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The Actuary The magazine of the Institute & Faculty of Actuaries

Medical costs set to rise globally despite falling inflation rates

Global medical costs are expected to increase in 2017 despite average inflation rates appearing to fall, according to Aon Hewitt.

Poor health habits thought to be main driver of cost increases ©iStock
Poor health habits thought to be main driver of cost increases ©iStock

Their 2017 Global Medical Trend Rates report shows that the average cost for employer-sponsored medical plans is expected to increase by 8.2% in 2017 globally, up from 8.1% in 2016, while the average inflation rate is forecast to fall by 0.1% next year.

It was found that the scope of the provisions offered by these medical plans is expanding, such as additional procedures being covered and larger allowances for maternity benefits being permitted. The recent removal of tax exemptions for employee health checks in the UK has also shown that government policy can pass further costs on to employers and their workers.

Aon global consulting actuary, Wil Gaitan, said: “Medical cost trend rates continue to increase due to many factors, including global population aging, poor lifestyle habits in emerging countries, cost shifting from social programmes and the increased prevalence and utilisation of employer-sponsored health plans in many countries.

“Today's multinational employers are experiencing the increased costs and complexities across their organisations with lowered productivity levels due to the aforementioned factors.”

This latest research is based on reported data from professionals, clients and carriers across 90 different countries.

Projected medical trend rates are expected to vary significantly by region, such as in the Middle East, where it is thought that there will be a sizeable jump in average medical premium rates, while these are forecast to be lower across Europe in 2017.

Despite these variations, all regions’ costs are expected to exceed average regional inflation levels by at least 4%.

The average medical trend rates by region are:

Source: Aon
Source: Aon

Poor health habits are thought to be the primary driver of the cost increases, with the expected rise in future claims being primarily due to non-communicable diseases, such as high blood pressure, high cholesterol, and physical inactivity.

“Many of the factors driving the upward momentum for higher medical costs are ones that individuals can change when the appropriate support and programmes are available,” Aon’s chief health care actuary, Tim Nimmer, said.

“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 wellness activities and better managing chronic conditions that frequently drive higher costs for treatments.”

The report found that cost-sharing, managing provider networks, and making plan design changes were the top strategies for controlling costs globally, although they vary regionally.

However Aon believes that these approaches will become outdated in the future, and that regardless of the underlying medical insurance system, employers will continue to experience rising costs and a fall in productivity if these trends continue.

“Many of these approaches will not be as effective in the future, and employers will need to adopt more innovative strategies to mitigate costs and influence the health and wellbeing of their employee population,” Aon’s leader of global benefits practice, Francois Choquette, concluded.