Employer medical costs to outpace inflation in 2019, reports Aon

by Leo Almazora24 Oct 2018

Employers around the world could expect their medical costs to surge by nearly 8% in 2019, faster than the general average inflation rate of 2019, according to a new report released by Aon.

The 2019 Global Medical Trend Report projects an average increase of 7.8% in medical and pharmacy costs faced by employer-sponsored medical plans in 2019, which is slightly lower than the 8.4% seen in 2018. The deceleration in costs was attributed to efforts such as employer cost containment measures, tighter procurement of medical goods, new health improvement initiatives, and lower rates of projected inflation worldwide.

The report forecasts significant differences in projected medical trend rates by region. Middle Eastern and African countries, as well as those in Latin America, are predicted to see the highest average medical premium rates of 13.7% and 13.2%, respectively; Europe and North America, meanwhile, are expected to experience single-digit premium rate increases, with Europe’s clocking in at 5.1% as the most modest rise.

Medical cost inflation in Canada is trending lower than both global and North American averages; the increase in 2019 is pegged at 6%, maintaining the same pace that was expected during 2017. With annual general inflation assumed at 2.1% for 2019, the net medical trend rate would settle at 3.9%

Benefit-providing Canadian employers should be happy to see a lower medical inflation rate compared to the rest of the world. However, Canadians still face some of the highest prescription drug costs globally. According to Greg Durant, senior vice president and chief actuary for Health and Benefits at Aon in Canada, those costs are the main driver of medical cost inflation for employers as provincial programs cover many core health care services.

“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,” Durant said. “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.”

Looking at different strategies adopted by companies around the world, Aon found that companies are still using traditional strategies that include adjusting plan designs, controlling unreasonable plan utilization, and negotiating premium rates with carriers. Programs to reduce chronic conditions, such as healthy eating, fitness, and screening programs, are also being adopted.

Cost containment was the most prevalent strategy in North America, the Middle East, and Africa. Employers in Europe, Asia Pacific, and Latin America, meanwhile, favoured well-being initiatives and preventive strategies more than their global peers.

As for the drivers of health care cost increases worldwide, Aon found an increasing impact from non-communicable diseases. Cancer, cardiovascular conditions, diabetes, and respiratory ailments were the most prevalent issues driving claims around the world.


Related stories: 
Canadian insurer to partner with Shoppers on medical pot program
What employers need to know in long-term disability insurance cases