What is medical inflation?

Medical inflation is the increase in costs to support medical trends and developments. As advancements are made in the medical field, the more expensive medical treatments, equipment and medicine become. Medical inflation is a component of consumer price inflation (CPI), which measures increases in the prices that people pay for goods and services in a particular period. In recent years, medical inflation has become higher than consumer price inflation. This is because medical inflation is driven by factors like population growth, ageing (people are living much longer now than they used to) and health complications, new medical technology being developed, new diseases that come about, the use of private healthcare services, etc.

Contribution increases must match expected medical inflation to ensure long-term sustainability and ongoing affordability. Lower increases means short-term affordability for members, but affects the scheme's ability to continually meet the costs of claims without high future contribution increases or benefit reductions. Higher increases lowers the risk of the scheme making operating losses but may lead to unaffordable contributions over time. Medical schemes must balance long-term sustainability of the scheme with ongoing affordability for members when deciding on the best contribution increase strategy.