Is medical inflation just one big cop-out used to bulldoze clients into higher premiums?
I had an interesting 'exchange' with a finance director the other day. We were discussing renewal terms and medical inflation came up. "It’s all nonsense" was his judgement (actually the word he used ended in "locks" but I’ll spare the editor’s blushes).
"If medical inflation was really around 10% then my corporate scheme would have gone up by at least 50% since 2006." Of course he has a point. Thanks to low claims experience the rates had actually shown a net increase of only 10% over five years. Medical inflation is a generic term that really should be qualified whenever used.
My straw poll of major insurers produced staggering results. Those prepared to commit to a figure ranged from 7.5% to 15%. Those who are clearly a little more creative with their pricing models used terms such as ‘depends on postcode’ and ‘we have refreshed our plans and will apply discounts’ – not very helpful with price projections.
Is medical inflation just one big cop-out used to bulldoze clients into higher premiums? Yes we all believe in the three I’s – incidence, information and innovation. But are these all contributing to rising costs as much as we fear?
In the private sector, over-bedding and harsh negotiations between insurer and provider have had a downward, or at least levelling, effect on hospital charges. Day cases account for 80% of inpatient experience and previously complex procedures that a few years ago would have generated a lengthy hospital stay are now undertaken in a matter of minutes. Times really have changed. Reluctance to claim due to ‘presenteeism' (the fear of leaving your desk) and a tendency to introduce excesses are also generating premium reductions.
Inflationary pressures on the NHS are completely different. Classified as chronic, the 'ticking time bombs' of obesity, diabetes, and dementia will largely have little impact on private medical costs. The NHS has been tasked to save 4% year on year for the next four years so could one argue that 'inflation' in the NHS will actually be a negative figure?
This should serve as a cautionary warning to all of you who are tempted to quote medical inflation without putting it into careful context. The variety of influencing factors within the public and private sectors and the spectrum of benefit schedules means that large corporate, SME and individual policies all have their own set of cost pressures.
Basically the best formula to use is this: Medical inflation is the compromise between the insurer’s desired margin and what the client is prepared to pay. Simples!