Generali Global Health eBook Series
01 November 2018
The impact of Medical Inflation on international private medical insurance premiums
Welcome to Generali Global Health’s eBook series. In this eBook we take an in-depth look at medical inflation in international private medical insurance (IPMI), including the causes and the strategies the IPMI market adopts to minimise the annual effect on health insurance premiums.
This eBook provides IPMI brokers and advisers, and HR managers dealing with international employees and their health insurance, a deeper understanding of one of the key reasons why premiums rise each year, even if claims experiences are positive. There are specific challenges for the IPMI sector that are outlined in this e-book.
Meet the Author
Marco Giacomelli – CEO of Generali Global Health
Marco is CEO of Generali Global Health (GGH), the Generali Group’s dedicated provider of International Private Health Insurance solutions.
An actuary with 20+ year career at Generali, including several assignments around the world, he also serves as Chairman of the International Employee Benefits Association (IEBA) and a Fellow of the UK Institute of Directors.
Defining medical inflation
When a client’s premium has increased by 10% even though they have a good claims record, they have every right to ask why.
The main culprit is medical inflation, an annual conundrum and major contributor to pressure on international private medical insurance premiums. Medical inflation is the scourge of brokers and advisers, who often have to explain double-digital premium increases to their clients at renewal.
Medical inflation is a broad term that refers to the rising levels of costs and usage associated with medical treatment. In fact, annual increases in medical inflation are driven by a simple formula:
The cost of medical services x the level of usage of those services = medical inflation
Statisticians, advisory companies and governments around the world seek to predict medical inflation trends in an effort to plan for the future. Here are some of the latest trends:
- Medical inflation in the United States is expected to be 6.5% in 2017, according to PwC. This number, the first rise in almost three years, compares to an 11.9% increase in 2007.
- In their 2017 Medical Trends Around the World survey, Mercer Marsh finds that the medical trend rate1 in 2017 remains unchanged from 2016.
- According to a recent Willis Towers Watson report, global medical inflation is expected to be 7.2% in 2018, up from 6.8% in 2017. As a region, Latin America is expected to see the largest rise in medical cost rises at 11.4% in 2018.
- Aon Hewitt has stated that for 2017, the global average medical trend rate of 8.2% was 5.4 percentage points higher than the average inflation rate of 2.8%.
- Healthcare costs vary considerably by country
- These costs are globally showing over 5% real inflation. This varies considerably by country, affected by diverse underlying factors
- Healthcare costs can be managed in a variety of different ways depending on the underlying characteristics of a scheme.
- Payors can take advantage of advancing consumer technologies to capture new sources of valuable data to utilise in-advance analytics
Causes of medical inflation
Four essential factors combine to create medical inflation: the cost of medical treatment, utilisation of that medical treatment, unit cost increases globally and provider costs.
Real Global Healthcare Inflation Above 5 % (Towers)
Unit costs of medical treatment
The unit cost of medical treatment can be used to measure trends in medical treatment costs in a particular region of the world. A less developed country might have a low medical unit cost of five. If this were to increase to six the following year, the impact on medical inflation would be 20%. But a medical unit cost of 20 in a more developed country that increases to 21 would be an inflation rate of 5%.
Unit costs are affected by a host of factors, including:
- The cost of drugs and equipment, including the effect of innovation
- New medical facilities with higher pricing structures opening up
- The level of medical treatment utilisation
- The ability to drive efficiencies in the local healthcare system
Innovations in medical equipment, for example, can cause costs to rise. An MRI scan costs at least twice as much as a CT scan; a CT scan is more expensive than an X-ray. Many improvements in Clinician’s ability to assess soft tissue and bone damage have been at the expense of cost increases.
Utilisation of medical treatment
Utilisation refers to the number of units of medical treatment used each year. Broadly speaking, this figure is driven by the following factors:
|Usage Frequency||The average number of times that treatment (doctor or hospital visits) is sought varies considerably from country to country. People in less developed countries seek medical treatment far less frequently than those in more developed environments. And countries with aging populations are likely to see increasing rates of utilisation over time. If the average number of visits by people in less-developed countries rises from one to two, utilisation has increased by 100%. By comparison, if the average person in a developed country visits a doctor 10 times a year, increasing that number by one visit increases utilisation by only 10%. As the world becomes more developed each year, so the trend in utilisation continues to rise.|
|Number of Services||The revenues of medical providers are determined by the number of services they deliver to their patients. For example, 200 MRI scans might deliver US$800,000 in revenue. To increase revenues, providers can deliver more of the same services, increase the cost of those services or introduce additional services. As the pressure to drive revenue increases, so does the need for practices to deliver on these demands. And where countries impose price caps, the need to introduce new services and increase services is even greater.|
|Awareness of Benefits||The more people are aware of what health services are available to them, the more they use those services. Increasingly common mandatory health insurance schemes offer people a set menu of healthcare options. And hospitals are using aggressive marketing tactics to entice people to seek medical treatment more regularly, and to discuss what healthcare provision their plans can deliver. This rising awareness of benefits is driving utilisation.|
|Drug and Technology Innovation||Drug or equipment innovation can lead to increases in utilisation. Drug companies invest heavily in research and need to drive usage to deliver sufficient returns on their investment. And where a medical facility has invested in an expensive piece of equipment there is pressure to use it.|
|Demographic and Economic Factors||The world is seeing increasing levels of obesity and aging populations. Combine these trends with higher levels of disposable income and it’s easy to anticipate the steady rise in medical utilisation in the coming years.|
Minimising the impact of medical inflation on health insurance premiums
Medical inflation is a major force in annual international health insurance rate increases. Policyholders, intermediaries and insurers all want to slow the rate of increases, and the industry does have some tools available to ensure this happens.
Carefully managed provider networks can help to control the costs of medical treatment. Contracts between providers and insurers that cap the cost of certain procedures help ensure that costs are managed effectively. Pre-authorisation allows insurers to assess treatment recommendations before they are approved.
Expatriates living in the same part of the world can often find themselves drawn to the same medical facility when seeking treatment, influenced by brand and word-of-mouth. These facilities may be the most expensive option whilst not necessarily offering the best treatment for the member’s condition. Insurers can offer useful advice to members seeking treatment to ensure they receive the best treatment, which might be a lower cost facility.
Second opinion services
Arranging for a member to get a second opinion following a diagnosis can help to keep long term costs down. A specialist doctor can offer advice on the best course of treatment and where this may be available.
Providing the tools that enable members to stay as healthy as possible is a key strategic aim for the international private medical insurance industry. Healthier members mean reduced utilisation and lower costs overall. This is good for all parties – the member, the employer, the intermediary and the insurer.
Employee Assistance Programs (EAPs) are an example of a wellness tool usually offered by insurers as a standard plan benefit. EAPs can help members deal with the challenges of living and working abroad.
Health Risk Assessments (HRAs) help the insurer to spot emerging health conditions early in their development and can help deliver preventative strategies to minimise their impact.
Collaboration with the pharmaceutical industry
Developing specialist treatments and products for high-risk and high-cost diseases such as cancer also can help reduce costs. Generali Global Health, for example, offers specialist genome testing techniques to help clinicians make treatment recommendations for patients diagnosed with cancer. Such techniques will help treat diseases more effectively, resulting in better outcomes for the member and reduced long-term medical utilisation.
Excesses and deductibles
Demand for medical services is influenced by excesses and deductibles. Excesses help to reduce the number of smaller claims, thus reducing the utilisation of an insurance policy’s benefits. Deductibles also reduce the number of smaller claims and, as a co-pay arrangement, help to spread the overall cost of treatment.
Product benefit limits
Plan benefits limit the amount a member can claim through a plan. Limits tend to be more restrictive for outpatient treatments like physiotherapy and vision care. Inpatient benefits are limited, but at far higher levels.
Many factors contribute to medical inflation but the result is usually an annual upward pressure on medical insurance premiums. For intermediaries and HR managers, a better understanding of what drives medical premium increases can be helpful at renewal time and when considering strategies to help their international workforce reduce the incidence of claims.
Generali Global Health provides international private health insurance to globally mobile people. Through their worldwide network of customer service centres, medical professionals and facilities, they give their members access to the best healthcare services in the world.
Generali Global Health is a specialist division of Generali – one of the largest and best-known global insurance groups, with a reputation for protecting people and businesses since 1831. Generali operates in over 120 countries worldwide, providing insurance and assistance for both individuals and groups. Generali also has the biggest worldwide employee benefits footprint of any major insurer – and can support clients in more destinations across the globe.
Global Choice is an international health insurance offering, that gives the flexibility to tailor benefits, depending on the needs of employees and the regions they live and work. No what size the business Global Choice helps strike the right balance of benefits, service and price to meet any needs.
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