India’s medical costs continue to rise significantly above general inflation. According to the latest market reports, the medical trend reached 12% in 2024 and is projected at 13% for 2025, more than triple the general inflation rate of 4.2% observed in 2025. While the industry-wide incurred claim ratio (ICR) for health business saw a slight decrease from 88.2% to 87.0% for FY 2024-25, public sector insurers continue to face extreme pressure with an ICR of 100.6%. With out-of-pocket spending still accounting for 39.4% of total health costs, these persistent financial strains have led to tough tariff negotiations, sudden hospital network withdrawals, and public disagreements over allegedly unjustified claim denials or excessive treatment charges.

This paper by Joanne Buckle, Rachin Aggarwal, and Heena Arora sets out a practical, data-led approach to measuring medical inflation, demonstrates how a credible inflation index can help reduce conflict between insurers and hospitals, and emphasizes the need for collaborative models among insurers, hospitals, and regulators as a foundation for successful implementation.

This article was published in The Actuary India.