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Employer medical costs around the world expected to rise at nearly triple the rate of inflation in 2019, according to Aon report 

Medical cost inflation in Canada is trending lower than the global averages.


TORONTO, October 2, 2018 – Medical plan costs paid by employers around the world are set to rise nearly 8 percent in 2019, far outpacing average general inflation of nearly 3 percent. This, according to the 2019 Global Medical Trend Report released today by Aon, the leading global professional services firm providing a broad range of risk, retirement and health solutions. The expected average increase before plan changes in medical and pharmacy cost for employer-sponsored medical plans in 2019 of 7.8 percent is slightly lower than the 8.4 percent in 2018 due to employer cost containment measures, tighter procurement of medical goods, new health improvement initiatives and lower rates of projected inflation worldwide.

“While the 2019 medical trend rates are at their lowest compared to prior years – these are still extremely high. We expect continued cost escalation due to global population aging, poor lifestyle habits 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.

Projected medical trend rates vary significantly by region. Countries in the Middle East/Africa and Latin America regions will experience the highest average medical premium rates of any region at 13.7 percent and 13.2 percent respectively. In contrast, Europe and North America are projected to see average medical premium rate increases in the single digits, with Europe seeing the lowest rate of increase at 5.1 percent.

Distinctive trends in Canada For the second year in a row, medical cost inflation in Canada is trending lower than both the global and the North American averages. That is a reversal from multi-year trends earlier in the decade that had seen inflation approach global norms (approximately 8%). According to Aon’s analysis of extended health care plans, medical costs in Canada are expected to rise by 6.0% in 2019, which is essentially the same increase as was expected during 2017. Assuming an annual general inflation rate of 2.1% for 2019, the net medical trend rate is expected to be 3.9%.

A medical inflation rate lower than the overall global trend is welcome news for employers providing employee benefits in Canada. The future is uncertain, however. Canadians are still exposed to some of the highest prescription drug costs in the world. A move is afoot to explore a National Prescription Drug Plan, but no one is sure what form that plan could take, when it could be launched or whether all provinces would be participate. There are still many unknowns about this initiative, as it is only in the consultation phase at this point. Plan sponsors should continue with their current benefit and drug plan strategies, and start to contemplate changes only when more concrete information about any national program is released.

Canadians are fortunate to have access to new and emerging levels of care, but that access comes with a price. “In Canada, cost inflation is largely driven by expensive prescription drug therapies, since many core health care services are provided through provincial programs,” said Greg Durant, Senior Vice-President and Chief Actuary, Health and Benefits, Aon in Canada. “These therapies, while expensive, are also often game-changers in that they keep can keep employees active and productive to a degree that would be impossible otherwise.”

“While continued moderate cost inflation is good news, it is typically achievable only through good governance and close scrutiny of plan design and cost drivers. In our experience, employers looking to mitigate control cost increases and ensure sustainable utilization – all while balancing employees’ access to care - must examine the key characteristics of their employee population and determine the best solutions and plan management options going forward,” added Durant.

Poor Health Habits Primary Driver of Cost Increases Aon's report confirmed the increasing impact of non-communicable diseases worldwide on health care costs. Cancer and cardiovascular ailments, such as high blood pressure, diabetes and respiratory conditions, were the most prevalent health conditions driving health care claims around the world. Aon’s report also confirms the growing prevalence of risks from unhealthy personal habits around the world—such as high blood pressure, high cholesterol, physical inactivity, bad nutrition and obesity.

"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,” noted 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 well-being activities and better managing chronic conditions.”

Employer Strategies for Alleviating Medical Costs To mitigate costs, Aon’s report revealed that companies continue to use traditional strategies, such as adjusting plan designs, controlling unreasonable plan utilization and negotiating premium rates with carriers. The report also revealed that employers are being proactive and are increasingly creating programs to reduce chronic conditions, such as screenings, healthy eating and physical activity promotional programs.

These strategies vary based on region. For example, cost containment was the most prevalent strategy in North America, in the Middle East and Africa. Well-being initiatives, such as detection and education, as well as preventive strategies like vaccinations were more prevalent in Europe, Asia Pacific and Latin America.

“We are also seeing the emergence of more sophisticated and broadly comparable claim data in several countries outside the USA. This data is foundational for employers who want to prioritize their interventions,” noted Francois Choquette, leader of Global Benefits at Aon. “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. The structural solution for the long term involves the active promotion of a healthy workforce, beginning with a robust health care benefits for all company employees and their families.”

Methodology

Aon’s report reflects the medical trend expectations of employer-sponsored medical plans in 103 countries based on reported data from Aon professionals, clients and carriers represented in the portfolio of Aon medical plan business in each country.

 

Media contacts

For further information please contact the Aon media team: Alexandre Daudelin, +1.514.982.4910.

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