Medical Inflation Surges, Indonesia's Health Insurance on the Brink?

Amid rising public awareness and demand for health insurance, Indonesia’s health insurance sector is teetering on the edge. Uncontrolled medical inflation is eroding the resilience of the health insurance system, raising concerns about the sustainability of current business models.

The latest report from Sustainable Private Health Insurance in Asia, titled “Facing Inflation and Affordability Concerns as We Reduce Protection Gaps,” published by the Global Asia Insurance Partnership (GAIP), reveals that medical cost inflation now poses the greatest threat to health financing systems in Asia, with Indonesia among the most affected.

Data indicates that medical cost inflation in Indonesia will reach around 13.6% in 2025 (above general inflation). This figure places Indonesia at the top in the Asian region. Thailand ranks second with 13.1% medical inflation, followed by Malaysia at 12.5%, and Singapore at 11.5%.

However, unlike other countries, Indonesia faces additional pressures from low insurance penetration and high direct out-of-pocket costs, around 33%. The high out-of-pocket expenses, which according to the Financial Services Authority (OJK) amount to Rp175 trillion, signify that rising direct health costs are felt by the public.

The surge in medical costs directly impacts the profitability of the insurance industry. Indonesia’s health insurance claim ratio stands at about 86%, with the combined ratio exceeding 100%. This condition indicates that collected premiums are nearly depleted by claims. In some cases, companies have incurred losses and decided to shut down their health insurance businesses.

If this trend continues, industry players may aggressively raise premiums, reduce benefits, or even exit the health insurance business. Ultimately, the public suffers as access to healthcare services becomes limited.

One factor highlighted in the report is the unhealthy product design. The market has long been dominated by products without co-payments, without deductibles, and with overly broad benefits. This model encourages excessive consumption behaviour (overutilisation), which ultimately accelerates claim increases.

In the Asian region, several countries have anticipated this issue earlier. Singapore, for example, has strictly implemented co-pays and deductibles and maintains a hybrid system between public and private.

Thailand relies on a universal health coverage system and has reduced direct public costs to below 10%.

Meanwhile, Indonesia is still in a transitional phase, with health expenditure at only about 2.7% of GDP and the role of private insurance limited to around 14%.

Facing the Crisis

Furthermore, the report warns that without reforms, health financing systems in several Asian countries, including Indonesia, could face a crisis in the next 2 to 5 years. With current medical inflation rates and industry pressures, Indonesia is seen as accelerating towards that crisis point.

Through POJK Number 36/2025 on Strengthening the Health Insurance Ecosystem, the OJK is attempting to reform the health insurance ecosystem, among other things by implementing a 5% co-payment or co-sharing, establishing a Medical Advisory Board, and applying KAPJ (Coordination Among Health Insurance Providers).

Regarding the reforms underway in Indonesia, GAIP provides several notes. First, the policy-making process needs to involve stakeholders, including legislators. Second, refining the initial position can yield beneficial progress.

Third, providing options will allow directing many customers to choices that avoid no co-pay options due to cost. Fourth, the distribution and renewal processes for insurance may provide significant steps in reforms that affirm the insurance process can leverage benefits.

GAIP assesses that incentives are key, and co-pay is part of that environment. In an environment without co-pay, high medical inflation is unavoidable, making the health insurance business unsustainable.

In Indonesia’s case, the decision lies with insurance companies to price products either without co-pay or with a 5% co-pay.

If insurance companies focus on providing no co-pay products, for example, targeting high-income groups as the market, the companies will likely continue to see problematic results in the sustainability of their health insurance portfolios.