Healthcare Inflation Pressures Malaysian SMEs
A business owner in Penang saw her company’s group medical insurance renewal in October come with a steep 13% increase in premiums, the highest rise she has faced in recent years. She is not an isolated case.
As reported by the Malay Mail in November 2025, “Malaysian firms could start cutting insurance coverage as healthcare costs skyrocket, with some smaller employers reducing outpatient benefits or imposing higher employee co-payments.” This issue highlights a growing challenge across the country. It adds significant strain on small and medium-sized enterprises (SMEs) that are already trying to manage cash flow and follow payroll regulations.
Medical inflation in Malaysia has been rising averaging between 10 to 14% every year, which is faster than both general inflation and salary increase. The 2025 Asia Employee Health & Benefits Report by Marsh McLennan highlights the main causes behind this trend. These include increasing hospital fees, more expensive medication, and a rise in outpatient claims.
What’s Causing Employee Benefit Costs to Rise?
1. Increased use of healthcare services after the pandemic
The 2025 Health Trends Report by Mercer points out that employees are relying on health benefits more often since COVID-19. Many are visiting doctors for preventive care and for treating chronic issues that went unaddressed during lockdowns.
2. Medical inflation pushing up insurance premiums
The Star (Sept 2025) stated: “Some insurers have raised group medical premiums by as much as 18%. This has led companies to either reduce benefits or make employees pay more.” This issue doesn’t just hit big companies — smaller businesses with tighter budgets feel it the most.
3. A challenging job market
While expenses go up, employees still want improved benefits. A survey by Mednefits 2025 found that 76% of Malaysian workers see health benefits as a top reason to join or stick with a company. Reducing benefits might lead to higher employee turnover extra hiring expenses, and lower morale.
The Effect of Rising Costs on Small Business Budgets
Small businesses, unlike big companies that work with insurers depend on shared plans. In these setups, if one group racks up high claims, it can lead to higher premiums for everyone in the pool.
Let’s look at an example with a company of 50 employees:
- An annual medical plan costing RM 1,500 per employee could hit RM 1,650 the following year—this is a 10% increase.
- Including benefits like dental, optical, and wellness perks, the overall costs might go up by RM 25,000 to RM 40,000 in just a year.
These rising expenses can weigh on SMEs that already operate on slim profit margins. It impacts their cash flow bottom line, and ability to plan salaries. To handle this, some businesses are trying out hybrid benefit options. These give more flexibility while maintaining good value for employees.
Expert Analysis: What Malaysian SMEs Are Doing About It
As stated by Marsh McLennan Benefits (Asia):
“Employers in Southeast Asia are rethinking how they design benefits. They are prioritizing well-being and managing costs by offering more flexible plans and using digital health tools.”
The 2025 Total Rewards Study by Mercer highlights that 44% of SMEs in Malaysia aim to renegotiate their group health contracts within the year. An additional 30% are introducing models where employees share costs such as splitting premiums between them and the company.
At the same time, Mednefits suggests using data analytics to monitor claim trends. For example, if workers visit clinics for recurring minor issues, wellness programs could help cut unnecessary visits.
5 Ways to Handle Employee Benefit Costs in 2025
1. Check and update your benefit plan every year
Look at how your benefits stack up against what others in your industry offer and how they match current market prices. Team up with an insurance broker who knows SME plans well and can secure group discounts using real claims data.
2. Add co-pays or create levels of benefits
To balance costs and keep employee trust intact, some businesses now use co-pay options (around 5–10%) for less critical medical needs. Others offer different levels of coverage depending on an employee’s job level or how long they’ve been with the company.
3. Focus on preventive care and wellness initiatives
Mercer and Mednefits both highlight that preventing health issues costs less than treating them. Provide yearly health check-ups support for mental well-being, and access to tele-consultations. These steps can lower claim rates by as much as 15%.
4. Use technology to monitor benefit spending
Small businesses can utilize cloud-based HR and payroll tools like Info-Tech Malaysia to organize details on benefit costs medical claims, and insurance updates in one place. Having this data helps companies modify agreements and predict future expenses.
5. Look into self-funded or mixed benefit plans
Rather than buying insured plans, some small businesses create their own health funds to offer basic health coverage. They rely on insurance for big medical needs. This way, they save on premiums but still ensure workers have protection.
The Balancing Act: Managing Costs and Retaining Talent
Healthcare benefits are more than just a bonus now. Businesses use them to keep employees. Mercer reports that giving flexible benefits can lead to as much as 30% higher employee satisfaction and help reduce turnover rates. On the other hand, cutting benefits without explaining why can damage how employees see the company. This is true for Millennials and Gen Z, who care a lot about their physical and mental health.
How Info-Tech Malaysia Supports SME Growth
Running employee benefits efficiently in 2025 takes more than basic tools. Many SMEs in Malaysia rely on Info-Tech’s HR & Accounting Software to make their processes smoother.
Using Info-Tech, businesses can:
- track medical claims and insurance benefits.
- Link leave balances, payroll, and deductions with cost reports for benefits.
- Create reports to predict how increasing premiums affect budgets.
- Stay compliant with SOCSO, EIS, and EPF rules while managing benefits.
Digitizing benefit details and cost tracking gives SMEs better insight into their spending. This helps them manage costs while still caring for employees.
| Healthcare and insurance costs in Malaysia are expected to rise by 10–15% in 2025. Small and medium-sized businesses are being pushed to rethink how they design employee benefits. Companies can handle these challenges by reviewing their plans every year keeping a close watch on costs using data and using automated HR tools such as Info-Tech Malaysia. |
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Frequently Asked Questions
What is causing higher employee benefit costs in Malaysia for 2025?
Medical inflation estimated to be between 10–14%, along with more people using healthcare services after the pandemic, is leading to more expensive insurance premiums and employee benefits.
How much are health insurance premiums going up for Malaysian employers?
The Star and Malay Mail report that premiums have increased by 12–18% in 2025. The increase varies based on the plan type and the company’s claims history.
How can SMEs manage rising employee benefit costs?
SMEs can compare plans every year to find better options. They can add co-payment features, prioritize health initiatives, and use HR tools to track claims and handle renewals.
Should SMEs cut benefits to save costs?
Yes, Info-Tech’s software complies with Malaysian money requirements, ensuring that your business follows local regulations.Experts advise against cutting benefits. Both Mercer and Mednefits suggest offering flexible or tiered plans instead of cutting benefits. This approach helps maintain employee satisfaction and motivation.
How can HR software help cut benefit costs?
Info-Tech Malaysia’s cloud tools collect claim details in one place, handle calculations, and show expense patterns. This helps small businesses make better deals and manage costs.