Measuring medical inflation for health insurance portfolios in Belgium

We investigate the construction of medical inflation indexes. Such indexes can be used to update premiums of lifelong health insurance contracts. We compare the accuracy of the medical indexes currently applied in Belgium for private health insurance contracts with product-specific experience-based indexes. The latter enable to better capture product-specific systematic deviations due to medical inflation, but their application might raise some practical problems. Therefore, we propose an alternative way to construct medical inflation indexes. Several numerical examples are used to compare the performance of the newly proposed indexes with the experience-based and the current Belgian approaches. The conclusion drawn from these numerical examples is that the newly proposed indexes provide good approximations for the product-specific experience-based indexes without having their practical limitations.