What is medical inflation and how does it affect health insurance premiums?

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:

Is medical inflation linked to economic inflation?

Strictly speaking, medical inflation isn't linked to general inflation, although inflationary pressures can affect medical care prices. The Consumer Price Index measures how much we pay for everyday goods and services, including medical care costs and reports on how much those costs have changed.

While inflation affects the amount healthcare services pay in wages, rents, and utility bills, medical inflation is a separate calculation based on medical care costs. It's typically different from the general rate of inflation.

Medical inflation increases health insurance premiums because it makes healthcare services more expensive to run. We've discussed some of the causes of medical inflation already, but here are two main ways medical inflation directly impacts premiums.

Treatment costs per head have increased

Investing in new treatments and medical treatment technologies is expensive. Still, private healthcare companies prioritise this type of investment to attract new customers and give them the best possible outcome from their treatment.

This usually means that if a new, cutting-edge drug or treatment offers you the best chance of making a full recovery, you can access it via your health insurance. While you can still receive high-quality care with 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'll pass it on to their customers via premium increases.

Insurers adjust premiums to reflect your claims history

As mentioned, more people are using medical insurance to fund their treatment and avoid time on an NHS waiting list. More claims mean health insurers pay more each year. Insurers calculate premiums based on the risk someone will claim. They'll do this individually, meaning your premium increases if you claim on your policy and could reduce if you don't. However, the overall level of claims can also affect premiums.

If medical insurance is a backup that customers only use for treatment they can't get from the NHS, total payouts will be relatively low. However, if more people regularly claim for treatment via their health insurance, this can affect insurers' risk assessments and cause premiums to rise.

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 coverage for your budget.

Here are a few things to consider if you want to reduce your premium and how medical inflation affects the price you pay.

Stay healthy

Looking after your health reduces the risk of becoming ill and needing to use your insurance for treatment. Insurers provide various resources to help you improve your health, including online resources and information on common health issues and ways to live a healthier lifestyle. You can also access discounted gym memberships, fitness trackers, and discounts on other support services. The NHS also provides 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 claim, your premium is less likely to rise and may even drop. Medical inflation will still affect prices, but you can minimise its impact on your premium.

Use preventative health services

Medical insurance typically 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, perks, 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 areas of concern and take preventative measures before they cause ill health. A recent survey of health insurers asked them to identify how customers and healthcare services increased medical inflation. Unnecessary treatment or over-prescribing was the number one issue. However, poor lifestyle choices and underuse of preventive health services came in second and third, respectively. By looking after yourself, you can reduce your premium and help combat medical inflation.

Review your coverage

Reviewing your coverage periodically is a good idea, especially if your circumstances have changed. Insurers sometimes alter their coverage, for example, by packaging services differently or removing or adding discounts. An independent broker will carry out a whole of market review to ensure your policy still meets 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 your coverage means you'll only spend money on things you'll likely use. You can do this yourself, but getting professional advice reduces the risk of removing something essential.

Increase your policy excess

Your policy excess is the amount you pay towards your treatment before insurance covers the rest. Increasing your excess can reduce your premium by cutting the amount your insurers must spend if you claim.

One note of caution: consider how much you can afford to pay out of pocket if you need treatment. Some providers offer an annual excess, so you'll only pay once, while others charge an excess per treatment. Setting your excess too high might put you off using your insurance, so you don't get the benefits you've paid for.

Consider guided consultant choice

Guided consultant choice cuts the cost of your health coverage because it reduces the amount your insurers pay for your treatment. While it won't prevent rising costs due to medical inflation, it minimises the impact. Guided consultant choice works by limiting the amount of choice you have over who treats you. Instead of offering unlimited choice, your insurers will send you a list of 3-5 consultants when you claim. These consultants are still qualified but charge lower rates based on their treatment costs or experience level. Some highly experienced doctors also agree to treat a fixed number of patients at a reduced rate.

Taking this approach reduces your premium as it helps lower your insurer's overall costs.

MyTribe guides aim to help you learn more about private healthcare 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 impacts healthcare costs.

The best way to find the right health insurance coverage for your needs and budget is to speak 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.