why do health insurance premiums increase

Why do health insurance premiums increase?

1. The ratio of the amount health insurance companies receive to the amount they pay out 

Health insurers change their tariffs on an annual basis based on their client portfolio.  

As an example, if the amount of claims last year was more than that they received in premiums from the clients, then the health insurer will alter their tariffs on the purpose of making the amount of premiums greater than the amount of claims they paid out. 

Since medical insurers are unable to use their financial reserves to cover the medical costs forever, they need to increase your premiums to override the rising healthcare costs. This is the reason why health insurance premiums increase every year. 

Fluctuations in premiums rely more on the usage of the entire customer base of your health insurance provider than your individual consumption of healthcare. Typically, your medical insurance premium will soar based on the generic rise applied to all the client pool rather than the increase in your medical service usage. Even if you have not used your health insurance so far, your medical insurance premium is going to rise because of the claims of other people to your health insurance provider. 

2. A rise in the number of chronic conditions 

A growth in the number of chronic conditions results in a huge increase in the costs of medical care. A rise in the number of obese people is another reason that leads to a higher number of chronic conditions which in turn raise the healthcare costs. So, health insurance premiums go up accordingly. 

health insurance premiums increase
Illustration of life insurance

3. Inflation 

A medical inflation refers to a rise in the cost of medical treatment. It is typically far greater than the generic inflation. As technology in the medical field has made advancements such as the sophistication of MRI scanners, there is an increase in the rate of medical inflation. This means a higher cost in MRI scans as well as other costs of medical treatment. As a consequence, your medical insurance premiums go up to be on the same page with the increasing healthcare costs in this regard.   

However, medical inflation applies differently in different countries. It is likely to be higher in Hong Kong or the United States. Therefore, health insurers provide medical coverage for different geographical regions adjust the tariff based on the location clients have selected. 

4. Medical Insurance Clients’ Demographics 

The rise in health insurance premiums are in direct relation to the demographics of the clients they cover. Medical insurers with a higher number of elderly clients tend to have more expensive premiums than younger insurers because more aging clients, as discussed above, mean more chronic conditions which in turn leads to higher healthcare costs and hence higher premiums for you.  

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