OVERVIEW
If it seems like health care costs are increasing faster than prices for other goods and services, it’s because they are.
In the U.S., for example, the average price a large employer health plan paid for a laparoscopic appendectomy increased 136 percent from 2003 to 2016. The cost of a full knee replacement climbed 74 percent over the same period – compare that with overall inflation of 28 percent in the U.S. during the intervening timeframe.
The trend continues. While general inflation rates might still be modest in most of the world, employers across the globe can expect their employee medical costs to increase at a pace dramatically above that of local inflation in 2019.
In fact, according to Aon’s 2019 Global Medical Trend Rates Report, the global average increase in employer medical costs will be nearly triple the average rate of inflation in the year ahead.
Focusing on medical plan design, costs and procurement are only half the battle. As long as poor health habits among the population persist, medical costs will continue to rise.
In Depth
Around the world, more and more employers are offering medical plans, with the scope of the typical plan expanding as well. On the plus side for plan sponsors, cost containment measures and tightened medical goods and services procurement initiatives will reduce 2019 medical trend rates. Also known as “medical cost inflation,” the rates, relative to their 2018 level, will go to 8.4 percent this year. While the 2019 average global trend rate – both gross and net of inflation – is at its lowest level since 2013, medical trend rates continue to grow faster than the rate of general inflation, an anticipated 2.8 percent globally in 2019 and 3.1 percent this year.
Of the various factors driving continued medical cost increases, poor health habits are the primary driver. Poor lifestyle habits are expected to remain in the mix of medical cost drivers going forward.
“We expect continued cost escalation due to global population aging, poor lifestyle habits becoming more common in emerging countries, cost-shifting from social health care programs and the increased prevalence and utilization of employer-sponsored health plans in many countries,” said Wil Gaitan, senior vice president and global consulting actuary at Aon.
Key Medical Plan Features And Cost Factors
Aon research identified the most prominent medical plan conditions leading to claims. The most commonly reported were: inpatient hospitalization, 90 percent; outpatient care, 87 percent; prescription drugs, 78 percent; preventive medicine, 68 percent; dental, 67 percent; and vision care, 65 percent.
The research also identified the most important medical plan benefits reported worldwide. The most important programs were: hospitalization, 90 percent; clinics and labs, 80 percent; physician services, 73 percent; prescription drugs, 72 percent; and maternity, 42 percent.
The top reported conditions contributing to medical plan claims, according to Aon’s research, were: cardiovascular issues, 72 percent; cancer and tumor growth, 69 percent; high blood pressure and hypertension, 54 percent; diabetes, 50 percent; and ear, nose and throat, lung disorders and respiratory illnesses, 42 percent.
The most frequently reported medical risk factors identified by the research were: high blood pressure, 80 percent; high cholesterol, 52 percent; physical inactivity, 48 percent; bad nutrition, 44 percent; and obesity, 43 percent.
Not surprisingly, employers are taking a variety of steps to rein in medical cost increases. The initiatives most often reported were: wellness initiatives, 84 percent; cost containment, 78 percent; access and delivery restrictions, 53 percent; plan design changes, 50 percent; and providers networks, 38 percent.
To Control Health Care Costs, Promote Employee Health
Medical trend rates in many places might be at their lowest level in many years, but relative to inflation they’re still high. And as long as there are aging populations, overall declining health, poor lifestyle habits, continued cost-shifting from social programs to employer health plans and increased use of employer-sponsored plans, medical plan costs will continue to increase. To control cost increases employers must promote better employee health.
“Many of the global risk factors often lead to chronic conditions with long medical cost tails that make them expensive to treat and result in long-term medical cost increases,” said Tim Nimmer, chief health care actuary at Aon. “Employers can play a key role by motivating individuals and their families to take a more active role in managing their health, including participating in health and wellbeing activities and better managing chronic conditions.”
“A good place for employers to start addressing these challenges is the optimization of plan design, financial strategy and delivery mechanisms of their medical plans around the world,” said François Choquette, leader of Global Benefits at Aon. And data and analytics can help in the control of medical costs.
“We’re seeing the emergence of more sophisticated and broadly comparable claim data in several countries outside the U.S.,” Choquette added. “The data are foundational for employers who want to prioritize their interventions.”
To create a healthier workforce and reduce medical cost increases, health plans should focus on: providing high-quality treatment when needed, facilitating the management of chronic health conditions, reducing the risk of accidents and illnesses and educating and encouraging healthy behaviors among their employees.
“The structural solution for the long term involves the active promotion of a healthy workforce, beginning with robust health care benefits for all company employees and their families,” Choquette said.
*The global and regional medical trend rate averages were produced using a weighted process based on each country’s average private health care insurance expenditure per person with arbitrary adjustments for some countries in order to prevent over or under weighting; and a geometric averaging mechanism.
The trend rate figures, risk factors, and cost elements in this report relate to employer-sponsored plans and their participants with aggregate premiums managed by Aon of more than $166 billion.
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