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Health cost escalation still more than triple general inflation
The average cost increase for employer-sponsored health plans in North America and globally will dip slightly in 2015 but continue to significantly exceed general inflation levels, a new report from consultancy Aon Hewitt estimates.
The report reflects the medical cost trend expectations for 84 countries based on data reported by Aon clients and insurance carriers represented in Aon’s medical plan business portfolio.
The report shows that in 2015, medical costs globally are expected to increase by 10.15 percent before plan design changes and vendor negotiations—6 percentage points higher than the average inflation rate. In 2014, the average increase in medical costs worldwide was 10.34 percent. While the global cost trend is expected to slow, three regions—Asia Pacific, Europe and Latin America—are projected to see an uptick in escalating cost rates for 2015.
The drop in the medical cost trend is expected to be greatest in North America (the United States, predominantly, along with Canada), slowing from 8.5 percent in 2014 to 6.5 percent in 2015. While some contend this is a result of the Affordable Care Act, others cite the tepid economic recovery, while others point to the rise in consumer-directed health plans that promote cost conscious spending decisions.
Projected Average Medical Cost Trend Rates by Region
Medical cost increase rate
General inflation rate
Latin America and Caribbean
Middle East and Africa
Source: Aon Hewitt
“There are three fundamental factors driving what is now a long-established pattern of high medical plan cost increases for multinational companies, including ever increasing utilization of private medical plans—especially in emerging markets, the aging of the world population and a higher incidence of chronic conditions for the working population,” said Wil Gaitan, senior vice president of Global Benefits at Aon Hewitt, in a news release. “The problem goes far beyond the financials of medical plans—absenteeism due to these factors is resulting in mounting losses in output levels and drains in employee productivity.”
The report shows that the most prevalent conditions driving health care claims around the world were cardiovascular issues, cancer and diabetes. The global risk factors that are expected to drive future claims—and contribute to higher medical costs—included high blood pressure, poor stress management and high cholesterol.
There were a few notable difference by region. For instance, Canada reported a higher prevalence of claims related to mental health issues, while the Middle East and Africa reported more cases of high blood pressure. Asia Pacific and Europe also cited poor stress management as a global risk factor, while Canada and Latin America noted obesity.
“As learned from the U.S. experience, standard cost-management approaches will be insufficient to addressing anticipated future spiraling medical costs,” said Gaitan. “It is crucial for employers to ensure that effective health care benefits and health care education are available for all employees and their families, aimed at preventing illness and better managing chronic conditions, providing high-quality health care treatment, and encouraging the global workforce to adopt healthy behaviors.”
Maintaining a healthy workforce, he added, “will not only be the way to arrest steep medical cost increases, but also a business imperative for long-term success.”
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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