Combating Medical Inflation: How Health Insurance Keeps Your Care Affordable

Medical inflation is happening around the world. The medical industry is experiencing unprecedented advancements in medical technologies and pharmaceutical research— compounded by an increased demand for highly skilled healthcare professionals.

These advancements are inadvertently leading to higher healthcare costs globally, which, in turn, result in higher medical inflation. Additionally, the ageing population and increased prevalence of chronic diseases are exerting pressure on healthcare spending.

With inflated healthcare costs, healthcare expenses are consuming an ever-growing portion of national budgets. So, how does medical insurance play a role in combating medical inflation and alleviating its economic effects?

What is medical inflation?

Medical inflation is a phenomenon that denotes the rate at which the cost of healthcare services and products increase over time. Medical inflation considerably impacts healthcare prices for individuals, employers, and governments, making it less affordable and reducing access to care for some people.

Medical inflation is usually measured via indices like the Consumer Price Index (CPI) and Producer Price Index (PPI) that can be leveraged to measure annual price changes for medical services.

In practice, the CPI measures annual price changes for each item in a basket of medical goods or services. On the other hand, the PPI considers changes in medical industry output costs with a focus on actual transaction prices.

Medical inflation in Malaysia

The World Bank reports that healthcare expenditure in Malaysia has been increasing over the years. In fact, in 2006, healthcare expenditure in relation to GDP was 3.3%, in stark contrast to the 4.1% figure estimated in 2020.

Furthermore, insurers in Malaysia are projecting a continued increase in medical expenditure from 12.9% in 2022 to 13.8% in 2023, according to WTW's 2023 Global Medical Trends Survey. The survey reports that the three major drivers of medical costs in the country are:

Overuse of medical care with professionals recommending too many services or overprescribing.
Insured members' poor health habits.
The underuse of preventive services

Other influences on medical inflation in Malaysia are the high cost of imported medical equipment and pharmaceuticals, an ageing population, policy design, and a high prevalence of non-communicable diseases.

Medical inflation vs. general inflation

Medical inflation and general inflation are two disparate concepts that share some similarities. For starters, medical inflation refers to a statistical metric which measures the rate the cost of healthcare services increases over time.

General inflation is a broader economic phenomenon that denotes the overall increase in the prices of goods and services across various economic sectors. General inflation is influenced by factors like changes in consumer demand, the money supply, changes in the cost of labour, and economic conditions.

In practice, medical inflation is a sub-component of general inflation. In fact, medical inflation is usually compared to general inflation in order to determine how much faster the cost of healthcare services is increasing in contrast to the cost of goods and services in the general economy.

However, medical inflation is usually higher than general inflation. This means that the cost of health services and products typically increases at a faster rate than the cost of goods and services in the overall economy.

Why is there medical inflation?

The relatively high medical inflation rate in Malaysia and globally may be due to a number of reasons, for example:

Advancements in medical technology and pharmaceuticals come with high R&D costs that need to be recouped.
Relatedly, the emergence of more new diagnostic tools, treatment methods, and therapeutic medications to improve patient care and outcomes.
Increased demand for healthcare services due to ageing populations, sedentary lifestyles, stress and the rising prevalence of chronic diseases. For context, as a population lives longer, they may require more healthcare services, including intricate specialised treatments, which may strain healthcare resources.
Unfavourable government policies and regulatory and compliance requirements may also drive up healthcare costs

How will rising inflation affect healthcare?

Rising inflation increases the cost of healthcare services and products, making healthcare less affordable for private individuals, employers, and governments.

Rising inflation may also result in reduced healthcare access for the uninsured or underinsured— which could lead to worse health outcomes. In fact, as healthcare costs increase, some chronic patients may skip medical appointments, or miss prescriptions because of cost concerns.

What can you do to counter medical inflation in Malaysia?

There are some practical ways to combat medical inflation and ensure that you have continuous and affordable healthcare.

Obtain health insurance.

One of the primary steps to help counter medical inflation is to get comprehensive health insurance coverage. With health insurance, you will be able to access healthcare services without bearing the full brunt of rising medical costs.

For instance, health insurance plans such as Prudential’s PRUValue Med and PRUMillion Med 2.0 offer comprehensive coverage that covers hospitalisation room and board, medication, lab tests etc., so that you can recover comfortably without having to worry about your finances.

Revise your health insurance plan.

If you already have a health insurance plan, consider reviewing it regularly to ensure it still meet your needs. For context, as you age, you may need to adjust your coverage to accommodate new treatments and medications. Additionally, you can even consider switching to a plan with higher deductibles or a health savings account to help manage costs.

Keep up with rising costs.

It is imperative to keep abreast with the rising healthcare costs in order to financially prepare for potential out-of-pocket expenses. Setting up a healthcare emergency fund may even help mitigate the impact of unexpected medical bills.

Ensure you're protected long-term.

Consider signing up for long-term care insurance to manage the cost of long-term care services, even in retirement. Long-term coverage may help cover the cost of extended healthcare not conventionally included in standard health insurance.

Ensure you’re covered for the latest treatment and medication.

Choose a plan that ensures you’re covered for the latest treatments and medications that may be available for your condition. For example, Prudential offers precision medicine for cancer, a cancer insurance coverage for leading-edge cancer treatment tailored to your recovery needs.

Create healthy lifestyle habits.

Adopt healthy lifestyle habits, like maintaining a balanced diet, stress management through therapy, avoiding smoking, exercising daily, and getting enough sleep. These habits may help prevent the emergence of chronic diseases and appreciably mitigate the need for expensive medical care.

Additionally, insurance companies such as Prudential recognise the benefits of healthy lifestyle habits and reward policyholders who are able to maintain their health. For example, PRUMillion Med Active is a medical insurance plan that rewards policyholders who do not make claims with a 15% discount on their medical insurance charges. This encourages policyholders to embrace healthy habits so that they are less likely to fall ill.

Be a smart consumer.

Smart consumers are aware of their environment and are not shy when it comes to their rights. For example, they always critically compare prices among healthcare providers for non-emergency procedures. Here are some other habits of smart consumers:

Compare prices among healthcare providers.

Smart consumers extensively research different providers to ascertain any who offer more competitive and reasonable rates for the same medical services.

Understand treatment procedures.

Smart consumers ensure to conduct exploratory research to understand treatment procedures and ask relevant questions about the necessity of tests and procedures.

This helps them to make informed decisions about their care and avoid unnecessary or expensive procedures.

Choose day surgery when possible.

Smart consumers inquire about the possibility of day surgery whenever their healthcare provider recommends a surgical procedure. In practice, day surgeries typically cost less than overnight hospital stays and are suitable for specific procedures.

Request for itemised bills.

Smart medical consumers always request an itemised bill statement that breaks down the medical charges to identify any errors or discrepancies. This ensures they only pay for the services they receive.

Role of health insurance in managing the cost of medical inflation

Health insurance helps to manage the cost of medical inflation in Malaysia in several ways. For example:

Offers financial coverage and mitigates risks for policyholders.

The insurance sector pools the risk of medical expenses across a substantial group of people. This consequently helps to spread the risk of healthcare spending, which, in turn, reduces the cost of healthcare for each individual in the pool.

As a result, individuals who may require less medical care help to subsidise the cost of care for those who are direly sick and require more care—therefore making healthcare more affordable for everyone.

Negotiate rates with healthcare providers.

Insurance companies typically negotiate prices with caregivers on behalf of their members. This consequently helps to keep the cost of healthcare more affordable for their policyholders—whilst also keeping medical inflation in check by reducing the general cost of healthcare.

Encourages preventive care

Insurance companies like Prudential cover the cost of preventive care services via their ‘No Claims Benefit’ that offer annual check-ups and screenings, at little or no cost to their policyholders. By encouraging preventative care, insurance companies help to prevent or detect health problems early, which may reduce the need for more expensive medical care in the future.

For more information, read ‘No Claims Benefit in Insurance: How You Can Stay Healthy and be Rewarded ’

Enables bulk purchase of medications.

Because insurers pool resources from a large number of people, they incentivise healthcare providers to purchase medications in bulk to deliver cost-effective care. This, in turn, helps to keep the cost of healthcare affordable for everyone.

Conclusion

In summary, health insurance plays a mission-critical role in keeping medical inflation in check through the mechanisms cited in this article. From negotiating premium rates that are often lower than what an uninsured individual would pay out-of-pocket— to fostering preventative care and routine check-ups to prevent expensive hospitalisations—insurers can leverage their large customer bases to help control the overall cost of healthcare services.

Overall, the risk-sharing model of insurance helps cushion the financial impact of catastrophic medical events on many individuals as a collective. As such, health insurers undeniably contribute to financial stability and predictability in the healthcare system in Malaysia, which helps moderate medical inflation. So, consider getting a health insurance package for you and your loved ones to play your part in mitigating health inflation.