Hi, I am trying to understand a few points from the chapters around assumption setting:
Also in chapter 15, section 2.2, it says PMI benefit is not just a function of medical inflation , but includes:
- Medical treatment protocols
- Charging structures
- Age profile of the portfolio
Question: I thought “medical inflation” is already an umbrella term, that already incorporates all the elements above. If I am wrong, what does medical inflation include? The glossary already defines medical inflation to include cost of medical treatment. So it looks like the bullet points are overlapping.
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Hi Trevor
Yes you're right that the term medical inflation is being used in two different ways. Although this is confusing, it does reflect actual usage of the term.
In it narrowest sense, medical inflation is just the increase in cost of a particular treatment.
In its broadest sense, medical inflation is the above but also includes all the things you list. So in its broadest sense, even if the treatments cost the same, a change in the medical protocols say might mean that we use a more expensive treatment than the cheaper one.
So in Chapter 15 Section 2.2, the Core Reading is using medical inflation in its narrowest sense, but most of the rest of the course uses the wider sense.
In the exam, it should be clear from the number of marks as to which version to use. Most of the time, talking about medical inflation in its broadest sense is enough. But if there are more marks, or the question is focusing on sources of claim inflation, then it's worth mentioning medical inflation in its narrow sense and adding in the list from Chapter 15 to get the extra detail.
Best wishes
Mark
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