Medical Inflation in Asia: CFOs in Malaysia, Vietnam Should Plan on Higher Healthcare Cost in 2018 and Beyond

CFOs in Malaysia and Vietnam should plan on allocating higher budgets for health insurance into 2018 and the next three years if they want to retain their workforce and ensure they are productive and engaged.

According to the latest Aon Medical Inflation Index, the two markets will experience the highest increases in medical inflation in 2018-2021, at 132.4 points (Malaysia) and 164.5 points (Vietnam), respectively.

The median of the 11 economies surveyed is 82.7 points (Thailand), with South Korea (64.3), Taiwan (71.4), China (73) and the Philippines (74.2) well below the median.

Medical inflation in Hong Kong is forecast at 78.8 points, while that for Singapore is a higher 95.1 points.

Soaring medical costs

Aon, a global professional services firm that provides risk, retirement and health solutions, surveyed insurers that operate in Asia about medical costs and other healthcare issues in China, Hong Kong, Indonesia, Malaysia, Pakistan Philippines, Taiwan, Thailand, Singapore, South Korea and Vietnam.

The responses provided data for the Aon Medical Inflation Index (AMII), which includes an estimate of medical inflation in 2018 over 2017, and projected over the next three years (see table below).

Aon says the main driver of medical inflation is inpatient or hospitalization costs, stemming from the traditional belief in countries such as China that people need to seek treatment in hospitals rather than outpatient clinics to receive adequate care.

“There is evidence to suggest that patients suffering from chronic diseases are either not being screened early at the primary care level or are choosing to avoid outpatient treatment until their symptoms warrant inpatient intervention,” Aon adds.

Aon also points to the rise in investment by local and global investors in private hospitals, which charge higher fees than public hospitals. Despite the considerable expenses involved, rising affluence and increasing incidence of chronic disease such as cancer are driving consumers (including employees on company-provided healthcare plans) to these private-sector providers.

Malaysia and Singapore

Rising medical inflation does not mean that CFOs should necessarily authorize across-the-board spending in all markets in Asia, says Aon. Aging populations, urbanization and chronic disease are prevalent across the region, but there significant differences among markets related to regulatory environment, infrastructure, health risk factors, cost drivers and cultural norms.

For example, Malaysia has a “robust plan” to address the country’s healthcare needs. “We are more optimistic about the longer term medical inflation trend for this nation,” says Aon.

Singapore has also made progress in arresting medical inflation in the private system by improving healthcare claims administration, which has generated operational efficiencies that have produced substantial cost savings.

Other initiatives bearing fruit in Singapore include more effective use of provider networks at both outpatient and inpatient levels, use of generic pharmaceuticals, and government-supported deployment of wellness tools and resources to foster healthy workplaces.

Hong Kong

Hong Kong is “at an interesting tipping point,” says Aon. While the public system has been providing high standards of care at minimal cost in recent years, the bulk of doctors are choosing to operate in the more lucrative private system.

“Waiting times for specialists in the public system have blown out and affordability in the private sector is problematic,” says Aon. But it notes that medical insurers and employers are showing willingness “to implement cost management and wellness initiatives.”

“There is reason to be cautiously optimistic that Hong Kong will not experience a blowout in medical inflation that would threaten medical plan cost and benefits sustainability,” Aon concludes.