high blood pressure, diabetes or asthma, which are not covered by health insurance. However, it can also cause rising medical inflation due to increased requests for hip or knee replacements or treatment for mental health problems. Being overweight can create a vicious cycle where weight gain results in reduced activity due to joint pain or breathing problems.
Smoking
Although the number of smokers in England has fallen in recent years, it is still the leading cause of preventable ill health and early death. Smoking can cause some types of cancer, heart and lung diseases such as asthma and COPD. Although many patients with smoking-related health problems have to rely on NHS treatment because their disease requires long-term follow-up, most insurers include cancer treatment in their basic cover. Smokers tend to pay higher health insurance premiums because they are more likely to make a claim. However, it can also affect medical inflation.
How does medical inflation affect health insurance premiums?
Medical inflation increases health insurance premiums because it makes health services more expensive. We’ve already discussed some of the causes of medical inflation, but here are the two main ways that medical inflation directly affects premiums.
Treatment costs per head have increased
Investing in new treatments and treatment technologies is expensive. However, private healthcare companies prioritize this type of investment to attract new clients and provide them with the best possible treatment outcome.
This usually means that if a new, cutting-edge drug or treatment offers you the best chance of a full recovery, you can access it through your health insurance. Although you can still get high-quality care from the NHS, newer and more expensive treatments may not be available.
The trade-off is that when your insurers spend more on the latest treatments, they will pass that on to their customers through higher premiums.
Insurers adjust premiums to reflect your claims history
As mentioned, more and more people are using health insurance to fund their treatment and avoid time on NHS waiting lists. More claims mean that health insurance pays more every year. Insurers calculate premiums based on the risk someone will claim. They will do this individually, which means your premium goes up if you file a claim on your policy and may go down if you don’t. However, the overall level of claims can also affect premiums.
If health insurance is a back-up that users only use for treatment they cannot get from the NHS, the overall payouts will be relatively low. However, if more people regularly seek treatment through their health insurance, this can affect insurers’ risk assessment and cause premiums to rise.
How can you reduce the impact of medical inflation on your premiums?
You can’t control medical inflation, but you can take steps to reduce its impact on your premium. Getting advice from a regulated broker helps you choose the right policy for your circumstances and get the best possible cover for your budget.
Here are some things to consider if you want to lower your premium and how medical inflation affects the price you pay.
Stay healthy
Taking care of your health reduces the risk of illness and the need to use your insurance for treatment. Insurers provide a variety of resources that can help you improve your health, including online resources and information about common health problems and ways to lead a healthier lifestyle. You can also access discounted gym memberships, fitness trackers and discounts on other support services. The NHS also offers tools and services to help you stay healthy; this article explains how your lifestyle affects your health and the help available.
When you invest in health insurance but don’t file a claim, your premium is less likely to go up and maybe even go down. Medical inflation will still affect prices, but you can reduce its impact on your premium.
Use preventive health services
Medical insurance usually includes various health assessments and tools to help you stay healthy. Some insurers even reward customers who achieve their healthy living goals with reduced premiums, benefits and discounts on various products and services. For example, Vitality’s rewards program offers discounts on hotel stays and spa days.
Participating in health assessments helps you identify problem areas and take preventative measures before they cause ill health. A recent survey of health insurers asked them to determine how consumers and health services have increased medical inflation. Unnecessary treatment or overprescribing was the number one problem. However, poor lifestyle choices and insufficient use of preventive health services came in second and third place. By taking care of yourself, you can lower your premium and help fight medical inflation.
Review your coverage
It’s a good idea to review your coverage periodically, especially if your circumstances have changed. Insurers sometimes change their coverage, for example by packaging services differently or removing or adding discounts. An independent broker will conduct an overall market review to ensure your policy continues to meet your needs. If your circumstances have changed, for example, if you’ve changed jobs or become a parent, your policy may need to change to reflect this.
Reviewing coverage means you’ll only spend money on things you’re likely to use. You can do this yourself, but getting professional advice reduces the risk of removing something important.
Increase your excess policy
Your policy excess is the amount you pay for your treatment before insurance covers the rest. Increasing your excess can lower your premium by reducing the amount your insurers have to spend if you make a claim.
One caveat: consider how much you can afford to pay out of pocket if you need treatment. Some providers offer an annual excess, so you only pay once, while others charge an excess per treatment. Setting your excess too high could prevent you from using your insurance, so you won’t get the benefits you paid for.
Consider a guided selection of consultants
Guided choice of adviser lowers your health insurance costs by reducing the amount your insurer pays for your treatment. While it won’t prevent rising costs due to medical inflation, it does dampen the effect. Guided consultant choice works to limit the amount of choice you have in terms of who treats you. Instead of offering you unlimited choices, your insurers will send you a list of 3-5 consultants when you apply. These consultants are still qualified but charge lower prices based on the cost of treatment or level of experience. Some experienced doctors also agree to treat a fixed number of patients at a reduced rate.
Taking this approach lowers your premium because it helps lower your insurer’s overall costs.
The goal of the MyTribe guide is to help you learn more about private health care and health insurance and the factors that can affect the cost of your premiums. We hope this guide has helped you understand how medical inflation affects healthcare costs.
The best way to find the right health insurance for your needs and budget is to talk to a broker. Contact us for a comparison quote and we’ll connect you with a high-quality, regulated broker for tailored advice, whether you’re buying health insurance for the first time or want to review your current policy.
Waiver: This information is general and what is best for you will depend on your personal circumstances. Talk to a financial advisor or do your own research before making a decision.
