Key Drivers of Health Insurance Premiums

Around the globe, individuals, families, and organizations are feeling the pinch as the cost of health insurance continues to rise. Taking the US as an example, our Cost of International Health Insurance Report 2023 reveals that the average annual premiums for individual international private medical insurance (IPMI) in 2022 was a staggering USD $9,817, while that for families was a breathtaking USD $28,250.

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They represented increases of 32% and 35% over the average premiums in 2021 respectively, far outpacing the general rate of inflation. In this Pacific Prime article, we will take a look at what the key drivers of health insurance are, and determine what employers and organizations can do to combat rising costs.

Key Drivers Behind the Cost of Health Insurance Premiums

Around the globe, there are countless reasons and location-specific factors that influence health insurance premiums. However, our experts at Pacific Prime have emphatically identified five key drivers that undoubtedly have the most influence on the pricing of health insurance globally. These key drivers are noted below:

Increased demand for international quality private care
Increased cost of healthcare
Increased regulation
Increased challenge with fraud regulation
The rise of insurtech

Increased Demand for International Quality Private Care

The world we live in is growing at a faster pace than expected, and along with this is the growing demand for private healthcare in many countries around the world. In many countries, people are demanding more private healthcare, due to their increased wealth and needs.

China’s Rising Middle Class

Since the late 1970s, China’s exponential growth has transformed the country into the second-largest economy in the world with a population of over 1.4 billion. The rise of China’s middle class and therefore a greater general level of affluence mean more people are able to afford the costs of private healthcare. As a result, China is improving its development of private hospitals in a bid to increase medical services supplying and improving people’s wellbeing.

Population Growth of Ultra High Net Worth (UHNW) and High Net Worth (HNW) Individuals

A similar trend to China is also seen in many of the highly industrialized G8 nations, namely the US, Japan, and Germany. According to CNBC, the US has more multi-millionaires than China, Japan, and Germany combined. All in all, the growing number of UHNW individuals in the world means the demand is also high for quality private health care and drives up the price of health insurance premiums.

Aside from the G8 countries, a growing number of affluent High Net Worth (HNW) individuals in developing countries, namely Nigeria, Egypt, Bangladesh, are putting further demand for quality healthcare in their countries. Vietnam, India, and the Philippines are also showing higher demands for excellent healthcare. Vietnam, in particular, is a fast developing country, owing to its location and industries, such as trade, manufacturing, and production. Other than Thailand, expats consider Vietnam as the next country for foreign investment and domestic growth.

Increased Cost of Care

Globally, medical cost rates far outpace general inflation. These rates are relative to a few medical cost drivers that influence heavily, the cost of care provided. The medical costs drivers include:

High Prescription Drug Costs

With advances in medicine, treatments are growing in variety and improving in effectiveness. However, one side effect of these advances is that prescription drugs are getting costlier fast, as pharmaceutical companies need to recoup their huge R&D investments.

Global Population Aging

Similarly, as medicine improves, so do average life expectancies. An aging population inevitably puts more pressure on the healthcare system, making it necessary to devote more financial resources to the healthcare sector.
As people age, their health also declines, which increases their risk of developing chronic conditions. So for many elderly people, they could expect to develop at least two or more chronic conditions in their later years.

Increased Regulation

Over the past few years, insurers around the world have been wrestling and adapting to regulatory requirements. Regulatory requirements differ from region to region, and country to country, and insurers are challenged in meeting the requirements and remaining compliant.

However, the cost of being compliant can be high as a significant amount of monetary investment and expertise has to be put in, often causing the insurers to alter their organization model.

Continued Challenges Related to Fraud

Fraud was estimated to cost the US $308 billion annually according to a study by the Coalition Against Insurance Fraud in 2023. The effects of insurance fraud are detrimental to the insurance industry and consumers in several ways, chief among them being higher premiums for consumers as the cost of fraud is passed onto them, and reduced revenue for insurance companies due to reimbursement of fraudulent claims. Insurance companies are therefore investing more resources and assets into new fraud preventive solutions, namely insurtech.

The Rise of Insurtech

Insurtech trends are expected to have a significant effect on the cost of health insurance premiums globally. Compared to the aforementioned key drivers, insurtech is likely to increase the cost of health insurance premiums, to begin with, as organizations invest heavily in the sector. However, over time, the tools and solutions such as artificial intelligence will most likely lower premiums. The following are prominent insurtech trends to be aware of:

Big Data

Immense data sets collected from daily online and digital activities require unique solutions to analyze and reveal trends. To do this in real-time, insurers and brokers alike resort to the following solutions:

New distribution models (e.g. robo-advisors, chatbots)
Process automation (e.g. substituting manual labor, especially in the underwriting field)
New propositions (e.g. alternative organization models like peer-to-peer concepts)

Telemedicine

The trend of having to wait in a long queue and receive inadequate healthcare attention means a new stream of healthcare has emerged in the form of telemedicine. For example, in the US, many states are changing their laws to allow the development of telemedicine. An advantage of utilizing telemedicine is the prevention of chronic diseases, as information can be collected and analyzed.

Artificial Intelligence

Artificial intelligence, the simulation of human intelligence by machines yields a wide array of capabilities to improve the insurer-client relationship. The future of artificial intelligence remains bright due to the savings that can be made on premiums and insurer’s costs.

Considerations for Employers

In this section of the article, we will discuss the considerations for employers and examine what employers can do to mitigate losses and increase savings, but also help their employee’s well-being in the process.

Managing Employee Benefits

Employee benefit plans are designed to assist employees at work, provide stability, stimulate motivation, and ensure good mental and physical health. For any organization, small or large, employee benefits play an important role in attracting the best talent and retaining them in the organization. Group health insurance, in particular, is a common employee benefit that most employees deem important as healthcare in many countries is expensive.

Essentially, employers may want to consider analyzing medical claim patterns and determining where staff are going for their medical treatment. By examining closely the claims data, employers can:

Better identify which benefits are utilized the most
Determine which types of care are most in demand

With the above in mind, employers can strategically consider the following questions:

If the use of certain benefits is driving up the claims loss ratio, should the organization consider cost-containment measures?
Is the organization paying for benefits that are redundant by employees?
Do the benefit amounts match employee utilization?
Does the organization need to improve or increase certain benefits?

Cost-Containment Measures

Employers may want to consider planning ahead with a benefits specialist to define an appropriate design and plan that meets the needs of employees, but also increases their performance for the organization.

Maintaining Employee Mental and Physical Health

Another consideration during the planning or review process with a benefits specialist is to seek advice on offerings such as holistic and financial wellness programs, that focus on preventative care and improving the overall health of the employees. The returns on investment for the employer are motivated employees and reduced future claim costs.

Staying Compliant

Organizations may want to consider reviewing their compliance procedures especially in the EU, where GDPR regulations require transparency among personal employee data that are collected and processed.

Educate Employees to Prevent Fraud

Employers can play an essential role in educating staff on how:

Fraud impacts employees and their benefits,
To how to analyze information to spot fraud and abuse

Employers and employees can together combat insurance fraud and abuse that occur across industries including insurance.

Embrace Digital Solutions and Insurtech

Employers can embrace digital disruption to drive loss prevention due to fraud and inappropriate utilization of the company’s health plan. Insurtech in the form of telemedicine can make healthcare more affordable and accessible for employees.

Interested in Securing an Employee Benefits Plan for Your Organization?

Finding out who to speak to in relation to securing a bespoke employee benefits plan is a complex and laborious task for any organization. The reality is that as a business owner or HR manager, the choices are limitless and the plans can differ immensely from one to another.

One way to overcome this hurdle is to speak to one of our experts at Pacific Prime for specific employee benefits solutions that meet the organization’s goals and the needs of the employees.

As an employee benefits broker of 20+ years, Pacific Prime is well positioned on a global level to search for effective plans for your organization. Additionally, Pacific Prime’s experts are able to offer unbiased employee benefits consulting on the most suitable employee benefits plan for your company.

Our latest Cost of International Health Insurance Report 2023 is also available to download for free.

For more information, feel free to contact our team of experts, or visit our corporate website to view the solutions we provide today!

Author
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Martin Lee

Content Creator at Pacific Prime

Martin is a writer and translator with over 10 years of experience. He writes articles and blog posts, creates infographics and videos, translates between Chinese and English, and more. Skilled at explaining complicated concepts in layman’s terms, Martin believes the gold standard of translation is attained when the translated text is not only accurate, but also reads like an original text. Martin holds a degree in Economics from the University of London, UK.

Since joining Pacific Prime, Martin has become even more aware of the gap between the true value of insurance products and most people’s appreciation of it, and developed a passion for demystifying and simplifying matters, so that more people get the protection they need at a cost they can easily afford.

In his free time, Martin attends concerts of various genres, and plays the violin with piano accompaniment he pre-recorded himself or played live by his niece.

Key Drivers of Health Insurance Premiums and Considerations for Employers

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