Rising medical inflation tests Thai health insurers

Thailand’s healthcare inflation in 2024 was 15.2%, according to WTW, versus CPI of just 0.4% and a global average of 10.4%. That’s not a one-off. The consultants predict that Thai medical costs will rise by 14.2% in 2025, or nearly 13 percentage points above the January CPI reading of 1.32%.

Left unchecked, this threatens the booming private sector, which recorded a 13.7% increase in health and critical illness insurance premiums in 2024.

“Without sufficient premium adjustments or structural reforms, persistent medical inflation will continue to put pressure on insurers’ profitability and strain government funding for public healthcare.”

Victoria Ohorodnyk

Head of Analytics for Southeast Asia at AM Best

It also poses a risk to Thailand’s world-leading public health sector, given that two of the three public health insurance schemes, Universal Coverage Scheme (USC) and Social Health Insurance, contract with private health facilities to fill gaps in public provision.

“Without sufficient premium adjustments or structural reforms, persistent medical inflation will continue to put pressure on insurers’ profitability and strain government funding for public healthcare,” says Victoria Ohorodnyk, Head of Analytics for Southeast Asia at AM Best.

Critical illness excluded

Thailand’s insurance industry is wise to the danger and on 6 February the Thai Life Assurance Association (TLAA) announced a co-payment clause will apply to policy renewals and new policies from 20 March.

While copayment has been available as an option on the Thai market for some time, the difference with the TLAA’s change — which is backed by the Office of the Insurance Commissioner (OIC) — is it allows insurers to move select customers off the all-inclusive plan if their claims go over a predetermined level.

For example, policyholders who make three claims for general diseases with the total amount reaching 400% of the annual premium are also subject to co-payment in the subsequent year, although major surgery and critical illnesses are excluded.

“One reason medical inflation went up was because a lot of people abused their insurance claim.”

Thananan Sangnuan

Partner at DLA Piper

According to Thananan Sangnuan, Bangkok-based Partner at law firm DLA Piper, the copayment policy is meant to address the problem of managing fraud, waste, and abuse (FWA) in health insurance, which has increased 20% in Thailand since the Covid pandemic.

Sangnuan says that a basic problem in dealing with FWA in health insurance is that a doctor’s diagnosis is subjective, but Thailand also has a systemic problem of too much health care — sometimes — being prescribed.

“One reason medical inflation went up was because a lot of people abused their insurance claim. They might have a simple disease but because they only have good in-patient coverage they will work with the doctor to give an opinion that they should stay overnight.

That way they can claim on their inpatient insurance instead of paying the outpatient cost,” Sangnuan says.

Medical inflation is a problem across Asia — WTW may be predicting medical inflation in the mid-teens for Thailand in 2025, but this is still behind Indonesia (19.4%) and Malaysia (16.4%).

But for a number of reasons medical inflation is set to be more of an issue for Thailand, with Ajit Rochlani, Singapore-based Partner in Oliver Wyman’s Insurance Practice, saying that other countries in the region took action to control costs via compulsory copayment earlier. 

“Healthcare inflation issue is common across Southeast Asia. The percentages might vary by market, but it is a common industry problem.

One thing that separates Thailand is that other markets have introduced co-pay earlier and customers are adopting it, while Thailand is introducing it now,” Rochlani says.

Rapid ageing

An additional problem for Thailand is that it’s ageing faster than its regional peers. According to Krungthai Bank, by 2023, more than 20% of the Thai population was 60 or over — the standard definition of an ‘ageing society’. In contrast Indonesia is not expected to meet that metric until 2047.

Demographic change has been so rapid in Thailand that the elderly’s share of the total population has doubled in just two decades, while economic progress has stalled.

“One thing that separates Thailand is that other markets have introduced co-pay earlier and customers are adopting it, while Thailand is introducing it now.”

Ajit Rochlani

Partner at Oliver Wyman

Rochlani says this demographic change is placing an extra burden on Thailand’s healthcare system just as it is struggling to adapt to an extended period of elevated pricing.

“The issue of ageing is catching up faster in Thailand compared to other markets in Southeast Asia. What’s causing problems for Thailand is that the healthcare system is experiencing strains from multiple directions.

The underlying challenge is that the cost of treatment and medical supplies is going up. The second is that, because the population is ageing, they need more healthcare — it’s a double impact,” says Rochlani.

How to fund the country’s healthcare system is just one of many problems facing Thailand’s leaders as it faces the prospect of getting old before it gets rich and Sangnuan says that the issue of demographic change in Thailand is another factor in the decisions to bring copayment in.

“Copayment will over time reduce waste in the Thai healthcare system, which will help deal but it won’t change behaviour totally.

It also won’t deal with the problem of ageing in Thailand – as the country gets older the government will need to find more money to pay for healthcare and I think in part this is why the copayment change is being introduced,” Sangnuan says.

Thailand’s well-developed system of world-class private hospitals — the 2021 Global Health Security Index said the kingdom had the fifth best healthcare system in the world — has seen it become the leading medical tourism destination in Asia, receiving over a million foreign patients a year, or 90% of the entire Asian market.

Medical tourism

But while medical tourism may be good for private hospitals’ bottom line, it also contributes to the issue of medical inflation in Thailand, according to AM Best’s Ohorodnyk.

“Compared to regional peers such in Southeast Asia, Thailand’s health insurance system exhibits a higher degree of exposure to medical inflation due to a higher reliance on private healthcare and medical tourism, which inflates demand for high-cost treatments,” says Ohorodnyk.

Additionally, the country’s UCS may contribute to adverse selection within the private insurance market, as higher-risk individuals are more likely to seek private coverage to supplement state-provided care,” adds Ohorodnyk.

Unsurprisingly, given the multiple factors pressuring the Thai healthcare system, Ohorodnyk says the move to compulsory copayment would only have a limited impact on addressing Thailand’s medical inflation issue.

Despite these problems the Head of Analytics was positive about the outlook for premium growth in the Thai health insurance sector, which is supported by a number of the same factors which are driving price rises — namely demographic change.

“Indications suggest the health insurance segment will record low single-digit premium growth in 2025, continuing the growth trends in 2024.

Rising medical cost, increased health awareness, ongoing pressure on the public healthcare system and demographic shifts — such as an ageing population — will support overall demand prospectively,” Ohorodnyk says.

Billy Teh, Singapore-based Analyst at S&P Global Ratings, says that while compulsory copayment is new to the Thai market, it will only be imposed on an annual basis, meaning policyholders will be rolled off it as soon as they no longer meet the criteria.

As a result, Teh says he doesn’t expect the move to copayment will act as a bar to further premium growth in the Thai health insurance market.

“We believe only some might view copayment as a deterrent, while most rational consumers will still seek health insurance for its adequate coverage on medical claims.

We expect the changes to foster more responsible use of healthcare services and allow healthcare costs to be managed more effectively. Over time, this could potentially stabilise premiums and support the sustainability of the health insurance market in Thailand,” Teh says.

 Rochlani says the competitive nature of the Thai health insurance market means that different carriers will react to copayment in different ways, with life insurers that have high claims ratios using it to adjust their policy features to include copayment to control claims.

“But there are a number of smaller insurers who will see this as an opportunity to write more health insurance, and they would make their features more competitive in comparison to the established players in a way that helps them win market share,” Rochlani says.