Hi All, I have a very general question with regard to medical inflation projection/modelling. Just wondering what are the common practices to model medical inflation in the insurance market now. In specific, I would like to know: 1. What are the common factors used in the projection? 2. What formula is used? Appreciate any response. Thanks a lot. Jun
Jun As the glossary in Subject SA1 mentions, medical inflation reflects increases in treatment costs and incidence rates, amongst other things. I can't give you a specific formula for this, I suspect this will vary for every provider. Medical inflation is often quoted as running several percentage points higher than standard rates of inflation. You might find this article interesting to try and understand why/what can be done about this: http://www.covermagazine.co.uk/cover/feature/2163622/medical-inflation-arms There is also an interesting paper availale from the European Centre for International Political Economy (ECIPE) about what is driving health care expenditure (and therefore medical inflation rates): http://www.ecipe.org/publications/w...to-the-nature-and-causes-of-the-cost-disease/ Remember that the SA1 exam is based on the UK, but you still might find this interesting for background reading. Hope this helps Sarah
According to me the that factors deflate medical cost are * Care continues to move outside costly settings such as hospitals to more affordable retail clinics and mobile health. Consumers value the convenience, and costs can be as little as one-third of the bill in a traditional healthcare site. * Major employers such as Walmart, Boeing, and Lowe’s now contract directly with big-name health systems for costly, complicated procedures such as heart surgery and spinal fusion. The employers are making the move to “high performance networks” far away from the home office in the belief that even with travel costs, these networks still deliver overall savings. * The federal government’s new readmission penalties take direct aim at waste in the health system, estimated to be as high as 30%. According to government data, hospital readmissions dropped by nearly 70,000 in 2012, and this trend is expected to accelerate through 2014 as hospitals focus on discharge planning, compliance and the continuum of care. * Seventeen percent of employers in PwC’s 2013 Touchstone survey today offer a high deductible health plan as the only option for employees. And more than 44% are considering offering it as the only option. When consumers pay more for their healthcare, they often make more cost-conscious choices. Two factors inflate medical cost * Until recently, widespread adoption of generic medicines helped dampen overall medical inflation, but the rise of expensive complex biologics will nudge spending trends upward. Approvals of new biologics now outpace traditional therapies, and that pattern will continue in 2014 as research efforts target complex cases such as cancer. * Health industry consolidation has increased more than 50% since 2009—activity that is expected to continue through 2014. Higher prices are sure to follow in some markets. According to a recent report, hospital mergers can lead to price increases of up to 20.3% These price increases are especially acute in markets with one dominant system.
