It is clear that medical inflation is having consequences, but what is causing it and what is to be done? Mike Izzard investigates.
There are many schools of thought as to why medical inflation in private medical insurance (PMI) continually appears to outstrip that in the real world, whichever indices you apply.
It is helpful to determine why that is and how intermediaries can help mitigate the relentless increases suffered by individuals and companies alike. It is first necessary to establish exactly what medical inflation is and the various factors influencing it.
There are in fact three forms of medical inflation: PMI medical inflation, private provider hospital medical inflation and of course the insurer inflation computations. And rather surprisingly they all appear to be at different levels.
The consensus in the insurance industry is that medical inflation is running at approximately 9% to 12% (depending on who you talk to). As an Intermediary it cannot be denied that, ignoring claims influence, premiums are rising inexorably and how long that is sustainable for the hard-pressed client is a subject of much debate.
If we take insurer medical inflation first, a double digit increase year on year is unsustainable. Either they have to be harsher on their claims costs or they will have to continually increase premiums every renewal.
Insurers are mostly doing whatever they can by applying commercial pressure to the private hospital chains, realigning any networks they may have to increase footfall in a particular hospital: even as we have seen recently, Bupa, introducing an open referral system which effectively limits choice of the policyholder and puts more cost control in the hands of the insurer.
Directional claiming/managed care
Many of the major insurance companies are introducing mechanisms to reduce their claims costs without reducing the amount of the treatments available. Directional claiming or managed care has been a trend that has been increasing over recent times.
Bupa is deleting some BMI hospitals from its network, owing to alleged increased costs that Bupa is refusing to absorb. No doubt other major insurers will soon start to reconsider the structure of their hospital lists.
This recent development begs the question: why are the hospital chains putting so much pressure on the costs that they are charging the insurers and what is the driver behind that?
There are many factors influencing this trend, the foremost of which is in the last few years many of the private hospital chains have been attractive to private capital or venture capitalists.
