Globally, Health Plan Costs Expected to Outpace Inflation

Upward pressure on premiums can be mitigated by plan design changes

By Stephen Miller, CEBS Jan 20, 2016

The average cost increase for employer-sponsored health plans in the U.S. will be 5.7 percent in 2016, up from 5.3 percent in 2015, according to a January 2016 forecast by consultancy Aon Hewitt. The general inflation rate, as measured by the U.S. consumer price index, is expected to come in at 1.5 percent for 2016, slightly below the 1.6 percent rate seen in 2015, bringing health plan premium hikes to nearly four times the general inflation rate.

The report reflects the cost trend expectations of employer-sponsored health plans in 90 countries, based on reported data from benefits professionals, employers and insurance carriers.

Health Plan Cost Trend Rates: U.S., Canada and Mexico

2015

2016

(projected)

Country

Annual General Inflation Rate

Annual Medical Trend Rate

Annual General Inflation Rate

Annual Medical Trend Rate

United States

1.6%

5.3%

1.5%

5.7%

Canada

1.9%

4.0%

2.0%

8.0%

Mexico

3.5%

9.3%

3.0%

9.7%

Source: Aon Hewitt 2016 Global Medical Trend Rates report.



While much of the cost trend is driven by forces such as new developments in drugs and technology, the upward pressure on premiums can be mitigated by plan design changes that promote cost-conscious use by employees, including a shift to consumer-directed health plans. By making benefit design changes and taking other steps, many employers have restrained their annual premium increases below the level forecast by insurers at the start of the year.

Another View

A recent survey by Mercer showed U.S. employers predict that, after making plan design changes, in 2016 the average health benefits cost per employee will rise by 4.3 percent—larger than then 3.8 percent average increase U.S. employers reported for 2015. But if they were to make no changes to their current health plans, these employers estimate their costs would rise in 2016 by an average of 6.3 percent, somewhat higher than Aon Hewitt's forecast.



Canadian Spike

In Canada, the average cost increase is estimated to be as high as 8 percent, Aon Hewitt found. If the forecast is correct, this would be the country’s largest medical cost increase since the mid-2000s.

“Organizations will need to react to the new reality of medical cost inflation through sound plan management,” said Shawn O'Brien, national business analytics leader for health and benefits at Aon Hewitt Canada, in Toronto. “But they cannot lose sight of longer-term, structural changes in the medical cost landscape—for instance, the aging workforce and the impact of non-communicable conditions like obesity and high blood pressure. Plan sponsors must not only respond today but also prepare for tomorrow” by encouraging healthier behaviors by employees and better managing their chronic conditions, O’Brien noted.

Global Trend

The average cost increase for employer-sponsored medical plans globally will be 9.1 percent in 2016—5.5 percentage points higher than the global average projected inflation rate of 3.6 percent.

Projected cost trend rates are expected to vary significantly by region, however. Both Latin America and the Middle East are expected to see double-digit average medical trend rates in 2016, while Europe and North America will experience trend rates just below 6 percent.

Health Plan Cost Trend Rates: Global Regions

2015

2016

(projected)

Region

Annual General Inflation Rate

Annual Medical Trend Rate

Annual General Inflation Rate

Annual Medical Trend Rate

Global

3.2%

8.7%

3.6%

9.1%

Asia Pacific

4.2%

10.4%

3.2%

9.4%

Europe

1.6%

5.7%

1.6%

5.9%

Latin America & Caribbean

6.9%

16.7%

11%

20%

Middle East & Africa

6.6%

13.3%

6.3%

11.6%

North America

1.6%

5.3%

1.5%

5.8%

Source: Aon Hewitt 2016 Global Medical Trend Rates report.

“Many of the factors driving global cost increases are directly linked to modern lifestyles, and their incidence can be significantly reduced if individuals modify their behaviors,” said Francois Choquette, global benefits practice leader at Aon Hewitt, in San Francisco. “Employers in every country need to accelerate their efforts at helping employees both understand their own health risks and motivate them to take steps to improve their health.”

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.

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