How medical insurance benefits are being hit by rising costs

Inflationary pressures such as energy, the cost of materials and also the cost of new drugs are all having an effect on the price of medical cover

Medical inflation has been increasing in recent years, with it now at around 9% and rising. This can be blamed on wider inflationary factors such as fuel, materials and energy price increases. But the research and development of new drugs and medical techniques also affect the underlying inflationary factors.

The potential cost of new drugs is illustrated through the case of Teddi, a young girl who suffered from a genetic disease called metachromatic leukodystrophy (MLD). The NHS treated Teddi with a one-off treatment called Libmeldy, which extracts the patient's own stem cells, inserts a working copy of the faulty gene and infuses the stem cells back into the patient, providing a permanent cure.

Libmeldy is one of the most clinically effective medicines ever appraised by the National Institute for Clinical Excellence, but costs £2.87m. This cost is compounded by the increase in private provision due to capacity issues within the NHS.

Wider medical inflation

Private medical insurance (PMI) is also affected by the increase in wider medical inflation. While insurers may not rush to include staggeringly high-cost treatments such as Libmeldy within their approved ‘advanced therapies’ listings, the increase in wider medical inflation is felt widely.

Administration rates are increasing at higher rates than before and higher increases apply to claims funds. Insurers are reassessing how they fund Digital GP services as use has started to increase. Providers that separate out the cost of the Digital GP are seeing price increases of up to 30% for the benefit.

Increasing PMI premiums affects both the company providing the benefit and the member, who is paying Benefit In Kind tax on their company-paid premium and potentially funding the cost of cover for their family. While the impact of inflation on PMI may not be catastrophic, it is undeniably significant and worth considering when making decisions about employee benefits.

In conclusion, the rise in medical inflation and private provision and the potential cost of new drugs and treatments have significant implications for PMI.