Medical Inflation

Medical Inflation could be defined as rise in Medical Care Costs year on year. This includes Doctor Fees, Pharmacy and other Hospital services.
Medical inflation on average is around 17 % year on year much higher than general wholesale index.
Premiums of Health insurance has to increase by about same rate to tackle Medical Inflation , which has been one of the challenges for insurance companies.
Health is a long term plan with annual renewals and re-pricing. If product is getting costlier by 25 % each year ( due to Medical Inflation and Age Factor ) it is very difficult for consumer to keep renewing their policies. A stable premium like Life insurance is the need with no price increases. Designing such a policy includes accurate estimation of future Medical inflation which is not possible by any stretch of imagination.
You cannot charge high to younger generation to subsidize the higher cost for older people, this might trigger anti-selection and you will be left with portfolio containing only older people.
Health Insurance Companies have to figure out a solution that can cater to the needs of consumer and also protect their capital and interest.
In US companies do raise their premiums by large amount every year and now the fact the health premium increases every year is well understood and accepted by people. Such understanding has to be developed in Indian scenario.
The rise in Real estate prices and crunch of expert and skilled manpower has made it impossible to control Medical Inflation in coming few years also.
Insurance is also one of the factors causing Medical Inflation. When Hospitals know that there is a financer ready to pay the bills they increase the cost without much resistance and hence causes Medical Inflation. Also insured customer also wants to go into a care which is the best and costly as he is insured which causes increase in demand of high end hospitals and hence medical inflation.