Understanding Medical Inflation and the Net Discount Rate for Medical Items on Damages Claims

Understanding Medical Inflation and the Net Discount Rate for Medical Items on Damages Claims

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The amounts of negligence claims against the South African government are projected to rise substantially soon. We argue that the medical inflation should be striped of contributions which are not related to cases, hence there is need to strip out these drivers of medical inflation as per case. In addition, we argue that there is need to determine the stationarity of net discount rate because if rate exhibit a unit root process, then there would be significant forecast error associated with assuming a constant rate. A stationary net discount rate implies the average can be used while nonstationary implies the current value should be used. We also comment on the implied interpretation of stationarity based on some high profile cases. Third, we discuss if the total offset hypothesis is applicable in South Africa. We comment on how recent cases regarding provision as opposed to financial settlement are currently being handled and how this has happened in other jurisdictions.

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