What is medical inflation?
Medical services, like anything else in the market, are subject to the rules of supply and demand, meaning that cost and availability are affected by how much is available and how much is needed. What people need for health care (demand) changes based on things like more older people, new sicknesses, new treatments, if people have insurance, and if they want to stay healthy. How much things cost and if you can get them depends on how supply and demand work together.
Therefore, there is a calculation of margin that is a must-have to makes the medical entity grows. Since hospitals and medical companies work like businesses with supply and demand, and because they spend much, hospitals must figure out their profit margins. This means hospitals need to know if they’re making enough income after expenses. If they make a good profit, they can use that money to improve on better tools, hire more manpower, or offer more services, which helps them grow. Just like any other business, hospitals and clinics need to carefully check their profit margins so that the business can sustain.
Just like any other industries the cost of healthcare, increase over time, which is called inflation. This means hospitals have to pay more for things like medicine, equipment, and any other expenses related to human resources. If hospitals can’t charge more, they make less profit, and it’s harder for them to buy new equipment or grow. Also, these higher costs get passed on to patients, who might have to pay more for insurance or doctor visits, making it harder for some people to get the care they need. Basically, inflation forces hospitals and clinics to spend more fund to give the same care, which makes things tight for them.
Medical inflation is the term used to describe the increase in the cost of medical care and related services over time. It’s important to understand that it’s not simply the general inflation that affects all goods and services; medical inflation often outpaces that general rate. The impact of medical inflation are people pay higher insurance and doctor bills, hospitals struggle to buy supplies and keep up with costs, and even the government has to spend more. This makes it harder for people to get the care they need, and it puts a lot of pressure on hospitals and clinics to stay open.
- Advanced medical technology
Advanced medical technology means new and better tools that help doctors find and treat illnesses. Things like super-detailed scans, robot surgery, and computers that learn to spot diseases are all part of it. People can now use their own DNA to give them special medicine, talk to doctors online, and even 3D print body parts. These new tools help us find sicknesses earlier, treat them better, have less painful surgeries, and get care even if we live far away. This leads to people feeling better and living healthier lives. However, these new technologies are expensive, and the entity need to make sure everyone can get the same standard.
- Aging Population
Aging population is a situation when there are more population of old people than young people. This happens because people live longer and fewer babies are born. This means more people need healthcare, which makes it harder for hospitals. Also, there might not be enough young people to do all the jobs, and the government might have trouble paying for retirement. Families have to take care of older members more, and there’s a bigger need for places like retirement homes. While this can create new jobs in healthcare, it can also mean less work gets done overall. So, an aging population changes a lot of things in our society, from healthcare to the economy.
- Consolidation of healthcare provider
Consolidation of healthcare providers means a merger between two or more hospitals or clinics combined to the same entity. The consideration that leads to the decision is vary, but most of them are related to the intention of scaling up the business by combining two entities into one and at the same time decreasing number of competitors. This can be a significant factor because when the entity has less competitor, they also have more freedom to setup prices.
Medical inflation has a ripple effect throughout the entire healthcare ecosystem, and health insurance companies are definitely feeling the strain. Because hospital and medicine costs keep going up, insurance companies have to pay out more money when people get sick, which makes their expenses higher. It’s also harder for them to agree on prices with hospitals and doctors, which can mean some hospitals aren’t covered by certain insurance plans. If they can’t charge enough to cover their costs, they make less money, and it’s harder to improve their services. Trying to guess how much healthcare will cost in the future gets much harder too. Plus, people and the government watch them more closely because healthcare is so expensive.
In Indonesia, BPJS Kesehatan, the government-run national health insurance program, has faced challenges related to balancing its financial sustainability with providing affordable healthcare. The government has changed the monthly payments people make, which is a tricky issue because it affects how easily people can afford healthcare. They’re planning to raise the payments again in 2026, showing that these money problems aren’t going away. The government has to try to find a balance between making sure BPJS Kesehatan has enough money to give good care and keeping the payments low, especially for poor people. The reasons for the price increases include rising medical costs, more people using healthcare, efforts to cover more people, and keeping BPJS Kesehatan financially stable. But, these price increases can make it hard for people to pay, so the government has to be careful about how it affects the people who need healthcare the most.
When private insurance companies see their costs going up because medical care gets more expensive (medical inflation), they often raise the amount you pay for your insurance (premiums). Just like a store might raise prices when their supplies cost more, insurance companies raise premiums when they have to pay more for medical claims. They have to be careful, though, if they raise premiums too much, people might cancel their insurance. So, they try to find a balance between covering their costs and keeping their customers. To keep up with rising medical costs, private insurance companies often increase the amount you pay for your insurance.
Well-calculated premium adjustment can act as a crucial balancing mechanism for private insurance companies dealing with medical inflation. If insurance companies carefully change how much you pay for insurance, they can keep their money balanced when medical costs go up. By making small, regular changes, they don’t have to suddenly raise prices a lot or stop offering important services. Even though nobody likes paying more, small, regular increases help people plan their budgets. Basically, changing the price of insurance the right way helps companies deal with rising medical costs and keep giving people the insurance they need.
Author: Rio Putradjaja, 2025.