medical inflation

[Sid Dagore]

i noticed in that the glossary defines medical inflation as the increase in the average cost of medical care for an insured life, where this could be an increase in treatment costs or an increase in the incidence of treatment.

why are we including an increase in the incidence of treatment over here? I would have guessed that medical inflation should only cover costs, and changing incidences would be covered by the recalculated premium.

any ideas?

 

[Steve McIntosh]

I think the glossary definition is making the point that the term “medical inflation” can mean different things in practice. It is true that often “medical inflation” only allows for changes in treatment costs. However, in other contexts this term could be used more generally to include both the increase in treatment costs and in average incidence.

An example of the latter use of the term is in part of the glossary definition of “Age-at-entry pricing", which says:

“The insurer usually retains the right to increase premiums subsequently to allow for medical inflation or medical inflation in excess of levels assumed in the original calculation.”

This allowance for medical inflation would allow changes in both claims costs and claim incidence. If it were only for claim costs, then the premium might become inadequate if incidence rates increased.

Similarly, in the glossary definition of “burning cost”, the adjustment for medical inflation referred to is likely to allow for increases in both costs and incidence.

Therefore, for the exam, if you are using the term “medical inflation” be sure to explain exactly what you mean.

I hope this is of some help.

Regards, Steve