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As medical inflation rises in India, insurance companies have to pay more for medical procedures and treatments. The increased cost is usually passed on to policyholders by way of higher insurance premiums.
You must have witnessed a significant rise in the cost of healthcare services in the past few years. The rising healthcare costs due to medical inflation might be terrifying to you, be it the cost of medicines, treatments, tests, or consultation charges.
If you have a health insurance plan to cover your expenses, you may not be as severely affected by medical insurance. However, it will affect you in some ways.
What is medical inflation, and how does it impact your health insurance premium? Keep reading to find out.
What Is Medical Inflation in India?
Medical inflation refers to a phenomenon in which there is a rise in the average unit cost of healthcare services. As a result of medical inflation, you can witness a major rise in prices of medical tests, treatments and procedures, hospital room rent, medicines, and even health insurance.
Factors Leading to Medical Inflation in India
Here is a list of the factors that contribute to the rising medical inflation in India:
Increased demand for healthcare services
One of the biggest reasons for medical inflation in India since 2022 is the higher demand for healthcare services. You can attribute the increased demand to the COVID-19 pandemic, long-term ailments, lifestyle changes, and the emergence of new diseases.
This is why healthcare providers are charging comparatively higher amounts for medical treatments and procedures. Along with rising demand, people’s willingness to pay more to avail of quality treatments is also a cause of rising healthcare prices.
Advancement in technology
Advancement in technology is a boon when it comes to the healthcare sector. Newer equipment, innovative treatments, and medicines are making it possible to treat diseases like cancer or cardiac ailments. However, all this comes at a higher cost, which leads to a substantial rise in overall healthcare prices.
Increased raw material costs
The rise in the prices of raw materials used in the medicine and healthcare equipment industry, along with higher import taxes and warehouse and freight costs, is also contributing to medical inflation rates in India.
Change in the unit cost of treatment and procedure
The change in the unit cost of a treatment or procedure directly impacts the cost per patient. The reasons behind the change include hospital consumables costs, hospital personnel costs, consultation costs, and other costs related to utilities, rent, or property.
Rise in medical tourism
Medical tourism is also a significant factor contributing to the rising medical inflation rate. India has emerged as a major hub of medical tourism in recent years. In fact, India is one of the top six medical value destinations across the world.
You can see more medical tourists coming to India for treatment of critical conditions like cancer or organ transplants. The overall demand for healthcare services in the country is thus increasing, which is contributing to medical inflation rates in India.
Why do Health Insurance Premiums Increase?
As healthcare prices cross the roof and purchasing powers decrease, people want a higher sum insured to tackle healthcare risks. Moreover, you can observe a change in consumer behaviour after the COVID-19 pandemic.
More people are investing in health insurance plans as compared to pre-pandemic times. The rising demand for life insurance plans in India and health insurance, along with a hike in inflation, is impacting the insurance sector. To manage substantial losses, insurance companies are thus increasing insurance premiums.
For example:
You bought a health insurance plan that covers hospitalisation and surgery. However, the prices of these medical services rise due to the high medical inflation rate. As a result, your insurance company will have to shell out more money to cover the rising costs. In most cases, your insurer will make up for this cost by increasing your health insurance premium.
In other words, when your average claim amount increases, your insurance provider ends up raising your health insurance premium to manage losses.
What Is the Current Medical Inflation Rate in India?
According to data, the medical inflation rates in some Asian countries, including India, are as follows:
Country |
Medical inflation rate |
India |
14% |
China |
12% |
Indonesia |
10% |
Vietnam |
10% |
Philippines |
9% |
You can see from the table, medical inflation rates in India stood at 14%, the highest in Asian countries in 2021. The high medical inflation in India in 2022 increased retail premiums by 16.5% and group health insurance premiums by 31%. Despite this, demand for medical insurance saw an overall rise of 25% in 2022.
Wrapping Up
Advanced medical equipment, easier diagnosis and innovations in medicines are making the healthcare sector more efficient. You now have better chances of surviving cancer or heart diseases that were difficult to treat some years ago.
However, all this comes at a higher price. As the quality and effectiveness of healthcare services improve, their cost rises too. You can, therefore, see the impact of medical inflation on health insurance premiums.
Insurance providers are countering the rising premiums of health insurance and even life insurance plans in India by providing you with better services and wider coverage options to keep you healthy and satisfied.
